Tax Break

Essential tax and accounting reading: U.S. corporate income taxes hit a low, British tax shelters, Japan’s sales tax, taxing wealth around the world, and more

March 5, 2012

Francois Hollande, Socialist Party candidate for the 2012 French presidential election REUTERS/Jacky Naegelen

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

* U.S. corporate tax rates hit 10-year low. Telis Demos – The Financial Times. The effective tax rate paid by large U.S. public companies fell to its lowest in a decade in the fourth quarter last year as an increasing amount of revenue was generated outside of the country. According to figures compiled by Morgan Stanley, the unweighted average tax rate paid by the largest 1,500 U.S. public companies by market value in the fourth quarter was 31.9 percent of pre-tax income. About 100 companies are yet to report for the quarter. That puts the period on track for the lowest average in any quarter since 2001 and off sharply from the 35.4 per cent paid a year ago. Link

* Companies assess risks of tax planning. Vanessa Houlder – The Financial Times. Businesses are scrambling to assess the reputational risks of tax planning, after the closure of two “highly abusive” schemes designed by Barclays demonstrated the increasing public scrutiny of big companies’ tax affairs. The Treasury moved aggressively last week to block the bank from exploiting a loophole that could have cost the exchequer 500 million pounds ($792.80 million), marking the latest in a series of high-profile corporate tax disputes. Experts say the cases show how tax has joined executive pay at the forefront of debate over “responsible capitalism,” putting pressure on both the government and companies to demonstrate that businesses are paying their fair share. Link

* Wealth tax hits a nerve in French race for president. David Jolly – The New York Times. François Hollande, the Socialist candidate for the French presidency, stole the spotlight from President Nicolas Sarkozy this week by proposing sharply higher income taxes for the rich, and despite criticism from the right and many economists, the challenger’s standing in the race has not suffered. In fighting for re-election, Sarkozy is burdened by the widespread perception that he is a friend of the rich. Hollande sought to highlight the differences between him and the president on Monday by proposing that those with annual income of more than 1 million euros ($1.32 million) be taxed at a 75 percent rate. While Hollande has declared that “the world of finance is my adversary,” the announcement came as a surprise even to some members of his own party, and Sarkozy was quick to denounce it. Link

* Noda cites progress on contentious sales tax increase. Toko Sekiguchi – The Wall Street Journal. Japanese Prime Minister Yoshihiko Noda faces an increasingly uphill battle to push through a plan to double the nation’s sales tax, struggling to win support from both opposition parties and his own government amid rising global scrutiny of Tokyo’s deteriorating fiscal condition. Noda needs to meet an end of March deadline, as stipulated by the tax law, to submit to parliament a bill that would raise the 5 percent consumption tax to 10 percent by 2015. Despite the public objections from the opposition parties, his own Democratic Party of Japan, and its coalition partner, Noda says that talks on reaching an agreement were showing some progress. He told a news conference with foreign media on Saturday that “I feel a sense that our debate is beginning to jibe.” Link

* What’s the fate of the estate tax? Tom Herman – The Wall Street Journal. Nobody knows what will happen to the federal estate tax after this year. This hot political issue probably won’t emerge until after the November elections. Congress might try to take action on the estate tax in a special “lame duck” session late this year. Or lawmakers might punt the issue into next year. For 2012, the top federal estate-tax rate is 35 percent, and the basic exemption from the tax is about $5.1 million. Transfers from one spouse to the other typically are tax-free. This law is scheduled to expire at the end of this year. If Congress does nothing, the top rate on the largest estates automatically will soar to 55 percent next year. Also, the basic exclusion automatically will plunge to $1 million. That would greatly increase the number of people affected by the tax. Link

* Schrodinger’s tax. Paul Krugman – The New York Times opinion. David Cay Johnston of Reuters tells us that the usual suspects on the right are arguing that it’s OK to cut corporate tax rates, because they really fall on wages, not on profits. But wait – weren’t we being told just a few weeks ago that Mitt Romney doesn’t really pay only 14 percent taxes, because you should include the corporate taxes paid by the companies whose stock he owns? So, here’s the situation as I understand it: the profits tax is both a tax Romney pays and a tax he doesn’t pay, depending on what question you’re asking (with the answer always being the one that favors the 0.01 percent). Also, his cat is both alive and dead and it’s a floor wax and a dessert topping. All clear. Link

* Osborne well knows that Tories tax wealth at their peril. Paul Goodman – The Financial Times opinion. Is the party of capital about to embrace taxes on wealth? Nick Boles of the Conservative MPs has championed a land tax. Boles is a loyalist to Prime Minister David Cameron but his adventurousness is shared by a Tory euro-rebel of the same parliamentary vintage: Mark Reckless. He has said his party “should not rule out a ‘mansion tax’ or similar proposal”. George Osborne, the chancellor of the Exchequer, is reported to be studying a new council tax band for high-end properties. What is going on? Conservative romantics would argue that their party and wealth taxes are not strangers. Indeed, the present support for wealth and property taxes is less idealistic than practical. Link
($1 = 0.6307 British pounds)
($1 = 0.7573 euros)

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