President Obama Outlines Plan to Close Tax Loopholes, Raise U.S. Revenue
From pbs.org
President Barack Obama outlined a series of steps Monday aimed at overhauling U.S. tax policies that he says reward companies for shifting American jobs overseas and allow wealthy people to avoid paying taxes by using offshore accounts.
The president expressed his wishes to raise taxes on the overseas profits of U.S. companies and to go after evaders who abuse offshore tax shelters.
Mr. Obama said the existing laws make it possible to “pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y. ”
The White House estimated the plan would inject $21 billion a year into U.S. coffers over the next decade, but that would amount to only about 2 percent of next year’s projected deficit of $1.2 trillion, however.
Under existing laws, companies with operations overseas pay U.S. taxes only if they bring the profits back to the United States. As long as those earnings are plowed back into the foreign subsidiaries, they can defer paying taxes indefinitely. The president’s plan, which would take effect in 2011, would change that.
The White House said that in 2004, multinational corporations enjoyed an effective tax rate of 2.3 percent in the United States because of such allowances. Aides said that was the most recent year available for analysis, according to media reports.
Critics say those rules encourage businesses to bolster foreign operations instead of creating jobs in the U.S. During his campaign last year, Mr. Obama promised to change those provisions.
Drew Lyon, a tax expert at PriceWaterhouse Coopers, told Reuters the changes to the “deferral” provision would be sweeping, since half of multinationals firms’ income is earned abroad.
“It’s really hitting most Fortune 100 companies that depend to a great deal on growth of foreign markets for growing their total earnings,” Lyon said.
The president also said he would close loopholes and bolster enforcement to prevent tax avoidance by companies and individuals.
“The steps I am announcing today will help us deal with some of the more egregious examples of what is wrong with our tax code,” he said at a joint announcement with Treasury Secretary Timothy Geithner.
Democratic Montana Sen. Max Baucus, chair of the Senate Finance Committee that writes tax legislation, offered a tepid response to the president’s proposals, signaling that they could be a hard sell in Congress.
“Further study is needed to assess the impact of this plan on U.S. businesses,” he said Baucus. “I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses.”
But several lawmakers, including House Ways and Means Chairman Charles Rangel, signaled support for Mr. Obama’s proposals.
In March, 200 companies and trade groups like the U.S. Chamber of Commerce sent congressional leaders a letter opposing changes to the “deferral” provision. The letter said the firms would not be on a level playing field with international rivals, many of which are not required to pay taxes at home on overseas entities. Pfizer, Oracle, Microsoft Corp, Johnson & Johnson and General Electric were among the firms that signed the letter.
Under President Obama’s plan, companies would not be able to write off domestic expenses for generating profits abroad. The goal is to reduce the incentive for U.S. companies to base all or part of their operations in other countries.
The president said the government also is hiring nearly 800 new IRS agents to enforce the U.S. tax code.
In addition to the changes to the deferral provisions, separate proposals in Mr. Obama’s plan would raise $95 billion by cracking down on overseas tax havens. Such tax havens became a major topic at the April meeting in London of leaders of the Group of 20 major economies.
In one of the proposals to crack down on tax evasion, the administration would require financial institutions to share information with the IRS about customers in the U.S. Foreign institutions and sign up with the IRS to become “a qualified intermediary” or else face a presumption that they are helping individuals evade taxes.
Some consumer advocates said the changes were long overdue fixes for tax abuses.
Swiss banking giant UBS AG acknowledged in February that it helped U.S. clients conceal assets from their government. It agreed to pay a $780 million fine and has since identified about 320 of its American clients.
But the administration is not seeking to repeal all overseas tax benefits. Mr. Obama called his proposal “a down payment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations.”
“Nobody likes paying taxes, particularly in times of economic stress,” he said. “But most Americans meet their responsibilities because they understand that it’s an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being.”
The president said the current tax code makes it too easy for “a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all.”
He said he was willing to make permanent a research tax credit that was to expire at the end of the year and is popular with businesses. Officials estimate that making the tax credits permanent would cost taxpayers $74.5 billion over the next decade. But administration aides said 75 percent of those tax credits cover the cost of workers’ wages.
Geithner said the proposals would end “indefensible tax breaks and loopholes which allow some companies and some well-off citizens to evade the rules that the rest of America lives by.”
He called them “common-sense changes designed to restore balance to our tax code.”
UBS, Extending its Shake-Up, Ousts Kurer
By CARRICK MOLLENKAMP, The Wall St Journal
In its second top-management change in a week, UBS AG replaced Chairman Peter Kurer, a move that came as the Swiss bank’s board worried that Mr. Kurer had lost credibility in steering the bank through a series of crises, according to people familiar with the situation.
Mr. Kurer will be succeeded by former Swiss Finance Minister Kaspar Villiger, who will run the bank alongside new Chief Executive Oswald Grübel, who took over for Marcel Rohner on Feb. 26.
The moves come on the heels of a long stretch of bad news at UBS, including a U.S. tax-evasion investigation; the largest annual loss ever reported by a Swiss company; the elimination of 11,000 jobs; and the need for a Swiss government bailout.
Under the new management team, Mr. Villiger is expected to handle governmental issues that could include dealing with the U.S. government investigation. Mr. Grübel will run day-to-day operations, a role that may include driving further cost-cutting and possibly more executive changes.
The shake-up came as a senior UBS banker apologized at a U.S. Senate hearing in Washington for the bank’s role in aiding tax evasion by its wealthy American clients.
Click link above for complete article.
United States of America v. UBS AG (Declaration of Daniel Reeves)
Filed under: IRS, UBS, int tax compliance, offshore trusts, tax evasion, tax haven, unreported income
The following 305 page IRS affidavit is the Declaration of Daniel Reeves, a duly commissioned Internal Revenue Agent and Offshore Compliance Technical Advisor employed in the Small Business/Self Employed Division of the Internal Revenue Service. He is assigned to the Internal Revenue Service’s Offshore Compliance Initiative. The Offshore Compliance Initiative develops projects, methodologies, and techniques for identifying US taxpayers who are involved in abusive offshore transactions and financial arrangements for tax avoidance purposes.
UBS Clients Prepare For The Worst
by Vidya Ram, Forbes.com
LONDON - UBS has pledged to fight against the Internal Revenue Service’s demand that it spill details of 52,000 clients suspected of having secret Swiss bank accounts. But its clients are preparing for the worst.
Some clients are already beginning to approach the IRS under its voluntary disclosure program. “We have been going to the IRS without giving names and explaining we represent the clients, to get assurances from the IRS that if they come forward and declare those assets they will not be prosecuted criminally,” says lawyer Ken Rubinstein, of New York-based Rubinstein & Rubinstein. “Unless they already have the client’s name, the IRS is agreeing to treat it as a civil matter.” Several other clients are converting their foreign accounts that aren’t compliant with U.S. law.
Click link above for complete article.
U.S. Sues UBS Seeking Swiss Account Customer Names
Filed under: IRS, UBS, tax evasion, tax haven, unreported income
By David Voreacos and Carlyn Kolker, Bloomberg.com
The U.S. government sued UBS AG, Switzerland’s largest bank, to try to force disclosure of the identities of as many as 52,000 U.S. customers with secret Swiss accounts.
The lawsuit, filed today in federal court in Miami, alleges that 32,000 secret accounts contained cash and 20,000 held securities, according to the statement. U.S. customers failed to report and pay U.S. income taxes on income earned in those accounts, which held about $14.8 billion in assets in the mid- 2000s, according to a statement from the Justice Department.
The case is U.S. v. UBS AG, 09-20423, U.S. District Court, Southern District of Florida (Miami).
Click link above for complete article.
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.
Tax Haven Bank Secrecy Tricks
Senator Carl Levin (D-MI) revealed a list of “secrecy tricks” he said the UBS
bankers used to carry out their tax haven schemes. They include:
• Code Names for Clients
• Pay Phones, not Business Phones
• Undeclared Accounts
• Shred Files
Prepared by the
Cayman Islands, Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist
The U.S. Government Accountability Office (GAO) has recently published, “Cayman Islands, Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist.”
The 57 page pdf can be found here.
Permanent Subcommittee on Investigations Issues Report On Tax Haven Banks Hiding Billions from the IRS
Filed under: IRS, UBS, tax evasion, tax haven, unreported income
7/17/08 Press Release from Michigan Senator Carl Levin’s office-
WASHINGTON – At a Thursday hearing entitled, Tax Haven Banks and U.S. Tax Compliance, the latest in a series of hearings with insider information about the workings of the offshore industry, the Senate Permanent Subcommittee on Investigations will examine how tax haven banks facilitate tax evasion by U.S. clients, hide client and bank misconduct behind the cloak of bank secrecy laws, and add to the offshore abuses that cost U.S. taxpayers an estimated $100 billion dollars each year.
- Marsh. The Marshes of Ft. Lauderdale, Florida, hid $49 million in four
- Wu. LGT helped William Wu hide ownership of assets, including his house in
- Lowy. LGT used transfer companies and a foundation with a
- Gonzalez. LGT helped a Gonzalez car dealership inflate invoices, move funds offshore and, after getting sued for their pricing practices, hide assets in case of a court judgment.
- Chong. LGT helped Richard Chong use hidden accounts to move millions of dollars related to his business ventures, routing them through an offshore corporation to avoid scrutiny.
- Miskin. LGT helped Michael Miskin hide assets from courts, tax authorities, and his wife.
- Olenicoff. Bradley Birkenfeld, a private banker employed by UBS AG, pleaded guilty last month to conspiring with a
In reviewing these case histories, the investigation found: (1) bank secrecy laws and practices are serving as a cloak, not only for client misconduct, but also for misconduct by banks colluding with clients to evade taxes, dodge creditors, and defy court orders; (2) from at least 2000 to 2007, LGT and UBS employed banking practices that could facilitate, and have resulted in, tax evasion by their U.S. clients, including assisting clients to open accounts in the names of offshore entities; advising clients on complex offshore structures to hide ownership of assets; using client code names; and disguising asset transfers into and from accounts; (3) since 2001, LGT and UBS have collectively maintained thousands of U.S. client accounts with billions of dollars in assets that have not been disclosed to the IRS; UBS alone has an estimated 19,000 accounts in Switzerland for U.S. clients with assets valued at $18 billion, and the IRS has identified at least 100 U.S. taxpayers with accounts at LGT; and (4) LGT and UBS have assisted their U.S. clients in structuring their foreign accounts to avoid QI reporting to the IRS, including by allowing U.S. clients who sold their U.S. securities to continue to hold undisclosed accounts, and by opening accounts in the name of non-U.S. entities beneficially owned by U.S. clients; while these banking practices did not technically violate the banks’ Qualified Intermediaryagreements with the IRS, the result is that the banks helped keep accounts secret from the IRS and thereby facilitated tax evasion by their U.S. clients.
- Strengthen QI Reporting of Foreign Accounts Held by
- Strengthen 1099 Reporting. Congress should strengthen the statutory 1099 reporting requirements by requiring any domestic or foreign financial institution that obtains information that the beneficial owner of a foreign-owned financial account is a
- Strengthen QI Audits. The IRS should broaden QI audits to require bank auditors to report evidence of fraudulent or illegal activity.
- Penalize Tax Haven Banks that Impede
This hearing and report follow other investigations into offshore abuses by the Subcommittee. Hearings held by the Subcommittee in 2001 examined the historic and ongoing lack of cooperation by some offshore tax havens with international tax enforcement efforts and their resistance to divulging information needed to detect, stop and prosecute
In Europe, widening probe targets tax haven
Nearly two decades after taking the helm of Deutsche Post, Klaus Zumwinkel had transformed Germany’s national postal service into a global mail and logistics giant with annual revenues of €66 billion ($102 billion) – more than double those of FedEx. A director on the boards of Morgan Stanley, Deutsche Telekom, and Lufthansa, he was one of Germany’s most prominent executives.
Then, on Feb. 14, he surrendered to police amid suspicion that he evaded €1 million in taxes. The next day, he resigned, becoming the first to fall in a massive probe that has broadened to nine other countries.
But even as Germany conducts its biggest tax-evasion probe ever, experts warn that technological advances and opaque banking practices are making it easier for individuals to stash trillions of dollars a year in havens such as Liechtenstein, Monaco, and Luxembourg.
“In this new, more globalized, integrated world, where you can go on to the Internet and open a secret offshore bank account in eight minutes, it’s getting easier for a wider spectrum of the population to hide assets offshore and more difficult for tax authorities to follow the financial trail,” says Grace Perez-Navarro, deputy director at the tax unit of the Organization for Economic Cooperation and Development (OECD) in Paris.
The OECD and the European Union (EU) have led the way in tackling tax evasion, and countries such as Ireland, Italy, and the Netherlands have all reported minor successes or launched new initiatives in recent months. The German probe, based on a list of 1,400 alleged tax cheats provided on CD by a paid informant, has yielded more than 300 suspects and $47 million in recovered taxes.
German tax inspectors are expected to launch a new round of raids shortly, and Spain, Britain, Australia, and the US are conducting their own investigations – some based on the same informant.
Liechtenstein, which has identified the informant as Heinrich Kieber, a former employee for a subsidiary of the royal family’s bank, LGT, has contested the legality of the information. Germany’s domestic intelligence services paid a reported $7.5 million to obtain and verify the lists, $6.2 million of which was pocketed by the informant.
Click here for complete article.
-
Subscribe via RSS
Translator
-
BlogRoll
