Tax Break

Essential reading: Islamic finance may enter accounting mainstream, tax pitfalls for fund investors, and more

 

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

 * Geithner swings back at critics of tax and regulatory policy. Damian Palleta – The Wall Street Journal. Treasury Secretary Timothy Geithner sharpened his rebuke of his political and private sector critics on Wednesday, saying many “misread the underlying dynamics of the economy today.” Geithner, in remarks at the Economic Club of Chicago, called out “business lobbyists” and others and said “many have claimed that the basic foundations of American business are in crisis, critically undermined by taxes and regulation.” Link 

* Christie leaning on tax subsidies in hunt for jobs. Charles Bagli – The New York Times. Since taking office in 2010, Republican Gov. Chris Christie has approved a record $1.57 billion in state tax breaks for dozens of New Jersey’s largest companies after they pledged to add jobs. Christie has emphasized that these are prudent measures intended to help heal the state’s economy, which lost more than 260,000 jobs in the recession. The companies often received the tax breaks after they threatened to move to New York or elsewhere. Link  

* Brazil tightens taxes on commods companies. Luciana Otoni – Reuters. Brazil cracked down on multinational commodities firms on Wednesday with rules to block them from shifting tax liabilities to more favorable countries. The measure by Brazil’s tax authority comes a day after the government granted $5.5 billion in tax breaks aimed largely at domestic manufacturers. Under new rules, the Brazilian units of companies such as Vale, Bunge, Cargill, Louis Dreyfus, Glencore and Noble Group must value transactions with overseas units of the same company using international price benchmarks, said Sandro Serpa. Link

* Germany, Switzerland near tax plan. Andrea Thomas – The Wall Street Journal. Germany and Switzerland will sign a tax deal on Thursday that could generate billions of euros in tax revenues for Germany and end a dispute between the two neighboring countries over tax evasion and bank secrecy. The deal regulates cooperation between Swiss and German tax investigators and is expected to create additional tax revenues from assets that German citizens have stashed in secret Swiss bank accounts. Link  

Questions of tax season

Why do people in California have so many tax questions?

In the last three months,Avvo, a site where people from all over the United States can go for free answers to legal and medical questions, has seen a more than 200 percent climb in its tax-related questions. The area with the most tax questions was Los Angeles, but San Francisco and San Diego  were also leaders in the area.

Josh King, a Seattle lawyer who’s also vice president of business development and general counsel for Avvo, said a lot of the California tax questions are property-related, the leftovers of that state’s real estate meltdown. Among them: the tax implication of short sales and foreclosures, as well as how to get property tax reassessed.

A second big tax category in California is business taxes with questions focused on tax collection and filing requirements.

Essential reading: Canada v. US, Indonesia and Japan mull tax hikes, and more

A hockey player skates on Lake Louise in the Canadian Rocky Mountains REUTERS/Shaun Best

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

* Obama assails Republican budget plan, aims at Romney. Alister Bull – Reuters. President Barack Obama accused Republicans on Tuesday of favoring the rich with a “radical” budget plan that focuses on cutting popular programs, which the White House sees as a potent vote winner for Democrats in this year’s election. The Republican blueprint proposes broad tax reform, including closing loopholes to raise revenue, while advocating a simplification in the tax code and lowering the top tax rate. White House officials said the goal of Obama’s speech was to hammer home a message that if Republicans win in November, their budget is coming to America. Link

* KKR’s Kravis says U.S. tax overhaul needed. Greg Roumeliotis – Reuters. Henry Kravis, the co-chief executive of private equity group KKR & Co LP, said on Tuesday that a reform of the tax system was necessary to jumpstart the U.S. economy. On Monday, one of Kravis’s peers, David Rubenstein, billionaire co-founder of Carlyle Group LP, defended the lower rate of taxation enjoyed by private equity managers, arguing they are merely following the laws that Congress wrote. Kravis, whose net worth as of March 2012 was $4 billion according to Forbes, refrained from making a prediction about the future tax treatment of carried interest and said he tried to keep his firm out of politics. Link

Your tax dollars at work

If you are writing a check to your state department of revenue or the IRS over the next few weeks, or are simply reminded by tax time just how much you send along to the government each year, you may well wonder where all that money is going.

The Center on Budget and Policy Priorities put together two graphics which capture the highlights.

First the states:

Like the states, the federal government spends big on healthcare.

Education drops off, however, replaced by spending on Social Security and national defense:

Essential reading: RBC accused of tax scheme, Groupon hiring more auditors

Around 50 percent of Irish homeowners have boycotted a new tax. Here, an empty and unsold housing development in the village of Keshcarrigan, County Leitrim. REUTERS/Cathal McNaughton Welcome to the top tax and accounting headlines from Reuters and other sources.

*U.S. regulator accuses RBC of massive trading scheme. Alexandra Alper – Reuters. The U.S. futures regulator accused the Royal Bank of Canada of running a “trading scheme of massive proportion” to gain lucrative Canadian tax benefits. The Commodity Futures Trading Commission’s civil lawsuit alleges RBC employees created and managed a “wash trading” strategy in which they improperly coordinated to buy and sell stock futures without taking a position in the market. RBC declined to comment on whether the trades in question were structured to realize Canadian tax credits, as alleged in the lawsuit. Link

*SEC probes Groupon. Shayndi Rice and Jean Eaglesham – The Wall Street Journal. The Securities and Exchange Commission is examining Groupon Inc’s revision of its first set of financial results as a public company, according to a person familiar with the situation. Groupon has hired a second accounting firm, KPMG, in addition to its current accountant Ernst & Young. KPMG’s role is to make Groupon compliant with Sarbanes-Oxley, federal regulations around accounting and disclosures of public companies. In addition, Groupon plans to hire more accounting and finance staff, said a person familiar with the matter. Link

Problems at ChinaCast highlight issues with VIEs and Deloitte’s China challenge

More bad news on Chinese companies trading on U.S. markets came this week as education company ChinaCast announced it faces possible NASDAQ de-listing.

ChinaCast shares some interesting traits with other recent Chinese accounting headline-grabbers: the company is structured as a variable interest entity (VIE), there is a dispute between its (now former) CEO and its auditor, and that auditor is Deloitte.

Deloitte has in the past few weeks resigned from two Hong Kong-traded Chinese clients as well, and remains embroiled in a lawsuit with the Securities and Exchange Commission over the work papers in its audit of software maker Longtop Financial.

Surprise, your brain might value paying taxes

For today’s “man bites dog” bulletin, a recent academic paper studying the relationship between behavior and taxes has found people gain value, or “utility,” from paying taxes.

Yes, tucked in the subconscious reaches of your brain is a notion that taxes are a social good. The problem for tax writers: The tax code is so complex that people do not associate the communal value with tax payments.

The paper - ”Tax affinity hypothesis: Do we really hate paying taxes?” - was published in February by a professor and a former student at Wesleyan University in the Journal of Economic Psychology.

Essential tax and accounting reading:Swiss-German tax tensions, India’s retroactive taxes, who gets audited, the “most fraudulent budget in American history,” and more

A boat on Lake Untersee near the Swiss-German border. REUTERS/Arnd Wiegmann
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Swiss spy charge signals German tax deal trouble. Katie Reid – Reuters. A Swiss decision to pursue German tax inspectors for industrial espionage is a sign of growing tension that could make it hard for both sides to secure parliamentary ratification of a deal preventing Germans dodging tax on their Swiss deposits. While Berlin is trying to tax an estimated 150 billion Swiss francs ($166 billion) hidden by Germans in Swiss accounts, Berne wants to avoid revealing the identities of wealthy customers who are a mainstay of its offshore financial services industry. Link   * Global business groups warn India over tax plan impact. Henry Foy – Reuters. International trade groups representing more than 250,000 companies have warned Indian Prime Minister Manmohan Singh that new taxation proposals by his government have led foreign businesses to reconsider their investments. India’s federal budget last month outlined proposals that would allow authorities to make retroactive tax claims on overseas deals and bring in new anti-tax-avoidance measures, moves that have been criticized for further denting investor sentiment towards India. Link  

* California Democrats duel over taxes, budget. Vauhini Vara – The Wall Street Journal. California Gov. Jerry Brown’s proposed ballot measure this fall to raise taxes and restore funding to an array of state programs faces unlikely opposition from a prominent Los Angeles lawyer who supported Brown’s election only 17 months ago. Attorney Molly Munger has proposed a rival ballot issue that also would raise taxes but earmark most of the new revenues for schools. The clash between Munger and Brown highlights the tension within California’s Democrats over how to prioritize spending now that the state is beginning to recover from its fiscal crisis. Link  

* Japan in sales-tax battle. Toko Sekiguchi – The Wall Street Journal. While Japanese Prime Minister Yoshihiko Noda’s parliamentary submission of a sales-tax rise bill on Friday brings the premier one step closer to his goal of fiscal reconstruction, opposition from many lawmakers across the political spectrum is likely to make passage of the measure far from smooth. Anti-tax lawmakers within his party may hinder the premier’s attempt to push the tax discussion forward. The fiscally hawkish prime minister reiterated that he has staked his political career on writing into law the two-step national consumption tax increase to 10 percent by 2015. Link

Tax and accounting calendar

Some important upcoming events in the tax and accounting world:

Sunday, April 1 – Tuesday, April 3 – Council of Institutional Investors annual meeting in Washington, D.C.. Speakers include Hewlett-Packard CEO Meg Whitman, SEC Commissioner Troy Paredes, New York Attorney General Eric Schneiderman, and Chinese accounting critic Carson Block, among others.

Tuesday, April 3 -

    The IRS will hold a hearing on the allocation of interest expense by companies with a significant investment in a partnership, or which use the fair market value method. Starts at 10 a.m. in the IRS Auditorium in Washington. The Urban Institute is sponsoring a Washington event, also being webcast, entitled “Are There Too Many Nonprofits?”

Thursday, April 5 –

    A luncheon at the National Press Club in Washington will feature IRS Commissioner Douglas Shulman speaking on the future of the U.S. tax system and the IRS. The University of San Diego School of Law will sponsor a one-hour tax lecture by lawyer Leslie B. Samuels, a former Treasury Department and OECD official, on “Tax Reform in Today’s Fiscal Environment: Principles to Guide the Debate.”