Bramwell’s Lunch Beat: Canada Finds FATCA Costs Them
Inversions: Loophole Is the Problem
Jacob J. Lew, the U.S. Treasury Secretary, published an opinion piece in the Wall Street Journal that "the system has become full of inefficiencies and special-interest loopholes. That is why it is so important that we reform our business tax code to make the U.S. economy more competitive and to accelerate economic growth and job creation."
Lew cited Obama's framework for business tax reform, which he said would lower corporate tax rates, broad the tax base and eliminate waste.
The key urgent loophole he said was necessary to addresses was the inversion loophole, noting that currently "the law rewards U.S. corporations with substantial tax benefits when they buy foreign companies and declare that they are based overseas."
Lew said he was calling on Congress to "close this loophole and pass anti-inversion legislation as soon as possible. Our tax system should not reward U.S. companies for giving up their U.S. citizenship, and unless we tackle this problem, these transactions will continue."
Canada Banks Find FATCA Costs Them Plenty
Banks in our neighbor north of the border have had to pay more than half a billion dollars in compliance costs, as reported by Rita Trichur in the Wall Street Journal. The Foreign Account Tax Compliance Act (FATCA) took effect on July 1. According to the WSJ, banks all around the world have been racing to keep up.
About 1 million U.S. citizens live in Canada—perhaps making it the largest home-away-from-home for Americans. Canadian banks say costs will escalate as personnel have to work with customers and respond to tax officials. And then there are employee training costs.
Canada and the U.S. have an agreement on sharing expat tax information: Banks have to report details to the Canada Revenue Agency, which in turn shares it with the IRS.
Canada is not alone in this problem, and other countries have signed agreements as well. The article notes that foreign banks that fail to comply with FATCA face a 30 payment withholding tax on U.S. source payments. And that means "any payments made in U.S. dollars, such as dividends, interest or even proceeds from the sale of property, flowing from sources within U.S. borders."
Inversions: White House Can Do It Alone
James Willhite reported in the Wall Street Journal that the White House might be able move against inversions all by itself, without waiting for Congress. (The WSJ also cited a Reuters report on the topic.)
Apparently, former Deputy Assistant Treasury Secretary Stephen Shay is writing in an article for Tax Notes that 1969 tax law allows the president to restrict foreign tax-domiciled companies from using inter-company loans and interest deductions to cut their U.S. tax bills.
As it stands, a foreign parent can make a loan to a U.S. unit, which then deducts the interest payments from its U.S. taxable income. "The foreign parent then books that interest income at the lower foreign tax rate," says the WSJ. But Shay is arguing that a section of the law would let the government declare debt that reaches certain thresholds as equity and ineligible for deductions.
New Child Tax Credit on the Horizon?
The House passed a bill last week that would that would gradually increase the child tax credit, opening it for higher-income families. On the other hand, the bill would get rid of a provision that makes the credit available to millions of low-income families, according to a Fox Business report.
The bill would index the credit amount to inflation, so it would rise as consumer prices rose. The income limits would also increase with inflation. The bill proposes raising income limits for married couples from $110,000 to $150,000It would be reduced to zero for married couples making more than $170,000.
The bill will go to the Senate next. A White House statement said the bill in its current form would reduce or eliminate the credit for millions of families, and indicated the President would veto the bill.
Poll Shows Americans Want Shorter Leash for Bankers
A report from The Hill presents the results of a poll on regulation of financial institutions. "Most voters believe regulators should do more to rein in Wall Street," said the report. The survey was commissioned by "the left-leaning group Better Markets and conducted by Greenberg Quinlan Rosner Research," according to the report.
Sixty percent of likely voters support “stricter regulation on the way banks and other financial institutions conduct their business,” said the report. Nearly three-quarters—74 percent—of Democrats, 56 percent of independents and 46 percent of Republicans favor tougher rules.
The survey also noted that 64 percent voters—and 62 percent of those who own stock—believe "the stock market is rigged for insiders and people who know how to manipulate the system."
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