Tax Break

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

February 29, 2012

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)

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