Don’t underestimate the level of change for hospitality groups from the expected FASB condorsement process and new IFRS standards.
US GAAP vs. IFRS
Currently, several key accounting differences still exist between US GAAP and IFRS that could have major impacts on the hospitality sector. These include:
- Accounting for leases, property, plant and equipment
- Customer loyalty programs
- Revenue and impairment
Critical joint projects to align how US GAAP and IFRS account for leases and revenue recognition are expected to be completed in 2012. But with implementation of these reporting changes expected to be mandated starting in 2015, it will still be several years at least until directly comparable financial information is available for the analyst, investor and financing communities.
It is also unclear whether the boards will actually achieve convergence on such joint projects as financial instruments before the SEC makes a decision about convergence with IFRS.
Don’t underestimate the level of change for hospitality groups from the expected FASB condorsement process and new IFRS standards. This change will require the establishment of cross-functional project teams that incorporate key stakeholders to ensure a smooth and efficient transition.
International tax considerations
It is critical to consider different tax regimes when you invest globally because the success of an investment can be significantly influenced by taxes.
Generally, it is important to distinguish between direct taxes, such as income taxes or withholding taxes, and indirect taxes, such as value-added tax (VAT), transfer taxes and stamp duties or property taxes.
While the structure and nature of investments may vary significantly, there are three broad strategies to consider when seeking international hotel investments, which include:
- Establishing a local corporation to own the property
- Acquiring management and franchise agreements as opposed to acquiring the real estate
- Utilizing a foreign company as the owner or lessor of the property
Different investment structures have diverse and complicated tax effects in different countries. It is especially important to understand these effects when entering into new markets.
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