Tax Break

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

* Dividend stocks may not look so hot next year. Steven Russolillo and Alexandra Scaggs – The Wall Street Journal. Many investors have been touting dividend stocks as a way to play it safe amid the rocky economic recovery. But dividends may not be such a safe bet heading into 2013. You can blame Uncle Sam for that. As a result of the scheduled tax hike for dividends, corporations will be forced to take a hard look at the way they spend extra cash. According to current policy, taxes on dividends paid to individuals would nearly triple in 2013 to 43.5 percent from 15 percent. Link

* Property tax appeals benefit big companies. Jim Nash – The New York Times. In New York State, anyone can contest the assessed value of a property — on which property taxes are based — and, to the distress of local governments statewide, many are doing so at a time when values are falling and companies are looking to save money wherever they can. Filing an annual tax cert appeal is routine for big companies, which typically own large and expensive parcels of land, experts say. Among the corporations that have filed for refunds in New York recently are IBM, Verizon and 7-Eleven. 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.”

Essential tax and accounting reading: Obama wants Romney tax returns, battling over big oil breaks, Japan’s mega sales tax, and more

U.S. President Barack Obama walks past a pumpjack, New Mexico, March 21, 2012. REUTERS/Jason Reed

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

* Obama campaign seeks Romney tax returns. Mark Maremont – The Wall Street Journal. President Barack Obama’s re-election campaign called on Republican front-runner Mitt Romney to release his tax returns dating back to the 1980s, to see if they contain information about an uncommon investment arrangement at his former private-equity firm that may have helped swell his individual retirement account. The request follows a page-one article in The Wall Street Journal on Thursday that recounted how employees at the firm, Bain Capital, were allowed to invest their retirement money in companies the firm acquired, including investing through a special share class that could skyrocket in value in successful deals. Romney’s IRA was valued at between $20.7 million and $101.6 million as of August, according to his financial disclosures. Link

* GOP blocks Obama’s effort to end tax breaks for big oil. Zachary Goldfarb and Brad Plumer – The Washington Post. President Obama on Thursday called on Congress to end tax breaks for oil companies in a populist speech that sought to turn the blame for gas prices nearing $4 a gallon back onto his Republican critics. In fiery, campaign-style remarks delivered from the Rose Garden, Obama told lawmakers that they can “stand with big oil companies, or they can stand with the American people.” Senate Democrats followed by forcing a vote to end tax cuts for the five largest oil companies, which Republicans resoundingly defeated. Link

PCAOB’s debate over auditor rotation moves to Congress

An ambitious reform agenda at the main U.S. auditor watchdog — already under fire from the accounting industry — has now drawn the ire of members of Congress.

At a hearing on Wednesday, members of a House Financial Services subcommittee took aim at the Public Company Accounting Oversight Board, saying some of the items on its agenda, including term limits for audit firms and making its disciplinary proceedings public, would amount to regulatory overreach.

Investor advocates had expected for some time that PCAOB chairman James Doty would be called before Congress to defend his activist agenda. The rotation idea, still in its early stages, would upset some of the accounting industry’s longest-standing client relationships, and the business lobby has pressed Congress to intervene.

Essential tax and accounting reading: Bain’s IRAs, E&Y cleared on Olympus, Biden attacks Romney tax plan, and more

* Germany to agree to tougher Swiss tax deal-paper. Emma Thomasson – Reuters. Germany is set to agree a revised deal with Switzerland on secret offshore accounts that involves higher rates of taxes than originally planned to meet objections from the opposition, a Swiss newspaper reported on Thursday. Citing unnamed sources, the Tages-Anzeiger daily said German state premiers meeting in Berlin on Thursday should sign off on the deal after the opposition Social Democrats (SPD) and Greens apparently accepted Swiss concessions to tighten the agreement. Link

* Panel clears Ernst & Young unit in Olympus scandal. Kana Inagaki – The Wall Street Journal. Closing another chapter in probes into the scandal that rocked Olympus Corp. last year, an independent panel of lawyers and professors on Thursday cleared Ernst & Young ShinNihon LLC of legal responsibility in its audit of the company’s accounts. But the panel also called on the accounting industry to take measures that go beyond existing legal obligations to better spot potential fraud. Ernst & Young ShinNihon commissioned the four-member panel in December after a separate panel appointed by Olympus’ board raised questions over the hand-over process when Ernst & Young took over the auditing of the company from KPMG AZSA LLC in 2009. KPMG AZSA audited Olympus’ accounts from 1974 to 2009. Link

* Cameron hits back over claims of elitism. George Parker – The Financial Times. British Prime Minister David Cameron has attempted to dispel Labour claims that he leads an elitist “out of touch” government, when he declared his love of Cornish pasties, one of the hot foods that will be taxed more under budget value-added tax rules. The comments came after George Osborne announced a Budget measure on takeaway food, putting a 20 per cent VAT charge on food “sold above ambient temperatures” – immediately named a “pasty tax”. Labour has revelled in the government’s discomfort. Link