Tax Break

Essential reading: Chinese airlines, Swiss banks and more

February 6, 2012

Air China planes on the tarmac of the Beijing Capital International Airport. REUTERS/David Gray

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

* China bars airlines from EU tax plan. Simon Rabinovitch – The Financial Times. The Chinese government has barred the country’s airlines from complying with a European Union charge on carbon emissions, escalating a dispute that officials have warned could turn into a trade war. Chinese airlines had previously said they would not pay the EU carbon tax, but the formal prohibition by the State Council, or cabinet, puts Beijing in direct opposition to Brussels. China has notified all Chinese airlines that, without government approval, they cannot join the EU emissions trading scheme or charge customers extra because of it, state-agency Xinhua said. The impact on Chinese airlines with routes to Europe was unclear. Although the EU’s carbon scheme went into effect for airlines on January 1, Brussels has not started charging them yet. Link to The Financial Times.

*Julius Baer expects to deliver client data in U.S. probe. Katherina Bart – Reuters. Swiss private bank Julius Baer said on Monday it expects to have to hand over client data as part of a U.S. tax investigation into wealthy Americans who stashed their money in Swiss banks to avoid paying taxes. “We expect to have to deliver client information within the regulatory framework that will be agreed between the two governments,” Chief Executive Boris Collardi told analysts and media on Monday following 2011 earnings. Link to Reuters.

* Its chief’s big tax bill may benefit Facebook. David Kocieniewski – The New York Times. Few billionaires are willing to reveal much about their taxes. But the Facebook co-founder Mark Zuckerberg has indirectly done so in the documents for his company’s public stock offering later this year. Zuckerberg, 27, one of the world’s youngest billionaires, plans to exercise stock options with an estimated value of $5 billion ahead of the offering. That could create a stunning tax bill of $2 billion. Although Internal Revenue Service officials declined to discuss where it might rank, Mr. Zuckerberg’s bill would most likely be among the highest ever for an individual. The 400 wealthiest filers paid an average of $48 million in federal income taxes in 2009, according to government data. Link to The New York Times. 

* Tax break increases deficit, but may have silver lining. Binyamin Appelbaum – The New York Times. A corporate tax break for buyers of computers, engines and other equipment is proving surprisingly popular, depriving the federal government of tens of billions of dollars in expected revenue and increasing the amount it will need to borrow this year. But there may be a silver lining. The tax break aims to stimulate investment, and it seems to be working. Corporate spending on equipment has grown faster than any other category of economic activity over the last two years, raising the pace of overall growth. And the government projects it will eventually recoup about 80 percent of the money because companies that benefit now often face higher taxes later. The surprising results highlight the difficulty that policy makers face in predicting both the costs and the benefits of government policies. Efforts to stimulate the economy have been particularly contentious, with critics arguing that the government has little power to influence businesses, and that the costs would be greater than expected. In this case, it appears that those critics were only half right. Link to The New York Times. 

* As fiscal clouds lifts, mayor offers a budget free of tax increases or broad layoffs. David Chen – The New York Times. Mayor Michael R. Bloomberg, seeking to stabilize New York City’s finances after years of budget crunches and economic woes, proposed on Thursday a spending plan that was as routine and as free of drama as any in recent memory, with no tax increases or layoffs of teachers, police officers or firefighters. The mayor’s budget relies on a $29 million increase in revenue from fees and fines. He would increase fees for street activity permits, generating nearly $1 million, he said. And he would establish a new fee for building inspections from the Fire Department, generating an expected $8.4 million. Bloomberg also projected that the Finance Department would increase tax revenue by $25 million through more aggressive auditing of high-end tax returns. Link to The New York Times. 

* What to do with leftovers in 529 plans. Georgette Jasen – The Wall Street Journal. Most parents worry about not having enough money in their 529 savings plans to pay for their kids’ college expenses. But sometimes you can end up with more cash in these accounts than you need—if, say, a child doesn’t go to college or attends a state school rather than a private university. Say there is money left over in a 529 account because your child got a big scholarship that reduced his or her college costs. In that case, money withdrawn would be subject to tax on the earnings but the 10 percent penalty would be waived, as long as the withdrawal doesn’t exceed the amount of the scholarship. The penalty on withdrawals also would be waived if the beneficiary dies or becomes disabled. Unless you need the money in a 529 account for something else, there is no rush to make a decision. In most plans, you can leave funds in the account to grow tax-free indefinitely. Link to The Wall Street Journal.

* At 102 percent, his tax rate takes the cake. James B. Stewart – The New York Times opinion. Meet Mr. 102 percent. James Ross, 58, is a founder and managing member of Rossrock, a Manhattan-based private investment firm that focuses on commercial real estate and distressed commercial mortgages. “I realize I am very fortunate, and in fact I am a member of the 1 percent,” Ross wrote in an e-mail. His résumé is studded with elite institutions: Yale, Columbia Law School and stints at the law firms Cravath, Swaine & Moore in New York and Holland & Hart in Denver. Since his company fits the category of private equity, he even has carried interest, the kind of incentive compensation that enabled Mitt Romney to pay such a low tax rate. Yet Mr. Ross told me that he paid 102 percent of his taxable income in federal, state and local taxes for 2010. But his total tax as a percentage of his adjusted gross income was 20 percent, which is much lower than mine. That’s because Ross has so many itemized deductions. Link to The New York Times.

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