Tax Break

Essential reading: Corporate tax reform on back burner, states face more volatile revenue, and more

May 3, 2012

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

* US corporate tax reform stays on back-burner. James Politi – The Financial Times. The push for reform of the U.S. corporate tax code has emerged as a casualty of election-year political paralysis. But concern is growing that it may not even be top of the policy docket at the beginning of next year, placing it on Washington’s permanent back-burner of languishing policies. To lower the statutory rate from its current level of 35 percent without adding to U.S. deficits, Congress would have to cut out $12 billion per year in business tax breaks. The Hamilton Project, a Washington think tank, will on Thursday release a report highlighting these trade-offs. Link

* U.S. states see rising volatility in tax revenues. Lisa Lambert – Reuters. The Federal Reserve Bank of Chicago, in a report released on Wednesday, said that while state tax revenues have historically risen when times are good and fallen when they are bad, “this response since 2000 has been much larger than in the 1980s and 1990s.” Most of the trend of higher peaks and deeper troughs comes from a reliance on income taxes. Investment income experienced “dramatic swings throughout the 2000s,” and states have grown more reluctant to change tax rates “in the face of economic fluctuations,” the report said. Link

* Honeywell chairman: Foreign firms scared of India now. The chairman of Honeywell International Inc warned that India’s labyrinthine bureaucracy and aggressive regulation and tax policies are spooking foreign investors and will divert investment to China and elsewhere. Chairman David Cote is the latest, and most prominent, foreign-company executive to publicly complain that India, once a darling of U.S. and other foreign investors, risks losing much-needed outside investment because of government policies perceived as anti-business. Link

* UBS says positioned to adapt to bank secrecy shift. Katharina Bart – Reuters. UBS’s outgoing chairman will tell shareholders the Swiss bank is better positioned to adapt to the erosion of Swiss banking secrecy than rivals, at an investor meeting later on Thursday. A global crackdown on tax evasion by cash-strapped governments in recent years has chipped away at Switzerland’s tradition of banking secrecy, which helped it build up a $2 trillion offshore wealth management industry. Link

* Lobby group pushes regulators to amend FATCA. Michael Wurstom – The Wall Street Journal. The Private Equity Growth Capital Council’s letter to regulators urging changes to the Foreign Account Tax Compliance Act should open a dialogue regarding several hurdles the industry would have to clear to comply, according to tax experts. The 12-page letter sent Monday to the U.S. Treasury Department and the Internal Revenue Service calls for a more efficient process for private equity firms with foreign funds or non-U.S. investors required to register as foreign financial institutions, as well as some leeway when dealing with foreign investors unwilling to comply. Link

* Russia approves gas-tax increase. Ira Iosebashivi and Alexander Kolyandr – The Wall Street Journal. Russia’s government Wednesday approved tax increases nearly doubling rates for state-controlled natural gas giant OAO Gazprom and more than quadrupling duties to be paid by the country’s independent producers by 2015, a move analysts said may weigh on stock prices in the gas sector. President-elect Vladimir Putin is seeking ways to fund a new wave of social spending promised during his election campaign without further straining the country’s overstretched budget. Russia’s budget now balances at an estimated $117 per barrel, from as low as $50 per barrel in 2008. Link

* UK finance firms face economic headwinds – E&Y. Reuters. A sluggish economy will take its toll on Britain’s key financial services sector next year, forcing banks to write off more loans and restricting the supply of credit to consumers and businesses, accountants Ernst & Young said. That will cap bank lending growth at 0.5 percent in 2012 and 2013, lower than the previous forecast of 0.8 percent, and trigger a hiring freeze across the industry, creating an additional headwind for the wider economy. Link

* BHP Bilton and Esso Australia pursue petroleum tax appeals. Terry Hayes – Reuters. Australia’s Full Federal Court has thrown out an attempt by the Commissioner of Taxation to delay the hearing of appeals by BHP Billiton Petroleum (Bass Strait) Pty Ltd and Esso Australia Resources Pty Ltd (Esso) concerning their liability to Petroleum Resource Rent Tax (PRRT) from their Bass Strait operations. The Commissioner had sought to have the appeals hearing postponed until after amendments to the legislation were passed by Parliament. Those amendments had recently been introduced in the House of Representatives but have not yet been debated and passed, although they are scheduled to be debated in the House on Wednesday, November 2, 2011. Link

* California’s truly loopy tax loophole. George Skelton – The Lose Angeles Times opinion. Three years ago, the California Legislature moved to adopt a new, “single sales factor” for company sales taxes beginning in 2011. But lobbyists for the out-of-staters quickly pounced on the Capitol, complaining about higher taxes for their clients. The inexplicable solution: Allow companies to choose whichever tax option best suited them: the old formula or the new. This corporate loophole was opened as a price for securing Republican votes in each house for income, sales and car tax increases — temporary hikes that Gov. Jerry Brown last year tried unsuccessfully to extend. Link

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