Tax Break

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

February 28, 2012

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

* Spat between tax group, GE highlights hurdles to tax overhaul. John McKinnon – The Wall Street Journal. In a dispute that underscores the difficulty of overhauling corporate taxes, Citizens for Tax Justice said General Electric Co., which has been criticized for paying little or no federal income tax in 2010, paid a 11.3 percent effective tax rate last year while the company said its U.S. tax rate was a far higher 25 percent. In a release on Monday after GE released its annual report, Citizens for Tax Justice said it calculated that GE’s effective federal income was 11.3 percent in 2011, undermining the company’s claim that its tax payments would return to normal after the recovery of its GE Capital unit, which suffered big losses during and after the downturn. The top U.S. corporate tax rate is 35 percent, among the world’s highest. GE said its 2011 tax rate in the U.S. was 25 percent and its global rate was 29 percent, up from 7 percent the year before. Link  

* Swiss must give more client information – Raiffeisen. Reuters. Switzerland might have to accept an automatic exchange of bank client information with the European Union if its strategy of trying to defend bank secrecy with a withholding tax fails, the head of cooperative Raiffeisen was quoted as saying on Tuesday. Pierin Vincenz, chief executive of Switzerland’s third biggest bank Raiffeisen, said the country’s strategy of seeking a separate tax deal with individual European partners could falter if it agrees to hand over large amounts of U.S. client data. Link 

* Tech CFOs don’t really trust R&D tax credit, survey says. Emily Chasan – The Wall Street Journal. The majority of technology company chief financial officers say the U.S. government’s research and development tax credit does not play a big role in their decisions, according to a new survey on Monday. The credit, which expired at the end of last year, is estimated to save U.S. companies about $6 billion a year in taxes. But in a survey of 100 U.S. chief financial officers from accounting firm BDO USA, 68 percent of the CFOs polled said the R&D credit barely had any impact on their research activities, mainly because it’s not something they can rely on. Link  


* Fitting the tax code to today’s business. Bruce Bartlett – The New York Times opinion. One area where Republicans and Democrats are in agreement on tax policy is that the United States should reduce its statutory corporate tax rate to no more than 28 percent from 35 percent. While this is a good idea, provided that it is paid for with base-broadening so that it does not add to the deficit, it is important to look beyond corporations when thinking about the taxation of businesses. Many analysts believe that the tax treatment among different forms of business organization ought to be equalized. The White House-Treasury report estimates that the effective marginal tax rate on new investments is 32.3 percent for C-corporations and only 26.4 percent for pass-through entities. This distortion biases economic decision-making and is ultimately bad for growth. Although most of the talk today is about lowering tax rates on C-corporations, the economic distortion could also be eliminated by raising taxes on pass-through entities. Link

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