Tax Break

Essential tax and accounting news: “dozens” of corporate tax breaks in play, private equity taxation debated around the world, and Swiss banks’ new model

February 15, 2012

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee, February 14, 2012. REUTERS/Yuri Gripas

The top tax and accounting headlines from Reuters and other sources:

* Tentative deal reached to preserve cut in payroll tax. Jennifer Steinhauer – The New York Times. Members of a House-Senate committee charged with extending a payroll tax reduction and providing added unemployment benefits reached a tentative agreement Tuesday evening, with Republicans and Democrats claiming a degree of political victory in a fight with significant election-year implications. One day after House Republican leaders said they would offer a bill to extend the $100 billion payroll tax rollback for millions of working Americans without requiring spending cuts to pay for it, the Congressional negotiators struck a broader deal that would also extend unemployment benefits and prevent a large cut in reimbursements to doctors who accept Medicare. A vote on the measure would most likely happen by Friday. But senior aides warned that negotiators still had to sign off formally on the agreement and that obstacles could surface given the long-running tensions over the measure. Link

* Obama plan would end dozens of business tax breaks-Geithner. Kim Dixon and Rachelle Younglai – Reuters. The Obama administration’s corporate tax reform plan would end “dozens and dozens” of tax breaks, Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy. Within days, the administration intends to unveil a blueprint aimed at eliminating inequities in the corporate tax system and lowering the top rate. Companies, which pay wildly different levels of taxes, are clamoring for a cut in the corporate tax rate – which tops out at 35 percent – but disagree about how to strip out preferences that benefit selected industries. Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich. Link

* Calpers to buyout funds: Give up carried interest. Michael Corkery – The Wall Street Journal. California Public Employees’ Retirement System’s investment chief urged private-equity industry executives to abandon the fight to preserve a lucrative tax break on much of their income or “risk becoming the robber barons of the 21st century.” At issue is the tax break known as carried interest, which gives private-equity and venture-capital executives a relatively low 15 percent tax rate on much of their income because it isn’t taxed like ordinary income. “It’s indefensible,” Joe Dear, who oversees investments at the $230 billion pension fund, said Tuesday in an interview. “They risk becoming the robber barons of the 21st century if they are not careful. And that is an unfortunate characterization of private equity.” Link

* Pressure rises on private equity bosses’ tax. Daniel Schafer and Richard McGregor – The Financial Times. Pressure is rising across the globe to raise taxes for private equity bosses, with German and Swedish authorities pushing for legislative changes and a leading US pension fund investor calling the 15 per cent rate in America “indefensible”. Both the German and Swedish governments are considering proposals to lift tax rates for on the industry’s profit-sharing schemes, in what private equity executives say is likely going to trigger similarly sweeping changes across Europe. In Germany, four regional governments are studying a plan to remove an exemption clause which allows only 60 percent of a private equity manager’s profits to be taxed. In Sweden, tax authorities are pushing key executives from Nordic Capital, IK and Altor to retrospectively pay a 56 per cent rate of income tax. Link

* A hard transformation for Swiss banks. Anita Greil – The Wall Street Journal. These are challenging times for Swiss private banks. The latest U.S. crackdown on tax havens underlines the reality that the secretive Swiss bank model, which has existed for decades, is likely on its way out. Clients who are forced to declare their assets want good returns, rather than being content with simply shielding holdings from tax authorities. For banks, this means an increased focus on investment advice, which requires heavy spending on information technology and personnel to adapt to a new environment. Such investments will stretch some banks financially, resulting in more mergers and acquisitions, where bigger banks snap up the small boutiques. Link

* Facebook in line for $5 billion tax bill. Richard Waters – The Financial Times. Around half of the stock benefits that Facebook has handed to its employees since 2005 are set to vest six months after it goes public, meaning that workers will be able to sell the shares – though the event will also trigger an immediate tax bill. Facebook itself will cover that bill, withholding the equivalent of 45 per cent of the value of the restricted stock to be paid to tax authorities. It plans to sell shares to meet that bill. The large personal tax payment comes on top of a $1.5 billion to $2 billion tax bill that founder Mark Zuckerberg faces on his own stock option profits this year, and could see a big slice of Facebook’s total 2012 share sales end up in the pockets of the tax ­authorities. Link

* The big number: 9. Maxwell Murphy – The Wall Street Journal. The PCAOB has settled 42 investigations since 2005, but only nine of those settlements have required the audit firm or accountants involved to pay monetary penalties. Six of those nine settlements, however, have come since the beginning of last year, accounting for almost $3.7 million of the nearly $4.8 million in penalties the board has imposed to date. Link

* Picking up Obama’s gauntlet on taxes. Holman Jenkins – The Wall Street Journal opinion. Mitt Romney might give his candidacy some life with a straightforward promise: Tax reform will deliver prosperity, and I will deliver tax reform. His campaign would finally have a theme for its pudding. It would also have the inestimable additional benefit of challenging the central myth of President Barack Obama’s political persona. Let us quickly acknowledge that the phrase “dishonest political rhetoric” is often a case of using three words where two will do. Obama blazes no trails in this regard. You might even say he and Romney deserve each other in the fall, since both are — and we mean this in the most respectful way — utter political fakers. But nonetheless it’s past time that somebody challenged Obama on the claim, so central to his presidential appeal four years ago, that he is a pure soul who transcends partisanship. Link

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