Financial Regulatory Forum

from Tales from the Trail:

The wishful thinking behind a repatriation tax holiday

By Ryan McCarthy

The opinions expressed are his own.

Big U.S. multinationals have a strange sense of timing: apparently, now is the ideal time to fight for a tax holiday. The New York Times on Monday had an in-depth look at the topic of a repatriation tax holiday, with lovely charts and a helpful video detailing the myriad ways corporations cut their tax bills by stashing profits overseas. Given the clamoring about lack of demand in the economy, the deficit talks and swollen corporate cash holdings, the lobbying push seems poorly timed at best.

New York Times' David Kocieniewski is rightly skeptical of the effort that’s currently backed by even tech titans like Apple and Google. He ferrets out an NBER study that excoriates the results of an abysmal 2004 dalliance with a repatriation tax holiday, which the study finds, led to little actual hiring and investment in the U.S. The appeal of a repatriation tax holiday is that large U.S.-based corporations could temporarily see much of their taxable income fall to 5.25 percent -- the rate often paid through overseas subsidiaries -- from 35 percent, the U.S. corporate rate. In theory, this windfall would temporarily prevent corporations from stashing profits overseas, bring in tax revenue, create jobs and spur investment.

And while Kocieniewski spends nearly 2,000 words on the issue, he doesn't mention specifics of the actual legislation in play, which make the latest tax repatriation push seem just as unpromising as its predecessor.

The "Freedom to Invest Act" -- a title that couldn't be more ironic given the state of corporate coffers -- makes at best only a cursory attempt to do better than its 2004 version. Introduced by Rep. Jim Brady (R-Texas), the bill has gained nine co-sponsors, including Democrats like Colorado's Jared Polis and Tennessee's Jim Cooper.

The key difference in the current version of the repatriation push seems to be a taxable income penalty of $25,000 that would be assessed to corporations that lay off employees within two years of the tax holiday. The penalty is meant to punish corporations that repatriate overseas profits, then simply pay that money to their shareholders and do little or no hiring.

from The Great Debate:

Taxing spoils of the financial sector

If you want less of something, tax it.

That truism is often used as an argument against a tax on profits, or health benefits, or employment, but in the case of the rents extracted from the economy by the financial services industry here's hoping it proves more of a promise than a threat.

The International Monetary Fund has put forward two new taxes on banks to pay the costs of future rescues, one of which is a fairly conventional "Financial Stability Contribution," with an initial flat levy on all banks, to be refined later into something with more precise institutional and systemic risk adjustments.

More interestingly, the IMF is also proposing a "Financial Activities Tax," (FAT) a tax on bank pay and profits which, if correctly designed, could serve as a tax on rents -- the unwarranted spoils -- of the financial sector.

Australia tax body may harden stand on private equity

   By Victoria Thieberger
   MELBOURNE, April 21 (Reuters) – The Australian tax office has delayed two critical rulings on how private equity firms are taxed, in a move that tax experts say means the office is hardening its stance against private equity. (more…)

from MacroScope:

A “Greed Tax” on banks

The International Monetary Fund has done what it was bid by the G20  and come up with proposals for getting banks to pay for the government help they receive when they get in trouble.  You can read the actual wording here, but it comes down to this:

Cat1) A "Financial Stability Contribution" which would be pooled into a fund that would use it to help weak banks, or just go into general government revenues.

2)  A "Financial Activities Tax" -- perhaps intentionally known as FAT -- to be levied on combined bank profits and remuneration (for which read "bonuses") and paid to governments.

U.S. government to enhance municipal market regulation

    WASHINGTON, March 2 (Reuters) – The Internal Revenue Service has agreed to work more closely with the Securities and Exchange Commission to regulate the U.S. municipal bond market, the IRS said on Tuesday, adding the two federal agencies had signed memorandum of understanding. (more…)

ANALYSIS-Private equity firms brace for tax battle

   By Megan Davies and Kim Dixon
   NEW YORK/WASHINGTON, Feb 7 (Reuters) – Private equity firms are again being threatened with higher taxes, as a long-running debate over how to classify their profits again becomes a focus for governments desperate for cash. (more…)

Liechtenstein may sign other tax deals – paper

Crown Prince Alois sees further deals

Crown Prince Alois sees further deals

   ZURICH, Feb 5 (Reuters) – Liechtenstein may negotiate agreements with countries similar to the one it has with Britain, Crown Prince Alois was quoted as saying in a Swiss newspaper on Friday. (more…)

EU economy, tax nominees may face second grilling

By John O’Donnell

BRUSSELS, Jan 14 (Reuters) – One of the European Union’s top lawmakers has said she may demand a second hearing to quiz the bloc’s designated tax and economics chiefs before the committee she leads decides whether to approve their appointments.

The remarks by Sharon Bowles, who leads the influential economic and monetary affairs committee, cast uncertainty over the line-up of the next European Commission, in particular the would-be tax chief, who has already faced criticism.

“I would have liked more questioning time with him,” Bowles said of Algirdas Semeta, the Lithuanian candidate to take charge of EU taxation whose answers at a European Parliament hearing were described by socialists as unconvincing.

Italy says considering further tax amnesty

    ROME, Dec 15 (Reuters) – Italy’s government is considering a further tax amnesty following this year’s amnesty, which is scheduled to expire on Tuesday and expected to raise up to 4.0 billion euros in windfall tax revenues. (more…)

Banks expected to swallow most of new UK bonus tax

By Steve Slater

LONDON, Dec 11 (Reuters) – Banks are likely to swallow the bulk of the cost of a shock UK tax on bonuses unveiled this week, rather than pass it on to staff or find loopholes, as more countries join the clampdown on payouts, industry experts and sources said.

Britain slapped a special 50 percent tax on bank bonuses on Wednesday, provoking outrage across the industry and raising fears that London will lose talented staff and business to rival financial centres.

But France looks set to follow with its own one-off tax and Germany and other countries may clamp down on the free-wheeling bonus culture that critics say fueled the financial crisis. If more follow, it could reduce the impact on London and also prompt banks to absorb most of the cost, experts said.

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