Professional Bio

Currently a candidate for USCPA and Master of Science in Finance at Johns Hopkins University. Areas of interest include Business Ethics, Auditing and Tax Management. A hard-working person with proven communication and cooperation skills, able to learn challenging topics quickly and work under pressure.  

 I believe that the most profitable business mode is an ethical one, while Accounting and Auditing should be reliable channels for investors to assess companies and make investment decisions. As a person who's interest mainly lies with accounting, an area where a lot of misconducts take place, my goal is to make contribution to a more reliable financial reporting system that investors can rely on.

Ethical Reflection on Globalization

1.    Definition and Background

With the development of communicating and transporting techniques, trading and investing activities across borders have become increasingly frequent. From this phenomenon, the concept of globalization was derived. According to the definition given by Globalization 101, globalization is the “process of interaction and integration among the people, companies, and governments of different nations”.

Cross-border trading and investment can be dated back to as early as the time of Silk Road; with the help of modern technology, the pace of development for globalization was largely increased. For example, Dobbs, Manyika and Woetzel (2015) indicated that the global capital flow in 2007 was 25 times larger than that in 1980. Globalization provides numerous amounts of opportunities by facilitating the mobility of capital, ideas, labor and resources. However, there has always been a dispute about whether the opportunities created by globalization are enough to offset the value it jeopardizes or not. For example, suppliers in Europe have been complaining that cheap products from Southeast Asia are taking their profits away. Similarly, there have been protests in the U.S. about immigrant labor causing local people to lose their jobs. In the following parts of this essay, moral arguments for opening borders and enabling free labor movements will be provided.

2.    Moral Arguments

Despite differences in culture, time and region, human beings share certain basic values as the foundation of their moral systems. Those values are referred to as moral orientations. Since these criteria will not vary greatly with external factors, the six aspects of moral orientations will be used as outline for presenting moral arguments for globalization.

2.1   Care

Globalization promotes the communication of information and the mobility of resources, which allow people in remote areas to have access to resources such as medicine, doctors and educational materials. As Safran indicated in 2013: “globalization has imposed positive impacts on the morbidity and mortality indices in African countries.” Similar cases can be found in places such as Pakistan as well. Since the establishment of China-Pakistan Economic Corridor, the average level of health care, education, trading and resources sharing in both countries saw considerable improvements (Sina Finance, 2015). Therefore, globalization is in aligning with the moral value of care for general human beings.

2.2   Sanctity

Cohen suggested in 2013: “basic moral rights exist when people have a moral duty to respect the sanctity of life by avoiding injury or risk to others, or to give aid to those in need”. As discussed in 2.1, globalization promotes the average level of health care and human benefits, and it makes resources more easily accessible to those in needs. Therefore, globalization is in consistent with the concept of respecting life sanctity.

2.3   Authority, loyalty

Currently, the public has low trust in global corporations’ ethical behaviors (Sorscher, 2013). However, the author also indicated that new international trading agreements put high emphasize on ethical issues, and as long as we focus on “balanced, accountable, legitimate, sustainable, democratic governance, with a strong moral footing. We can do globalization right”, and preserve moral authority and loyalty.

2.4   Liberty

Out of question, globalization facilitates liberty by enabling free trading, mobility of labor and sharing of resources. It promotes the idea that opportunity, whether for individuals or corporations, should not be limited by geographic characteristics.

2.5   Fairness

According to Devictor, globalization has not necessarily increased equality, but it has provided more people with the equal chance and access to resources. As long as we implement the concept of globalization in the right way, it will increase fairness.

Live Case Minute

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What is Corporate Social Responsibility (University of St.Gallen, Switzerland)

How Mission Statement Helps A Company Achieve Balance Among Social, Environmental and Commercial Performance

            Thompson mentioned In Moral Well-being that collective unconscious is no longer considered as merely a metaphorical concept, and moral capabilities and moral development are social phenomena. This theory is further supported by Harari’s idea that large numbers of strangers can cooperate successfully by believing in common myths. To put it in another way, if a story (myth, or fiction) is told convincingly enough, it can reform the moral capabilities and direct the actions of a social group. 

             The most obvious application of this theory is the missions statements of companies nowadays. By stating a story about the company in its mission statement, such as who we are and what we do, the company sets up a fictional idea that it believes in. Of course this serves the purpose of attracting people who believe in similar ideas, but a more important function of it is convincing those who do not. Those people are the potential customers, employees and stakeholders that can help the company grow. Human value is at the heart of a business's success. Therefore, if the company has a positive standing, then once more people are convinced by the company’s story, together they can “cooperate successfully” and have a positive impact on the society as a whole.

               In addition, a proper mission statement can help tackle the ethical dilemmas that are troubling the business world nowadays. For example, if a financial institution emphasizes in its mission statement that it believes in making profits without harming the interest of the public and it does show the efforts to live up to that norm, then its employees (“the social group that believes in common myths”) are more likely to make the right choice when facing ethical dilemmas. In this case, the moral capabilities and development of those employees are affected or reformed by a common idea that they believe in. If moral nature facilitates human flourishing, and human flourishing is both the means and the ends of economic development as Thompson suggested, then a mission statement that has positive ethical indication is not merely a superficial effort, but an idea that benefits both the moral capabilities of the company’s employees and the actual business development.

Moral Compass

Personal Integrity Statement

Moral Compass is a tool for establishing general moral framework by connecting cognitive moral theory with concrete moral fitness and performance. Moral compass applies to individuals, organizations and communities. Therefore, when facing moral dilemma, individuals refer to moral compass as benchmark and guidance. By doing so, they gradually clarify personal morality and integrity. Collectively, diverse members who utilize moral compass to define their personal integrity contribute to moral solidarity and social conscience in the community.

In constructing my moral compass, I draw from traditional Chinese culture as Wisdom Tradition. There are three characteristics that I value the most: honesty, diligence and love for others. Honesty earns trust and diligence is the premise for success. Love and caring for others teach us to be selfless and helpful to those in need. One thing I question about this Wisdom Tradition is its idea of avoiding expressing too much. There was a saying in ancient China: “Great minds never talk too much.” This is true to some extent, but it can lead to loss of opportunities and ineffective communication in today’s society.

Moral Compass

1.     Moral Vision

My vision of a good life is one that not only satisfies my own needs but also benefits others. The values that anchor this moral vision are generosity, kindness and selflessness. The symbol that inspired this moral vision was a famous piece of jade in ancient China. It took the shape of a circle with carvings that represent harmony. People in ancient China believed that happiness is true only when shared with others. Therefore, using this kind of jade artworks as presents back then was a sign of peace and kindness. There was a saying in ancient China: “One should love other people’s parents as if they were their own parents, and one should care for other people’s children as if they were their own children.” This idea of selfless love from my Wisdom Tradition deeply influenced my moral vision.

2.     Moral Code

There are mainly three principles of my moral code. First of all, try not to cause inconvenient for others. Secondly, help those in need within personal ability. Finally, keep an empathic and understanding mind. Following these three principles makes it easier for me to realize my moral vision of making some contribution to others. My moral code was derived from behaviors that are considered as honorable in ancient Chinese culture.

3.     Moral Fitness

The first practice is cultivating critical consciousness. I will practice my ability to assess small moral dilemmas and identify moral claims and obligations in each situation. This will help shape my personal integrity by improving my ability to identify moral issues at an early stage. The second practice is engaging in conversation with people who share similar core values with me, such as friends, colleagues and classmates.  This will cultivate my personal integrity by giving me practice in talking about my moral values and examining moral contradictions and conflicts.  All these practices align with my moral vision and moral code because they help me develop more comprehensive personal integrity and better ability to identify and tackle moral dilemmas. These are the premises of offering effective help to others. In traditional Chinese culture, anyone who aims at the bigger picture should start from details. In addition, exchanging wisdom and learning from each other through discussion have always been promoted by traditional Chinese culture.

4.     Defining Moment

When I was doing my internship at an Accounting firm in Hong Kong, I witnessed a moral challenge. The way my supervisor handled it modeled my understanding of business morality.

According to the Accounting year-end date set by our firm, we must make sure that the tax authority receive our tax return by June 14^th, otherwise we would be subject to late penalty. However, two hours before the close of business on June 14^th, 2014, the staff responsible for mailing the tax return forms realized that he had forgotten to do so. It was obviously too late to mail the forms, and it generally took more than two hours to get to the tax department from our firm due to traffic condition. The responsible staff reported the situation to our supervisor, who happened to know an acquaintance at the local tax department. Our supervisor contacted that person immediately, and was told that as long as we send out the tax return forms within the next 24 hours, he would give us a pass on the late penalty. Everyone at the office was relaxed to hear that, but our supervisor said: “That’s not how we handle things around here.” In the end, he partly took the subway and partly ran to the tax department himself and managed to submit the tax return forms in time.

This challenge defined my moral values because of the admirable business morality my supervisor displayed. It’s relatively easy to do the right thing when there are no other alternatives: because you just do not have a choice. However, not everyone can manage to stick to the right decision knowing there is a much easier option available. It taught me that righteous business people should be consistent in their actions whether they are being watched or not, and whether they will be caught or not. This is exactly the idea expressed in traditional Chinese culture. I would not change anything about the script for this even in life, because it has established a perfect model for me to look up upon.

Future as a business leader

Human is at the core for any business. The relationship among employees, suppliers, customers, and external authoritative people must be handled carefully in order for the business to be successful. In addition, it is very important for business leader to establish a moral model and create positive moral atmosphere for employees. By doing so, when other moral challenges come up, the employees are more likely to follow his example and make ethical decisions.

Ethical Tax-saving Approaches for Foreign Investors to Invest in the U.S. Real Estate Market

1. Introduction:

With the recent turmoil in China’s stock market, Chinese investors are becoming increasingly interested in safer, more stable and more secure investments, such as the U.S. real property. However, there are many obstacles to investing in a foreign real estate market, and the differences between the tax rules in the U.S. and that in investors’ home countries are also confusing.

This article will present approaches for foreign investors to save tax while investing in the U.S. real estate market.

2. Definitions:

      To avoid potential confusions, definitions of certain words used in this article are given below.

·      Foreign investors: "non-resident alien" (NRA) is the U.S. government's name for a citizen of a country other than the U.S. who also lives outside the U.S. However, the term can also refer to citizens of a non-U.S. country who are temporarily residing in the U.S. In this article, the example of Chinese investors is used as an introduction, but the approaches can be applied to foreign investors in general.

·      U.S. Real property: Real Property usually includes the following:

o   Land, real property improvements (e.g., buildings, other permanent structures, and their structural components)

o   Leasehold interests, and un-severed natural products
of land (e.g., growing crops, timber, mines, wells, and other natural deposits)

o   Personal property associated with the use of real property, such as moveable walls, furnishings, mining equipment, farm tractors, drilling rigs etc. Exceptions include: the personal property is: a. disposed of more than one year before or after the disposition of the real property, or b. separately sold to persons unrelated either to the seller or to the buyer of the real property.

·      Passive income (non-ECI):  non-ECI refers to fixed, determinable, annual or periodic income derived by a foreign investment or business activity. Passive income is subject to 30% tax withholding on a gross basis unless reduced by applicable tax treaty. In case of gain from sale, buyer is required to withhold 10% of the gross amount realized to ensure collectability.

·      Effectively connected income (ECI): ECI refers to income “connected to a trade or business, and is taxed on a net basis at the graduated tax rates that apply to any US citizen, resident or entity.

3. Tax-saving approaches to invest in U.S. Real Estate Market:

3.1 Net basis elections

       A foreign investor “who derives income from real property but does not engaged in any U.S. trade or business (e.g., the investment is raw land or net leased property) ”is allowed by Code §§ 871(d) and 882(d) to “elect to be taxed on a net basis at graduated rates as if the income were ECI ”.

       Compared with being taxed on gross basis, Net basis election is beneficial because it relieved investors of the 30% tax on gross rents and allows investors to deduct substantial expenses (e.g. depreciation, interest) associated with the real estate. Therefore, the taxable basis and tax expense under Net basis election will be largely reduced. Exceptions include:

·      Interest income on a debt obligation secured by a mortgage on U.S. real property;


·      Rental income from personal property;

·      Income from real property that is not held for the production of income (e.g. personal residence).

3.2 Real Estate Investment Trust (REIT)

      A REIT is an entity that meets certain technical requirements and that elects REIT status. One important tax-saving feature of REIT is that the dividends payments made to shareholders are tax deductible. In addition, gains realized from selling U.S.-controlled REIT are not subject to tax. Therefore, investing through REIT will save foreign investors tax expenses. Requirements to qualify as a REIT as follows:

·      At least 90% of net income exclusive of capital gains must be distributed to shareholders.

·      Minimum owners’ number is 100, “no five or fewer individuals may own directly or indirectly more than 50% of the total value of the REIT stock”.

·       At least 75% of the total value of the REIT’s assets must consist of cash, real estate, loans secured by real estate, or U.S. government securities.

·      At least 95% of the REIT’s gross income must be composed of interest, dividends, and rents from real property, plus six other specified sources of income.

·      75% of the REIT’s gross income must consist of rents from real property, interest on loans secured by real estate, and seven other sources of income.

·      REITs must adopt a calendar year as their tax year.

   Gains on disposal of shares in a foreign-controlled REIT by foreign investors are subject to tax as ECI. However, if such shares are publicly traded and the investor owns or owned a 5% or less interest, such gains are still tax-exempt.

3.3 Non-recognition Provision under IRS

      Section 1001(c) of the Internal Revenue Code (IRC § 1001(c)) stated all realized gains and losses must be recognized “except as otherwise provided in this subtitle”.  The three most significant non-recognition provisions are:

·      Like-kind exchange:

It refers to a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset. A like-kind exchange on the basis that the form of the taxpayer’s investment changes while the substance of the investment does not. In a like-kind exchange, the realized gain or loss usually never disappears; rather, the unrecognized gain or loss typically carries over into the new asset.

·      Transfers between spouses and certain former spouses:

No gain or loss shall be recognized (therefore no tax or tax benefit would be imposed) on a transfer of property from an individual to (or in trust for the benefit of)

(1) A spouse, or

(2) A former spouse, but only if the transfer is incident to the divorce (such transfer must occurs within 1 year after the date on which the marriage ceases, or is related to the cessation of the marriage).

3.4 Reduced withholding tax.

         According to IRS, the foreign person disposing of a U.S. real property interest may have the 10% withholding reduced if certain conditions are met and Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, is timely filed and accepted by the IRS. Such conditions include:

·      The disposition of the U.S real property interest takes place under one of the non-recognition provisions of the Internal Revenue Code (further discussed in 3.3).

·      When the transferor’s maximum tax liability on the disposition is less than the amount otherwise required to be withheld.

·      The transferor or transferee enters into an agreement with the IRS by posting a type of security (letter of credit, bond, etc.).

·      The transferor or transferee may enter into a 12-month agreement with the service to obtain a “blanket withholding certificate” for multiple properties.

3.5 Utilizing the “Rebuild America Partnership” plan

       One proposal of the plan was to give foreign pension funds approximately equal treatments with U.S. pension funds by “exempting gains recognized by foreign pension funds from the disposition of a U.S. real property interest”. This means that foreign investors can sell U.S. real property via foreign pension funds without having to pay any taxes on gain realized.

4. Conclusion

     In lights of the discussion above, Net Basis Elections and investing through REIT seems to be the most efficient ways for foreign investors to avoid taxes when investing in the U.S. real estate market. However, foreign investors should conduct cost-benefit analysis with each approach to decide which one fits them the best.

    

  

References

Deloitte. (2014). Introduction to the taxation of foreign investment in U.S. real estate. Retrived from: http://www2.deloitte.com/us/en/pages/tax/articles/introduction-to-the-taxation-of-foreign-investment-in-us-real-estate.html

Madan, A. (2014). Avoid paying US Estate Taxes by setting up a two-tier partnership. Madan Chartered Accountant. Retrieved from: http://madanca.com/blog/avoid-paying-us-estate-taxes-setting-two-tier-partnership/

Rucci, B. (2014). Structuring foreign investment in U.S. real estate. Russell Bedford. Retrieved from: http://www.russellbedford.com/index.php?option=com_content&view=article&id=997:structuring-foreign-investment-in-us-real-estate&catid=91:features-and-analysis&Itemid=90