taxes

  • 13 Mar 2009 at 4:08 PM

Swiss Irony

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While it may not be the place for tax avoiders (evaders) it’s still a Mecca for legitimate tax arbitrage. Convinced, with good reason, that they are about to be tagged with windfall profits taxes, green taxes, anti-petrol taxes, and “you are too profitable” taxes, a number of energy companies are moving to Swiss cantons, like Zug, to take advantage of promotions like 5 and 10 year tax holidays, pre-negotiated corporate tax rates and, occasionally, the personal tax rates for executives that remain valid for up to 20 years and a fistful of “C Permits” for your closest relatives and essential colleagues.

Over the past six months companies including offshore drilling contractors Noble Corp and Transocean, energy-focused engineering group Foster Wheeler and oilfield services company Weatherfield International have all announced plans to shift domicile to Switzerland.
“Switzerland has a stable and developed tax regime and a network of tax treaties with most countries where we operate,” Transocean Chief Executive Bob Long said in a statement in October, when it announced its move.

“Stable” being the key word here. Regulatory predictability is still, in some countries, an asset.

…in Zug, corporate tax is about 16 percent but can fall as low as 9.5 percent for companies that do most of their business outside Switzerland. That compares with an average global corporate tax rate of 25.9 percent, according to consultancy KPMG.
[...]
“One trend that we see is that particularly Bermuda-based companies are now moving to Switzerland,” said Martin Frey, a partner at law company Baker & McKenzie. “That may only partly be obviously for tax reasons, but also for security reasons and the fact that the Obama administration may go after them.”

I wouldn’t be surprised if the executive office building suddenly mutates a copy of the “expatriation is a death event” tax statutes and creates the “corporate expatiation is death event” tax, treating the corporate departure from the United States as a sale of all assets and leveling a tax on the hypothetical gains. Laws extending United States taxation to non-citizens in a similar way have been on the books since 1996. Effectively, the intent is to make sure that the departing ex-pat continued paying “their dues” long after they had left the country with no intention to return.
Is anyone really surprised that as expat tax terms stiffened in 2006 the United States saw an increasing number of citizens turning in their passports? We think that a little extreme, but wouldn’t blink twice at moving our little corporate headquarters out of the United States for friendlier lands if someone decided to level a punitive tax on snarky blogs.
Corporate oil booms in low-tax Switzerland [Reuters]

  • 05 Feb 2009 at 4:56 PM

I’m Having A Hard Time Finding A Metric To Measure All This Déjà Vu

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The thing about this production of “Theater of the Absurd” is that the first act never seems to end.

A Senate committee put off its vote on Representative Hilda Solis’s nomination as labor secretary, one day after her husband paid to settle tax liens.

Welcome to the big leagues, gang!
Solis Nomination Vote Delayed After Tax Issue Arises [Bloomberg]

  • 30 Jun 2008 at 8:35 AM
  • politics

Meet John McCain’s Economic Brain: Phil Gramm

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Phil Gramm gave his first political interview in years to Stephen Moore in the Wall Street Journal’s weekend edition. The interview is clearly meant to reassure conservative voters about Republican presidential candidate John McCain. What separates McCain from Obama, Moore writes, is that although neither of them know much about economics, “McCain has the good sense to know where to turn to for first-rate advice.”
Gramm was something of a hero to a lot of conservative activists. He cut his teeth as a Reagan Democrat in the House of Representatives, championing Ronald Reagan’s tax cuts in the early eighties. Later he switched allegiances to the Republican party and got elected to the Senate. With the GOP victories in 1994, Gramm became the chairman of the powerful banking committee. Moore writes that he played a “decisive role in nearly every fiscal conservative victory in the 1980s and 1990s.”
But that was then and this is now. Gramm is now 65 years old, and he vanished from the political stage six years ago when he took a high-rolling investment banking job at UBS. So what does Gramm offer voters now?

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  • 27 May 2008 at 10:00 AM

DealBreaker’s Guide To Living: The Michael Lohan Component Is Essential

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Kirk Wright, the hedge fund manager convicted of 47 counts of fraud and money laundering, whose clients included pro football players and his mother, and who faced as much as 710 years in prison plus a fine of up to $16 million, committed suicide in his jail cell on Saturday. Betty Honey, an investigator with the Fulton County Medical Examiner’s office, said Wright hanged himself, and that no foul play is suspected. Obviously, this is extremely sad for all involved, even those of us just reading/writing about the event. Moving forward, so we (family, friends, strangers with candy) don’t have to experience this sort of pain again, anyone awaiting sentencing (Moz?) should take his/her cue from convicted tax evader, Wesley Snipes.

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  • 07 May 2008 at 1:18 PM

Baby Steps At UBS

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As you’ve probably heard, the U.S. Department of Justice is investigating whether or not UBS helped its clients evade taxes. Yet another less than shining moment for the Swiss bank, on the heels of writing down trillions, laying off millions, and demonstrating an extreme inability to take a joke. Or is it? Obviously that’s how the naysayers (Credit Suisse) would like to see it, but from our angle, the so-called “crimes” committed between 2000 and 2007 are the first indication of UBS trying to do right by its clients. We should be applauding UBS for such efforts, not knocking it down– they kinda sorta give a shit! About people other than themselves! Not so much shareholders or anything (let’s not go crazy), but maybe if we start offering positive reinforcement for good deeds now, there’s a glimmer of hope that perhaps, many, many years down the road, they’ll consider it.
UBS Faces U.S. Tax Evasion Probe; Employee Detained [Bloomberg]

Taxing Sovereign Wealth Funds

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Is US tax law accidentally favoring sovereign wealth funds, giving them an advantage over other investors? Law professor Victor Fleischer says that is exactly what is happening, and advises Congress to amend the tax-code to repeal the loophole that sovereign wealth funds are exploiting.
Fleischer gained attention last year when his paper about the tax treatment of private equity, titled Two and Twenty, caught the eye of Capitol Hill lawmakers and made carried-interest front page news. His latest research paper proposes that allowing sovereign wealth funds to remain exempt from taxes on the principal of sovereign immunity favors sovereign wealth funds over private foreign individuals and funds.
“Encouraging foreign investment in the United States generally increases overall welfare,” he writes on the Congolmerate. “But there is no sound policy reason to unconditionally exempt state-owned investment funds from U.S. taxation, and it is not at all clear that we should give state-owned funds a competitive advantage that crowds out private investment.”
He warns, however, that hasty action to raise taxes on sovereign wealth funds “could be perceived as a protectionist signal that could discourage both state-owned and private foreign investment.” That prediction is hardly outlandish. Already there are many on Capitol Hill who view with suspicion the recent investments in US financial firms by sovereign wealth funds.
Taxing Sovereign Wealth Funds [The Conglomerate]

Taxes And Consequences: Barack Obama’s Tax Plan For Wall Street

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It’s official: Wall Street loves Barack Obama. In 2007, even before he became widely-recognized as the front-runner for the Democratic nomination, Obama pulled in a total of $1.7 million from employees at 12 major Wall Street firms, according to a survey by the McClatchy news agency. Those numbers included $288,835 from Goldman Sachs, $242,395 from UBS and $226,805 from Lehman Brothers. He’s reportedly doing even better now that he has pulled ahead of Hilary Clinton in most polls. Money from hedge funds and private equity funds is pouring into his campaign coffers.
Well it’s a good thing that Wall Street loves giving money to Obama because if he gets elected, employees at Wall Street firms will be sending much larger checks his way thanks to tax increases. Obama has promises to end the Bush tax cuts. “That is a 3% bump across the board to the bad old days when associates faced a marginal federal tax rate of 36%,” Ted Frank wrote on our sibling blog AboveTheLaw when he analyzed the tax effects of Obamanomics on law firm associates.
We decided to take Frank’s analysis and apply it to Wall Street. Specifically, we decided to look at the effect of Obamanomics on an associate at an investment bank in his first year out of business school. Let’s say that a first-year post-MBA associate is paid about market rates for a Wall Street firm, taking home $105,000 in salary and $175,000 in bonus. Like Frank, we’ll assume he’s generous, and gives $10,000 a year to charity.
The biggest tax effect comes from Obama’s plans to end the social-security tax cap. Current law caps social security taxes at $102,000. Obama plans to abolish this, meaning the full salary and bonus will be subject to social security taxes. That adds several thousands of dollars to the associate’s tax bill.
As Frank notes, that’s not the only place associates will feel the higher tax bill. They’ll likely feel it in smaller bonuses as well. Social-security taxes are not only on employees. The government also charges 6.2% to employers that employees never see on their W-2s. But, of course, their employers noticed this hit and it shows up in compensation costs on balance sheets that shareholders will see too. Even if we assume that employers are willing to swallow half of the extra cost of uncapped social security taxes, the bonus for the associate will decline by around $5000.
The overall effect of Obama’s tax hikes is breathtaking. The first year associate’s marginal tax rate goes up from an already ridiculous 42.5% to 51.4%–not including the new 6.2% marginal tax on the employer. Add in the effects on the bonus, and the associate is losing nearly $20,000/year in take-home pay.
Frank has helpfully added a third column to his chart: how big a pay cut would you have to take to receive the same take-home income? The answer is that Obama’s tax increases have a bigger effect on your income than a Wall Street firm cutting New York salaries by $34,000.
See the effect charted after the jump.

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