Bramwell’s Lunch Beat: Mmmm, Craft Beer. Mmmm, Tax Breaks.
Alibaba Pictures delays results on possible accounting flaws
Jonathan Browning of Bloomberg reported on Friday that Alibaba Pictures Group Ltd., a film producer controlled by China’s largest e-commerce company, said its new management uncovered possible accounting flaws and won’t be able to publish its interim results on time.
The media company’s executives identified possible “noncompliant treatment” of financial information for periods before its acquisition by Alibaba Group Holding Ltd., it said in a Hong Kong stock exchange filing. In addition, Alibaba Pictures may not have made enough writedowns for some assets in the first half of the year, the filing shows.
Alibaba Group agreed to buy 60 percent of the company, formerly known as ChinaVision Media Group Ltd., in March for HK$6.24 billion ($804 million) to gain rights to television dramas and English Premier League soccer, Browning wrote. The Chinese company, which is preparing what may become the largest US initial public offering (IPO) ever, has announced $5 billion of acquisitions in the past year, data compiled by Bloomberg show.
“People will take a look at their future M&A more carefully,” Raymond So, dean of the business school at Hang Seng Management College in Hong Kong, said about Alibaba Group, according to the article. “They have to strengthen their corporate governance so that it’s subject to increased checks and balances.”
So said it was too early to say whether the incident would have any impact on Alibaba Group’s IPO, Browning wrote.
Craft beer: Tastes great, fewer taxes
Trendy craft beer sales are booming, and cities and states are hoping tax breaks will help them elbow their way into a seat at the bar, Kelsey Snell of Politico wrote on Wednesday.
Targeted tax breaks are a favorite tool for states looking to capitalize on a growing industry, and states from California to New York are all hoping to get a gulp of the estimated $250 billion economic boon brewers estimate they delivered in 2012. Lawmakers are doling out multimillion-dollar packages to keep and attract breweries.
But Snell noted that while the tax breaks flow, there is little evidence that these incentives are driving where craft brewers set up their businesses. Factors, such as the availability of natural resources like water and the quality of the infrastructure needed to get the beer to the masses, are likely playing a bigger role.
The incentives are usually spread out over several years in order to ensure that the breweries bring jobs and investment to the local economy. They also hope that one hot new brewery can attract more trendy popular businesses to locate nearby.
Brewers say the tax incentives are often offered only at the end of a long process of deciding where to invest, Snell wrote. New Belgium Brewing, one of the top-selling craft brewers in the country, recently broke ground on a new East Coast brewing facility in Asheville, North Carolina. The city announced in 2012 that it would provide New Belgium with a seven-year, $3.5 million tax-incentive package based on the company’s planned $175 million investment. If the company doesn’t make the full investment, it doesn’t get the full package.
“Cities should go into those negotiations making sure they win, too,” said Jenn Vervier, director of sustainability and strategy at New Belgium, according to the article. “The city of Asheville will be a partner of New Belgium for decades to come; it had to be win-win for both of us.”
Wyden seeks bipartisan bill on tax inversions
Kevin McCoy of the USA Today reported that bipartisan congressional legislation aimed at addressing a surge of US firms trying to cut their taxes by reincorporating overseas could be introduced in September, Senate Finance Committee Chairman Ron Wyden (D-OR) said on Thursday.
Wyden made the prediction while saying he's working with Senator Orrin Hatch (R-UT), the panel's ranking minority member, to address company departures that could erode the federal government's tax base.
Wyden also said he’s consulted with Senator Charles Schumer (D-NY), who on Thursday issued a proposal aimed at limiting tax deductions for domestic firms that shift their headquarters to lower-tax nations while continuing much of their business operations in the United States.
The limits would make it harder for companies that undergo inversions to saddle their US operations with debt, thereby reducing their US taxable income, McCoy wrote. The tactic, known as earnings stripping, “is a key piece of any sound solution” to the overall inversion issue, Wyden said.
“This issue demands a resolution in the near term, and I hope to have bipartisan legislation in place come September,” he added, according to the article.
Chiquita rejects unsolicited offer and will proceed with inversion
Chiquita Brands International, the big banana producer, on Thursday rejected an unexpected takeover offer and said it planned to go ahead with its previously announced deal to acquire Fyffes of Ireland, wrote David Gelles of New York Times DealBook.
On Monday, two Brazilian businesses – the Cutrale Group and the Safra Group – made a surprise offer of $13 a share, or about $611 million, for Chiquita. The offer price represented a healthy premium over Chiquita’s share price, which had slumped since announcing its deal for Fyffes.
But in a letter to Cutrale and Safra, and a news release, Chiquita said the offer was not in the best interest of its shareholders, Gelles wrote. Calling the bid “inadequate,” Chiquita said it had no plans to allow Cutrale and Safra to conduct due diligence or to engage in deal talks.
At the same time, the Chiquita board reiterated its commitment to the Fyffes deal, which will allow the company to reincorporate in Ireland through an inversion, reducing its tax bill and giving it better access to overseas cash.
Durbin urges Hospira not to flee US
Senator Dick Durbin (D-IL) has a new target as he tries to halt American firms from moving corporate headquarters overseas to cut their tax bills: Hospira, a Lake Forest, Illinois-based company that makes injectable drugs and infusion products, Katherine Skiba and Peter Frost of the Chicago Tribune wrote on Thursday.
Durbin wrote a letter to the CEO of Hospira urging him not to take the firm’s tax dollars overseas. “I strongly urge you and the board of directors not to duck your corporate responsibility by moving overseas to dodge paying US taxes,” he wrote in the letter to F. Michael Ball, according to the article.
Hospira, the world’s largest maker of generic injectable drugs used in hospitals, is in talks to acquire the nutrition business of French dairy company Danone, several news outlets have reported. The deal, reportedly valued at about $5 billion, would allow Hospira to move its corporate tax base to France, which has a lower tax rate than the United States, Skiba and Frost wrote.
In his letter, Durbin said Hospira’s success depends on an educated workforce, transportation infrastructure, and tax benefits in the United States. In Durbin’s call for Hospira to stay put, he made many of the same arguments as when he fought a proposed inversion by Deerfield, Illinois-based Walgreen Co, which decided against moving its corporate headquarters overseas earlier this month.
Ernst & Young role in Gowex fraud questioned by exchange
Rodrigo Orihuela and Macarena Munoz of Bloomberg wrote on Wednesday that as Spanish regulators sift through the remains of Let’s Gowex SA, the Wi-Fi hotspot provider that collapsed last month after years of falsifying earnings, investors and the Madrid exchange are asking just who was verifying its financial statements.
Auditor Jose Diaz, of M&A Auditores, has been named as a suspect and jailed after failing to post bail. A review of the rules for MAB, the exchange where Gowex traded, also raises questions of whether its registered adviser, Ernst & Young (EY) Servicios Corporativos S.L., should have caught on to the fraud earlier.
The Spanish firm, part of the EY LLP global network, has been Gowex’s registered adviser since the company’s market debut in 2010. MAB said it asked the Madrid-based accountant for any related documents for the exchange’s own investigation into Gowex’s collapse and declined further comment, Orihuela and Munoz wrote.
Gowex founder Jenaro Garcia told Madrid Judge Santiago Pedraz that he faked Gowex’s accounts since at least 2005, five years before its IPO, according to a July 14 court statement. He admitted to inflating the value of contracts and inventing customers, and his maid has told Pedraz that she got 300 euros ($400) to sign paperwork to create at least one such phantom client.
Garcia also listed a defunct company as a holding vehicle for his stake in Gowex in the 2010 prospectus that EY worked on as a registered adviser. EY says it wasn’t responsible for catching Garcia’s lies. “We only saw the information they gave us,” Francisco Silvan, the partner in charge of registered advisory work at the firm’s Madrid office who didn’t work with Gowex directly, said in an interview last month, according to the article. “We’re not meant to do a second audit.”
Atlanta accountant and three others charged with insider trading
Russell Grantham of the Atlanta Journal-Constitution reported that four men were charged with insider trading on Thursday, including an Atlanta accountant who allegedly learned of a pending takeover while giving tax advice to a member of the O’Charley’s restaurant chain’s board of directors, according to federal authorities.
The four didn’t admit guilt, but agreed to pay a total of $420,000 – mostly in penalties – to settle charges that they illegally profited from inside information, according to the US Securities and Exchange Commission (SEC), whose Atlanta office conducted the investigation.
The SEC said Donald S. Toth, an accountant in Atlanta, learned of Jacksonville-based Fidelity National Financial’s planned acquisition of O’Charley’s about two months ahead of the deal’s announcement, Grantham wrote. Toth, who is described as a senior partner at Smith Adcock and Co. on that Atlanta firm’s website, instructed his financial advisor to buy 5,000 shares of O’Charley’s stock an hour after the meeting, the SEC said.
Toth also tipped two other clients, James A. Nash, of Buford, Georgia, who bought 10,000 shares, and Blair G. Schlossberg, of Holmes Beach, Florida, the agency said. Schlossberg tipped his business partner, Moshe Manoah, of Davie, Flordia, and they jointly bought O’Charley’s stock, the SEC said.
O’Charley’s stock price rose 42 percent, the SEC said, on the day Fidelity National, a title insurance company that already owned nearly 10 percent of the company, announced its plans in February 2012 to purchase all of the restaurant company’s stock. The four made more than $160,000 in trading profits, Grantham wrote.
[Click here for the SEC’s release on the insider trading charges.]
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- PwC tries its hand at law (Financial Review)
- CPA’s sons score $3M to bring order to financial audits (Wall Street Journal)
- Kinder Morgan is playing tax arbitrage with itself (DealBook)
- ‘US persons’ in Canada express fear and loathing of tax crackdown (Vancouver Sun)
- Doral declines as SEC probes Puerto Rico tax receivables (Bloomberg)
- Dying Japanese towns ply beer in drive for tax donations (Bloomberg)
- Everybody hates property taxes. Here’s how to make them fairer (Bloomberg)
- A tax shelter to phone home about (The Hill)
- Judge issues new order in IRS lawsuit (The Hill)
- House Republicans: End ‘harmful’ wind tax credit (The Hill)
- Get rid of the crony wind tax, Republican lawmakers say (Daily Caller)
- Shrinking revenue spurs gas tax alternatives (Stateline)
- How much will corporate tax inversions cost the US Treasury? (Tax Foundation)
- Forget inversions, these 20 huge, profitable companies already pay zero tax (Forbes)
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- Oil tax cut advocates don’t want Alaskans to know how deep the cuts go (Alaska Dispatch)
- Rauner won’t commit to releasing full tax documents (Chicago Sun-Times)
- California poised to hike film tax credits to step runaway production (Los Angeles Times)
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