Tax Break

Essential tax and accounting reading: Barclay’s tax schemes, GM’s tax break, Swiss compromise, and a 75 percent French tax

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Swiss lawmakers set for tax plan vote. Katherina Bart – Reuters. Swiss lawmakers are set to back a tax proposal with the United States on Wednesday in a move which could pave the way for Switzerland to settle a U.S. probe into Swiss banks and hidden offshore accounts. The lower house will vote on a proposal clarifying how Switzerland would hand over data on Americans suspected of dodging taxes at home. The proposal, which passed the upper house in December, seeks to backstop an expected deal over U.S. probes into 11 banks including Credit Suisse and Julius Baer. Link

* French front-runner pledges 75 percent tax bracket. Gabriele Parussini – The Wall Street Journal. French presidential front-runner François Hollande said taxpayers earning over 1 million euros ($1.34 million)a year would be subjected to a special 75 percent tax bracket should he be elected, underscoring heightened interest across Europe in raising taxes on the wealthiest individuals. Speaking on French television late Monday, the Socialist candidate lamented the “considerable increase” in French corporate executives’ pay, which he put at €2 million a year on average. His proposal caused an uproar in the ruling UMP party, and surprised even Hollande’s own advisers. President Nicolas Sarkozy pointed to the “appalling amateurism” of his opponent’s proposals. Link

* Barclays’ tax plans clash with sentiment. Megan Murphy, Sharlene Goff and Vanessa Houlder – The Financial Times. Has Barclays’ attempt to avoid more than 500 million pounds ($791.93 million) in UK tax dealt a lasting blow to the bank’s nascent efforts to put better citizenship at the heart of a new feel-good corporate agenda? The British Revenue & Customs’ announcement that it has closed down two “highly abusive” schemes designed by the bank has thrust Barclays’ tax practices back into the spotlight, at a time when the bank is trying to rebuild its reputation with politicians and the public. Barclays’ insiders say they are genuinely shocked by the government’s announcement, emphasising that both schemes had been signed off by the bank’s professional advisers and were voluntarily disclosed. Link

* The other GM bailout. The Wall Street Journal editorial. Corporations in the red, as General Motors was for years, are allowed to carry forward net operating losses that reduce their future tax liability when they are making money. GM had accumulated about $45 billion in such profit-shielding chits by 2008, with a book value of about $18 billion. The point is to prevent companies from buying assets solely for tax arbitrage or tax avoidance. But starting in 2009, Treasury began to issue regulatory “notices” that suspend this law when it comes to Treasury-owned stock. The provisions also apply to AIG and Citigroup. President Barack Obama crowed yesterday about GM’s “highest profits in its 100-year history.” We’d be interested to hear how its effective tax rate compares with Warren Buffett’s secretary’s. Link

* What Mitt lost while he won. Ross Douthat – The New York Times opinion. Mitt Romney’s campaign decided last week to have him come out for the first time with a big tax reform plan of his own. In its broadest strokes, the plan isn’t terrible: It promises lower rates and a broader base, which is the goal of just about every sensible tax reform proposal, and it cuts rates for most taxpayers, not just businesses and the rich. But the Romney campaign has declined to explain exactly how the cuts will be paid for, offering vague promises of loophole closing and spending cuts that suggest a return to supply-side irresponsibility. If left unrevised and unaddressed, this irresponsibility threatens to demolish the pillars of Romney’s general-election argument. First, it will make it considerably harder for him to attack the White House’s record on deficits, which would otherwise be a central part of the case against the president. Second, it will make Romney’s own vision for entitlement reform easy to demagogue and dismiss, since President Obama will have grounds to argue that his opponent only wants to cut Medicare and Social Security in order to cut taxes on the rich. Both of these problems, needless to say, will be exacerbated if Romney continues to be unable to talk about his wealth in anything save the most clueless and flatfooted fashion. Link
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($1 = 0.6314 British pounds)

Democrats peg Buffett rule to expiration of Bush tax cuts

Democrats are hoping to peg their White House-proposed thirty percent tax on millionaires to major end-of-the- year fiscal deadlines — including the expiration of tax cuts for all Americans. They hope that will box Republicans into a corner.

Known as the Buffett rule, named for the billionaire investor who famously complained that his tax rate is lower than that of his secretary, the proposal has virtually no chance of moving on its own with Republicans in control of the U.S. House of Representatives and Democrats with only a razor-thin majority in the Senate.

Democrats hope that the looming expiration of tax cuts for all individuals enacted by former Republican president George W. Bush will motivate them. Plus polls show many Americans back raising taxes on the rich.

Canada warns on Chinese audit problems

Downtown Shanghai in haze. REUTERS/Carlos Barria

Having stirred up controversy in the United States, audit practices at China-based companies now are testing the patience of Canadian regulators.

In a special report, Canada’s audit regulator has come down hard on the quality of audits of Canadian-listed companies with operations in China, while voicing frustration at problems in getting documents.

“In too many instances auditors did not properly apply procedures that would be considered fundamental in Canada,” the Canadian Public Accountability Board said in its report last week.

Senator Levin unhappy with Facebook’s pending $3 billion tax break

Even before it’s become a public company, web giant Facebook’s has caught plenty of government attention, much of it around the company’s taxes and the impact its billions in stock options are likely to have on the tax coffers.

Today Senator Carl Levin, long active on tax issues, took to the Senate floor to point out the many things he dislikes about the company’s expected tax picture, hoping to tap into broader discussions about the need for greater fairness in the tax code.

On the heels of a California estimate that it could haul in $2.5 billion in income taxes over the next five years as Facebook workers cash in stock options, Levin is highlighting the corporate tax implications of all those stock options.

Essential tax and accounting reading: California’s Facebook tax windfall, Big Four in China, GE’s taxes, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* California likes Facebook IPO tax possibilities. Vauhini Vara – The Wall Street Journal. California could reap a tax windfall of as much as $2.5 billion from Facebook Inc.’s initial public offering, a state analyst said Monday, in the first official forecast of the IPO’s impact on the cash-strapped state. The offering is forecast to bring in $500 million of income-tax revenue through stock sales in fiscal 2012, ending in June, followed by $1.5 billion in 2013 and $450 million from 2014 to 2016, according to a report from the Legislative Analyst’s Office, a nonpartisan government entity that advises the legislature. Facebook has planned for an IPO this spring. Link 

* Barclays at center of UK tax avoidance clampdown. Steve Slater – Reuters. Barclays Plc said it was the bank at the centre of a clampdown by Britain on two tax avoidance schemes that the government said would close loopholes and raise more than 500 million pounds ($792 million) in tax. Barclays said it notified Britain’s tax office about its plan to buy back its own bonds, on which it and other banks have made hefty profits in recent years. Tax avoidance is legal, but the Treasury said on Monday the scheme and another one were “highly abusive.” Link  

* “Big Four” auditors brace for big changes in China. Rachel Armstrong – Reuters. The Big Four global audit firms, which dominate the Chinese market, are negotiating with Beijing to lessen the impact of forced changes that could mean only accountants with Chinese qualifications can be partners in their audit practices. The overhaul comes at a delicate time for an audit industry reeling from a rash of accounting scandals at Chinese companies. Any reduction in the audit capacity of KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers (PWC) would increase foreign regulators’ and investors’ concerns about Chinese auditing. Link

Essential tax and accounting reading: Pushing a U.S. tax overhaul, Germans volunteering to sort out Greek taxes, Santorum’s plan, and more

U.S. Republican presidential candidate Rick Santorum addresses supporters during a campaign stop in Michigan. REUTERS/Rebecca Cook

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tangled tax code primed for pruning. John McKinnon – The Wall Street Journal. President Barack Obama’s business-tax-overhaul plan underscores the growing likelihood of a serious effort to revamp the nation’s much-criticized tax system, no matter who wins the White House. The question now isn’t whether a tax rewrite will happen, but how far it will go, and whether it will stop at business rules or also extend to individuals. Increasingly the answer appears to be that the entire tax code, all 70,000 pages, could be in play. Powerful dynamics are reducing the significance of partisan differences. One is the expiration of Bush tax breaks at the end of 2012. A broad tax overhaul could give each party a way to break the cycle of short-term tax extensions that is frustrating businesses and individuals. Another is the government’s grim fiscal situation. Many Democrats and even some Republicans see a streamlined tax system as a way to generate more revenue. Link

* Plans for US manufacturing may yield more votes than jobs. Andy Sullivan – Reuters. U.S. factories are hiring again, and Democratic President Barack Obama and some of his Republican rivals are pitching tax breaks to fuel a rebound in manufacturing and help rebuild a battered middle class. Economists on the left and the right say promises to bring back factory work may yield more votes than jobs. Industry experts say the United States is long past the days when steel mills, auto plants and machine shops boosted millions of unskilled Americans into the middle class. Economists say the middle class would benefit more from efforts to boost the economy as a whole, rather than a particular sector such as manufacturing. Link 

Tax and Accounting Calendar

A worker arranges a saree drying after dyeing in a village south of Kolkata REUTERS/Rupak De Chowdhuri

Some events in the week ahead:

Monday, February 27 – Tuesday, February 28
The Practicing Law Institute will sponsor a two-day program in New York featuring speakers from Treasury and the IRS on a number of topics including investment adjustments, accounting issues, Treasury Department developments, inter-company transactions, and tax attributes and consolidation.

Tuesday, February 28

* The Public Company Accounting Oversight Board will hold an open board meeting at its offices at 1666 K Street NW in Washington DC and via web conference to consider proposed standards on related parties, significant unusual transactions and other matters. Starting at 9:30 AM.

Essential reading: Romney to explain tax plan, AIG to take tax breaks, rising stakes for Japan’s sales tax, and gas taxes drop

Window shopping in Tokyo's Ginza district REUTERS/Toru Hanai

Welcome to the top tax and accounting headlines from Reuters and other sources.

•    Romney narrows the gap on Santorum. Richard McGregor in Washington and Anna Fifield in Mesa, Arizona – Financial Times. Republican presidential hopeful Mitt Romney will outline his tax plans in a speech in Detroit on Friday that has been moved from a ballroom in the city convention center to Ford Field, home of Detroit’s football Lions, to accommodate an expected large crowd. It’s his first detailed outline of the economic and tax plan he would take into the November election and it comes four days before the Michigan and Arizona primaries. Link

•    Giving tax edge to manufacturing carries risks. Kathleen Madigan – The Wall Street Journal. The U.S. tax code is a mess. Favoring one sector over others will only make it messier. U.S. President Barack Obama and GOP candidate Rick Santorum recently released proposals that would give manufacturing enterprises a tax break. Santorum advocates factories pay no federal income tax at all. The goal is to make manufacturing a contributor of economic growth and a provider of middle-class paying jobs. The unintended consequences, however, are likely to be businesses gaming the system for a cheaper tax rate and a government policy that values some jobs over ones that are needed more. While certain employees, companies and regions will benefit, the U.S. economy as a whole is unlikely to be better off from the proposed tax changes. Link

•    AIG profit surges on tax benefit. Erik Holm and Serena Ng – The Wall Street Journal. American International Group Inc. reported profit of $19.8 billion in the fourth quarter, thanks to a large tax benefit the bailed-out insurer booked after predicting it can keep generating profits in coming years. AIG recognized $17.7 billion in tax benefits in the last three months of 2011. AIG’s tax boost came about from the reversal of write-downs it had taken to lower the value of its deferred-tax assets, which are unused tax credits and deductions that can be used to defray future tax bills. The insurer had taken those write-downs starting in 2008, when it suffered huge losses during the financial crisis. What changed, AIG said, is that it expects to report sustainable future profits that will enable it to use its deferred tax assets after all. Link

Marriages end, but taxes are forever

A couple may have split, but that’s no reason to send more than necessary to Uncle Sam, explains Reuters personal finance editor Lauren Young. In this video she walks through the question: who should take the kids as a tax deduction? YouTube Preview Image

What is a roof? The IRS needs to know

Actor Paul Newman (L) and Elizabeth Taylor are shown in this undated publicity photograph from their 1958 film "Cat On A Hot Tin Roof." REUTERS/Handout (UNITED STATES)

“Maggie ‘the Cat’: You know what I feel like? I feel all the time like a cat on a hot tin roof.  (from Tennessee Williams, “Cat on a Hot Tin Roof”)

The Internal Revenue Service has its own problem with roofs these days. An IRS employee in Atlanta sent a letter last week to his own agency asking what exactly qualifies as a roof. Shingles? A waterproof cover?