Counterparties: Industrial-strength tax avoidance

February 19, 2013

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Everyone loves corporate tax reform these days. In his state of the union speech, Barack Obama called for closing corporate tax loopholes; the G20 and OECD say they’re also on the case. The US and Switzerland are vowing to share more information, as a part of the 2010 Foreign Tax Compliance Act, which intends to do pretty much what its title suggests.

Tim Fernholz cites a recent report that says the US lost between $57 billion and $90 billion in revenue in 2008 thanks to overseas tax shifting. That’s real money: the sequester of cuts Congress is arguing over are worth $110 billion.

But finding that money is easier said than done. Whether it’s John Paulson’s reinsurance company in Bermuda, Dell’s MBO, David Einhorn’s idea for extracting value from Apple, or even Starbucks classifying coffee-roasting as manufacturing, tax avoidance is an entrenched global industry, endemic to all multinational corporations.

The Economist’s new cover package reveals the magnitude of the problem globally: there’s a “missing $20 trillion” stashed in offshore in a patchwork of 50-60 tax havens, ranging from Delaware (home of “dodgy shells”) to the Seychelles (“shadier” and reportedly favored by Russians and Africans).

Amid all this heat, the tax-avoidance industry is working on a rebranding: “‘Offshore’ is considered pejorative, ‘tax havens’ unmentionable”, the Economist writes. The preferred nomenclature is “international financial centre”. — Ryan McCarthy  

On to today’s links:

Popular Myths
No, there aren’t any global “currency wars” – Economist

China’s army is said to be behind a number of cyberattacks on the US government – NYT

Data Points
“4% of the internet counts as entertaining rubbish” – Robert Cottrell

Advanced Strategy
Morgan Stanley’s tried and sure to fail new plan: get traders and bankers to work with retail brokers – Dealbook

New Normal
Our historically weak recovery in three charts – Ezra Klein
The world’s developed nations need to start having more kids right now – WSJ
How robots are eating the world’s manufacturing jobs – Quartz
Horsemeat, brought to you by a Russian arms dealer – Guardian

Why it’s time to update the GOP’s Reaganism – Ramesh Ponnuru
Reaganomics was a failure for the middle class – Paul Krugman

Regulators probably don’t appreciate snark – FT Alphaville

Blatant PR Pushes
“I supply you with fully developed stories that you can publish under your byline” – Jim Romensko

Possibly Useless Data
77 people say they don’t have cable – Dan Frommer

Strangely Existential
Most stocks, like most people, fail to live up to expectations – Ivan Hoff

Nearly 10,000 Americans will lose access to AIDS drugs under the sequester – WaPo

The art of the good bad review – Irish Times

Big banks are still getting used to this “we may have to admit guilt” thing – Dealbook

Financial Arcana
Value-destroying acquisitions: a good reason to discount cash on corporate balance sheets – Credit Slips

Right On
Nearly 150,000 people have watched this video of Elizabeth Warren going hard at bank regulators – YouTube

“Black men in their 20s and early 30s without a high school diploma…[are] more likely to be in jail than have a job – NYT

Diamonds and gold worth $67 million stolen from Swiss-bound plan – Evening Standard


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