Question

Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to find out what happened to the cheese sandwich—but, rats!, even recourse to the Freedom of Information Act didn’t help. However, the forecast proposal was dusted off, polished up and found quite serviceable. The SEC, indeed, lost no time in running it up the old flagpole—but no one was very eager to salute. Even after some of the more objectionable features—compulsory corrections and detailed explanations of why the estimates went awry—were peeled off the original proposal.

Seemingly, despite the Commission’s smiles and sweet talk, those craven corporations were still afraid that an honest mistake would lead them down the primrose path to consent decrees and class action suits. To lay to rest such qualms, the Commission last week approved a “Safe Harbor” rule that, providing the forecasts were made on a reasonable basis and in good faith, protected corporations from litigation should the projections prove wide of the mark (as only about 99% are apt to do).

Instructions

1. What is the purpose of the “safe harbor” rule?

Short answer

The purpose of the safe harbor rule is to insulate a business from liability.

Step-by-step solution

Meaning of Safe Harbor rule

A safe harbor is aclause in a law or regulation that indicates that certain conduct is not regarded to be in violation of a specified norm. To put it another way, the safe harbor laws provide a window for taxpayers in terms of transfer pricing provisions, allowing the income-tax authorities to accept the transfer pricing revealed by the taxpayer in certain instances.

Explaining the purpose of the safe harbor rule

The goal of a safe harbor regulation is to insulate a business from liability if it makes an incorrect forecast, as long as the projections were made with reasonable care and disclosed in good faith. The safe harbor rule concerns businesses because a jury's view of reasonable may differ from a company's or, for that matter, the SEC's.