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SINT MAARTEN (PHILIPSBURG) – “Benjamin & Parker Corporation in its duty to inform the SXM (Ed Sint Maarten) business community on how to manage the 2017 financial statements and the extraordinary calculations necessary to allocate the precise damage suffered hereby presents an article outlining the real time situation, Terrence Jandroep from Benjamin & Parker said in a statement on Monday.
“It’s a tragic situation when an unexpected Act of God, results in financial losses. The material losses (physical) are devastating and the physiological impact is enormous however, we must have resilience actions to regain the commercial name brand recognition and market position in order to secure business continuance.
“The extraordinary condition is not outlined; described or specified in the Federal Tax Law in regards to the approach in which the Tax Office will handle taxation methods in such critical situation or a pre-defined mathematical method to compute the “real damages” scope of the losses for deductible purposes within the fiscal environment. Unfortunately the methodical damage measurement burden relies solely on the taxpayer.
“Fact is that if the specialist is not aware of the day to day science to make the incorporeal losses sustainable for deductions the taxpayers will be exposed to higher unnecessary taxations. Bookkeeping example:
Profits up to May 2017= $50.000,= (Income Statements as per May 2017)
Hurricane Irma June 5, 2017, total devastation.
Assets loss: $20.000
Accounts Receivable: $10.000,=
Taxable Income:
| Income statement 2017 | $ |
| Income up to May 31,2017 | $ 120,000 |
| Costs up to May 31, 2017 | $ (70,000) |
| Provisional Profit | $ 50,000 |
| Write off | |
| Assets | $ (20,000) |
| Accounts receivable | $ (10,000) |
| Net Profit 2017 | $ 20,000 |
| Taxes 34.5% | $ (6,900) |
| Equity Addition | $ 13,100 |
“Based upon the example it is clear that you have lost everything and still owe $6,900 in taxes. In addition to the taxes the net worth of your company is completely depleted. The main question is what your company’s worth in a before and after the calamity incident, the time lapse to recover and reinstate the value prior to the natural disaster.
“Operation Liabilities and tax debts of the company due to an act of God are not exempted by the suppliers meaning the current credit purchases are legally sustainable for 5 years (Civil law) and 10 years (in accordance with article 17 of the General Tax Ordinance).
“The Federal Tax Legislations or Ordinances do not outline the permitted magnitude of financial damages. In addition the proof of evidence remains with the management of the company. Common practice dictates that there are 3 types of financial damages:
- Damage caused by a third party (Fraud, embezzlement, intentional damage or quality noncompliance)
- Damage cause due to negligence (mismanagement)
- Damage by Natural Disasters
“In order to determine rightfulness to declare the financial damages the Tax office is compelled to determine the following conditions to accept or dismiss the declared deductibles:
- Responsibility
- Accountability
- Own Risk
“In many Court cases the 3 conditions are analyzed to have the right to claim damages attributed to a third party. In case of a natural the losses are automatically absorbed by the company.
“The material damage is one aspect of the losses, but how do we measure the following components:
- Loss of strategic location
- Loss of clientele
- Loss of trained employees
- Loss of market position
- Loss of cash flow
- Loss of earning capacity (envisioned market)
- Loss of equity (net worth devaluation)
“The other question is how much resources are necessary to gradually regain the same commercial strength as before the natural disaster. The correct mathematical calculation of the before and after the fact Net Worth is fundamental to allocate the real losses as a Recovery provision which is 100% tax deductible. For the calculation the Risk Auditor needs to determine the following: Company’s yearly growth (Financial statements), Uncommitted cash flow projections, and Estimate the recovery based upon the actual cash flow.
“The tax office may contest the fiscal allocation due to long term irreversible un-collectability of taxes but the magnitude of the real losses are not: Fictitious, Questionable, and Incorporeal.”
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