GAO: Big U.S. Companies Love Tax Havens
Filed under: int tax compliance, tax haven, unreported income
by John Cummings, BusinessFinanceMag.com
In a 60-page report released Friday, the U.S. Government Accountability Office offers some eye-opening details on U.S. companies’ use of tax havens and “financial privacy jurisdictions,” which the agency defines as “jurisdictions that have strict banking secrecy laws that persons can use to shield their wealth from taxation in their home country.” As many as 83 of the 100 largest publicly traded U.S. corporations by revenue have subsidiaries in one or more such haven or jurisdiction, according to the report.
Indeed, four of the firms in that group of 83 own more than 100 subsidiaries in tax havens or financial privacy jurisdictions. And one organization — Citigroup — has no fewer than 427, including 91 in Luxembourg, 90 in the Cayman Islands, and 35 in the British Virgin Islands.
The report’s investigation of the 100 largest publicly traded U.S. Federal contractors tells a similar story; 63 firms in this group reported having subsidiaries in tax havens or financial privacy jurisdictions. The Procter & Gamble Co., which had nearly $313 million in federal contracts in fiscal 2007, reports having 83 subsidiaries in these locations, including 24 in Switzerland and 11 in Singapore.
What exactly constitutes a tax haven? The GAO’s research failed to turn up any agreed-upon definition, and the agency made no attempt to establish one of its own. However, the report describes a group of relevant characteristics, including “no or nominal taxes; lack of effective exchange of tax information with foreign tax authorities; lack of transparency in the operation of legislative, legal or administrative provisions; no requirement for a substantive local presence; and self-promotion as an offshore financial center.” Rather than develop its own list of tax havens, the GAO amalgamated three such lists, from the Organization for Economic Cooperation and Development (OECD), the National Bureau of Economic Research (NBER), and a 2006 U.S. District Court order.
Of course, the fact that a business chooses to establish a subsidiary in a listed location doesn’t necessarily mean that it’s seeking to reduce its tax burden; as the report points out, “subsidiaries may be established in a listed jurisdiction for a variety of nontax business reasons.” But the GAO also notes the U.S. Treasury’s concern that some companies aggressively set transfer prices to shift income to offshore locations in a bid to avoid tax.
Click here for a summary or here for the full GAO report.
New U.S. tax deal seen too costly for small banks
By Lisa Jucca, Reuters
New U.S. tax withholding requirements may force private banks to relinquish their qualified intermediary status or stop doing business with Americans altogether, Swiss bankers said on Thursday.
U.S. tax authorities are in the process of writing a new Qualified Intermediary (QI) agreement and first drafts show the proposed rules may be tougher and more expensive than those in the previous agreement, Swiss bankers say.
“The drafts that have been published lead us to believe that many banks around the world, and not only in Switzerland, will have great reservations,” read a speech by Gregorie Bordier, partner at Swiss private bank Bordier & Cie.
Under the current QI agreement, around 5,000 institutions tax U.S. citizens at source without having to disclose the identity of their clients to the U.S. Internal Revenue Service (IRS), a useful tool for institutions operating in offshore centers such as Switzerland.
Foreign banks must sign up to the QI deal if they want to invest directly in the U.S. market. Bank secrecy stronghold Liechtenstein decided last year to share tax data with the United States for fear of seeing its banks losing QI status.
But a revision of the text, possibly in 2009, may lead to more intrusiveness.
“We cannot rule out that certain small banks may simply give up their QI status,” Bordier’s speech said.
Click link above for complete article.
UBS Closing U.S. Clients’ Offshore Accounts
Swiss wealth manager UBS AG is closing all the offshore accounts of its U.S. clients, the bank said on Friday, as it comes under pressure from U.S. tax authorities.
The Swiss bank decided in July last year to stop offering offshore accounts to U.S. citizens after it was targeted by a U.S. tax investigation which challenges Switzerland’s famous banking secrecy laws.
U.S. prosecutors have alleged UBS helped clients hide $18 billion of untaxed American money in undeclared accounts. This amounts to around $300 million of annual unpaid taxes, the newspaper said.
Click here for complete article.
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