Tax Break

Essential tax and accounting reading: European carbon and tycoon taxes face headwinds, better outlook for Japanese sales tax, audit red flags, and more

March 12, 2012

Japan's Mount Fuji REUTERS/Toru Hanai

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

* Whistleblower Joseph Insinga suing IRS for not being paid a reward. Lisa Rein – The Washington Post. Joseph A. Insinga was the ultimate whistleblower. The former executive with a Dutch bank says he divulged to the Internal Revenue Service details about how for years his employer helped U.S. companies dodge taxes. Now Insinga is taking tax authorities to court for failing to give him a reward that he says he is owed by the federal government. Insinga filed a whistleblower claim with the IRS in 2007, a year after Congress passed a law to help the government uncover tax cheats by encouraging informants to come forward. Those with inside information could receive up to 15 to 30 percent of any taxes, fines, penalties and interest the IRS collected from a taxpayer who was illegally sheltering taxes, usually a corporation. Insinga says he is entitled to a portion of the money the IRS collected from the taxpayers he exposed. He’s confident that at least one company, and maybe more, was forced to pay taxes based on his information. He had alleged that Rabobank Group, where he worked as an executive for more than a decade, helped seven companies avoid hundreds of millions of dollars in taxes through offshore partnerships and other corporate schemes. Link

* Delay EU carbon levy, says air industry. Peter Marsh, Joshua Chaffin and Simon Rabinovitch – The Financial Times. Seven of Europe’s leading aviation companies have joined forces to warn that the European Union’s plans to charge for carbon pollution are jeopardizing 2,000 jobs and billions of dollars of orders from China. Airbus and six large European airlines said the plan to bring global airlines into the EU emissions trading scheme for carbon dioxide, which the industry has steadfastly opposed, is creating an “intolerable” threat to the European aviation industry by opening up the possibility of trade battles with China, the US and Russia. The EU’s plan to regulate the output of carbon dioxide, as part of the effort to combat global warming, has stirred concern in the European aviation industry. Airbus – which employs more than 50,000 people across Europe – argues the proposals will damage competitiveness at a time of economic weakness, wants the EU to “put on hold” the extension of the scheme to airlines until a global plan for regulating carbon emissions by airlines can be agreed. Link

* Clegg forced to go soft on ‘tycoon tax’ Kiran Stacey, Helen Warrell and Vanessa Houlder – The Financial Times. Nick Clegg has been forced to soften proposals for a “tycoon tax” less than 48 hours after announcing it as a flagship policy at his Liberal Democrat party’s spring conference. The deputy prime minister said on Saturday that he wanted to set a minimum effective tax rate, making sure high earners did not use various loopholes to pay less than 20 per cent of their income in tax. The Treasury was surprised by Mr Clegg’s explicit mention of a minimum tax rate, as they had expected his speech to focus on general anti-avoidance measures. People close to George Osborne, the chancellor, told the Financial Times a minimum rate was not being considered. Link

* Japan opposition leader says he may back tax bill. George Nishiyama – The Wall Street Journal. The head of Japan’s largest opposition party said Friday that his party may throw its backing behind Prime Minister Yoshihiko Noda’s plan to double the sales tax if Noda proposes forming a coalition government. “If he shows such determination, then there is room for consideration,” Sadakazu Tanigaki, president of the Liberal Democratic Party, said in an interview, referring to the idea of supporting the tax bill in return for a coalition government with Noda’s ruling party. Such an alliance would break parliamentary deadlock and open the way for the passage of a tax increase law, seen as crucial for Japan to tackle its deteriorating fiscal condition and avoid a credit rating downgrade. Link

* Report attacks plan to raise personal tax threshold. Vanessa Houlder – The Financial Times. The coalition’s ambition to increase the personal tax allowance to 10,000 pounds ($15,700) is to come under fire on Monday as an expensive and inefficient way of helping poorer families. Introducing a transferable allowance for married ­couples with children would be far more effective in helping families on middle and lower incomes, according to a report to be launched by Lord Lawson, former Tory chancellor, on Monday. Link

* New Rules target offshore funds. Arden Dale – The Wall Street Journal. Owning a portfolio of offshore holdings is about to get much riskier, thanks to new U.S. tax-reporting rules, financial advisers say. As a result, some advisers are urging clients to shift money back to the U.S. The Foreign Account Tax Compliance Act, known as Fatca, will require both U.S. citizens and foreigners living in the U.S. to make extensive disclosures about overseas holdings on their tax returns or risk harsh penalties. Financial advisers who want to keep clients out of trouble with the Internal Revenue Service are now taking a closer look at Swiss bank accounts and funds based in tax havens such as the Cayman Islands. These accounts, already red flags for audits, likely will come under even more scrutiny. Link

* Beware tax rules when refinancing. Arden Dale – The Wall Street Journal. As more people refinance home mortgages, some are getting tripped up by tax-deduction rules. Those who decide to borrow more than they owe on their existing mortgage often assume they can write off interest on the whole new loan, but in many cases they can’t. With interest rates unusually low, financial advisers say they are fielding lots of calls from clients asking if it makes sense to refinance. Limits on the tax deduction, they say, can be a deal breaker for clients thinking about increasing the size of their mortgage. Link

($1 = 0.6372 British pounds)

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