Tax Break

Essential reading: Offshore tax havens’ links to crime, budget choices, and more

Tourists walk on Seven Mile Beach at sunset in George Town, Cayman Islands REUTERS/Gary Hershorn

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

* These islands aren’t just a shelter from taxes. Robert Morgenthau – The New York Times opinion. The British Virgin Islands, the Cayman Islands, Gibraltar, Bermuda and the Bahamas – these offshore jurisdictions allow some individuals and corporations to engage in outright tax fraud, costing America at least $40 billion each year. The secrecy laws in these tax havens are at the root of serious crimes: fraud, money laundering and international terrorism. Follow the trail of nearly any major financial scandal and you will enter one or more of these notorious jurisdictions. Link

* House Republicans target social cuts to shield military. David Lawder – Reuters. Republicans in the House of Representatives on Monday will fire their first shots of the next deficit-reduction battle, advancing legislation to cut nearly $380 billion largely from social programs while protecting defense spending. President Barack Obama is likely to consider signing a replacement measure that offers “balance,” meaning spending cuts combined with new revenues such as those proposed in Obama’s February budget plan. But the tax increases for the wealthy proposed by Obama, along with some spending increases, make that budget a non-starter for House Republicans. Link

* Facebook could dodge $14bn in US taxes. Nathalie Thomas – The Telegraph. Facebook has admitted it could dodge paying as much as $14 billion in U.S. corporation tax following its stock market flotation next week. In its latest filing to the U.S. Securities and Exchange Commission, Facebook said if all shares are cashed in before the end of 2012, this would trigger a tax deduction “of approximately $14bn”. Link

* Greek voters punish 2 main parties for collapse. Rachel Donadio and Niki Santonis – The New York Times. Greece was plunged into political uncertainty on Sunday after voters bolstered the far left and neo-Nazi right in a wave of protest that saw the crushing defeat of the dominant political parties they blame for Greece’s economic collapse. With Greece’s gross national product having dropped 20 percent since 2009 and unemployment soaring to 21 percent, fierce opposition to the bailout terms — tax increases and wage cuts — has led to the implosion of the Socialist and New Democracy Parties, and the rise of parties on the right and the left that oppose the loan deal. Link

Facebook expects $14 billion tax break from options

When Facebook issued its original prospectus in February we wrote about how the expensing of options would sharply reduce the tech giant’s tax bill in the near future.

Now that it’s closer to IPO time, the company has put out fresh information on the impact its mega-offering will have on the company’s annual bill from Uncle Sam, and it’s even bigger than was thought.

The bottom line is the same: Facebook won’t owe tax this year, and its rate will stay low for years to come.

Essential reading: Ernst & Young no longer lobbying for companies it had audited, and more

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

* Ernst, audit clients cut lobbying ties-records. David Ingram and Dena Aubin – Reuters. Ernst & Young’s lobbying unit is no longer listed as a lobbyist for three major U.S. companies, all of whom were 2011 audit clients of the accounting giant. The deregistration follows questions raised by two U.S. senators in March about whether the dual relationships crossed auditor independence boundaries. Documents filed last month with Congress showed that Washington Council Ernst & Young, the E&Y unit, was no longer registered as doing lobbying work for Amgen Inc, CVS Caremark Corp and Verizon Communications Inc. Link

* House Democrats plan to pounce again on GOP budget. Ed O’Keefe – The Washington Post. House Democrats plan to attack the spending plan next week as the GOP-controlled House votes on a budget reconciliation package that includes cuts to replace automatic, across-the-board reductions set to begin in January as part of the Budget Control Act. The BCA raised the debt ceiling, cut $1 trillion in federal spending and authorized another $1.2 trillion in cuts over the next decade, with roughly half of the money coming from defense spending. Link

Wal-Mart auditor unlikely to suffer in bribery case

Shoppers cart their purchases from a Wal-Mart store in Mexico City, April 24, 2012. REUTERS/Edgard Garrido

The bribery scandal at Wal-Mart Stores Inc’s  Mexican unit is unlikely to land the giant retailer’s auditor, Ernst & Young, in hot water if the government’s record on prosecuting such cases is any indicator, academics and other experts said.

Bribery cases brought under the Foreign Corrupt Practices Act are on the rise, but a review of past U.S. government FCPA settlements shows that external advisers, including audit firms, almost never become legal targets.

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

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

Essential reading: Mall landlords battle tax, Groupon shifts board amid accounting issues, and more

A padlock on a closed shop in a Colorado mall REUTERS/Rick Wilking

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

* Mall landlords engage in taxing battle. Kris Hudson and Stu Woo – The Wall Street Journal. U.S. shopping-center owners, smarting from high vacancies partly due to the rise in Internet shopping, are throwing their weight behind federal bills aimed at requiring online retailers to collect sales tax. At the same time, some of the biggest mall owners also are gaining traction in their efforts in individual states to squeeze sales tax out of the world’s largest online retailer— Inc. Seven states have reached pacts with Amazon to collect sales tax, with Nevada and Texas joining the list last week. Five more are in talks on similar deals. Link

* Groupon replaces Schultz, Efrusy on board. Alistair Barr – Reuters. Groupon Inc (GRPN.O) appointed two new directors on Monday and said Starbucks Corp (SBUX.O) Chief Executive Howard Schultz and venture capitalist Kevin Efrusy were leaving the board as the company tries to address criticism of its accounting practices. The world’s largest daily deals company came under renewed fire in March after revising its fourth-quarter financial results and admitting to a “material weakness” in its financial statements, months after its high-profile IPO. Groupon’s audit committee was criticized because some members are busy executives who may not have enough time to devote to fixing the company’s accounting problems. Link

That’s not fair! may push U.S. tax revamp

It may seem too simple to be true, but the urge among humans for basic fairness may be among the biggest drivers for a revamp of the U.S. tax code, at least competing with the influence of lobbyists, general greed and politics.

That was one message of tax war veterans gathering at the Urban Institute in Washington on Tuesday where Nietzsche, Marx and other philosophers were mulled along with the hard-nosed lessons of the last revamp in 1986 under Republican President Ronald Reagan.

“Fairness is still the queen of principles that brings us back,” to trying to fix the tax code, said Eugene Steuerle, who was a key economic aide in Reagan’s Treasury Department under that historic overhaul.
Democrats and Republicans say they want a rewrite of the code and cite the mind-numbing complexity combined with the unfairness of breaks favoring select groups. The issue could gain steam after the Nov. 6 elections.

Essential reading: Microsoft’s Nevada tax break, debating Apple’s tax rate, and more

A rainbow appears over hotels on the Las Vegas Strip in Las Vegas, Nevada, REUTERS/Ethan Miller

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

* Microsoft heads to Nevada again for tax perks. Maxwell Murphy – The Wall Street Journal. Microsoft’s $300 million investment in Barnes & Noble’s digital reading and college bookstore operations, announced on Monday, offers another peek into the way companies use Nevada as a way to shelter income from taxes. Microsoft formed Morrison Investment Holdings as a Nevada corporation on April 5, adding to the list of dozens of Microsoft investment subsidiaries incorporated in Nevada, rather than in its home state of Washington, over at least the past two decades. Nevada doesn’t tax corporate income or capital gains. Link

* Apple’s tax rate: 9.8 percent? Hayley Tsukayama – The Washington Post. A weekend story from the New York Times shared a surprising statistic: Apple paid just $3.3 billion on $34.2 billion of profits last year — giving it a tax rate of just 9.8 percent. The 9.8 percent figure, reported earlier by the Greenlining Institute, may be based on the wrong calculations for Apple’s tax share. In its own tax filings, Apple reported these tax rate figures paid in the last three years: “approximately 24.2 percent, 24.4 percent and 31.8 percent for 2011, 2010 and 2009, respectively.” Link

Essential reading: How Apple keeps its tax bill low, KPMG inquiry in UK, and more


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

* How Apple sidesteps billions in taxes. Charles Duhigg and David Kocieniewski – The New York Times. As it stands, Apple Inc paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies. Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year. Link  

* KPMG faces inquiry over rescue of HBOS. Helia Ebrahimi – The Sunday Telegraph. Accountancy giant KPMG could face a formal investigation by the UK’s accountancy watchdog for its conduct leading up to the rescue of HBOS by Lloyds TSB. HBOS whistleblower and former head of risk, Paul Moore, has referred KPMG to the regulator in a formal complaint. Moore also has written to Treasury select committee chairman Andrew Tyrie, seeking his support. Moore’s complaint comes a week after it emerged that the former head of HBOS’s corporate bank, Peter Cummings, is to fight a seven-figure fine handed out by the Financial Services Authority for his part in the collapse of the bank. Link  

* Amazon seals sales tax deal with Texas. Barney Jopson – The Financial Times. Amazon has struck an unexpected deal with Texas to start collecting sales tax from consumers at the start of July, in a further sign of its readiness to accept a levy that it had long opposed at state level. Under the deal Amazon will invest at least $200 million to build distribution centers in Texas and create at least 2,500 jobs over the next four years while beginning to collect sales tax on July 1. Link  


Former U.S. Treasury Secretary Robert Rubin REUTERS/Kevin Lamarque

Some important tax and accounting dates in the week ahead

Monday, April 30
* The U.S. Internal Revenue Service hearing on limited partnerships and taxpayer participation, to start at 10 a.m. EDT in the IRS Auditorium.
* American Institute of Certified Public Accountants (AICPA) three-day conference on investments, auditing and tax questions, compliance fundamentals, internal control, and healthcare reform, Atlanta. U.S. Assistant Secretary of Labor Phyllis Borzi will speak.
* AICPA two-day conference on tax strategies for high-income individuals, Belagio Hotel, Las Vegas.

Tuesday, May 1
* The D.C. Bar Taxation Section Real Estate Committee luncheon program, IRS officials Sam Kamyans and Rosty Stiller to speak.

Wednesday, May 2
* AICPA conference on tax controversy, and small business practitioners. Speakers include IRS Office of Professional Responsibility Director Karen Hawkins and Karen Sheely from the IRS Taxpayer Advocate Service, Las Vegas.