Bramwell’s Lunch Beat: Tax Break Ball Back in Senate’s Court
Credit Suisse deal with US authorities could top $2 billion – sources
Karen Freifeld and Aruna Viswanatha of Reuters reported  yesterday that New York state's banking regulator is seeking hundreds of millions of dollars from Credit Suisse in its probe of potential tax evasion involving the Swiss bank, according to sources close to the matter, which could push an eventual settlement with US authorities to more than $2 billion.
The New York regulator made an opening bid of $1 billion, one of the sources said, though negotiations are expected to significantly drive down the final penalty amount.
Freifeld and Viswanatha wrote that the settlement with the New York State Department of Financial Services would be in addition to the fine that Credit Suisse is discussing with the US Justice Department. Reuters reported last week that the Justice Department is seeking as much as $1.6 billion from the bank.
Federal prosecutors have also been pushing for the bank to plead guilty to criminal charges as part of the settlement, as the Justice Department has faced criticism that it has shied away from prosecuting financial firms.
Senate nears showdown on reviving lapsed US tax breaks
As soon as today, the Senate could begin procedural votes on reviving dozens of tax breaks that lapsed on December 31, 2013, and extending them through 2015, Richard Rubin of Bloomberg reported  on Monday.
The $80 million package of tax reductions would let companies, such as General Electric Co., defer US taxes on overseas financing income and reinstate the production tax credit for wind energy.
The Senate Finance Committee approved the bill  in a bipartisan vote early last month, and Republicans support most of the breaks, which aren’t paired with spending cuts or tax increases.
But Rubin noted that the Senate floor votes are Republicans’ opportunity to make changes. Though they’re in the minority, their strategy matters because at least five Republicans are needed to join Democrats on votes to advance the bill. If Republicans unite and insist on considering amendments, they can block the bill, Rubin wrote.
Also in the package are an extension of the research and development (R&D) tax credit, the ability for individuals to deduct state sales taxes, and the 50 percent bonus depreciation for capital investments.
House lawmakers have taken a different approach, breaking out individual tax provisions and offering proposals to make them permanent. The first such bill, on the R&D credit, passed the House 274 to 131 on May 9  with 62 Democrats joining Republicans to support the measure.
Restatements pack less of a punch
According to data from Audit Analytics, the average financial restatement cost companies just $3.2 million last year, reflecting the smallest hit to company earnings in seven years, John Kester of the Wall Street Journal’s CFO Journal reported  today.
That figure is less than half of the average $6.5 million bite out of earnings that restatements took in each of the previous six years, he noted. Some 53 percent of all public company restatements had no impact at all on earnings last year – a seven-year high.
The reason for the declining restatement cost? Complex areas of restatements, such as income taxes and hedging activities, “are gradually coming down,” said Peter Bible, a former chief accounting officer at General Motors Co. and current chief risk officer at accounting firm EisnerAmper LLP, according to the article. Also, regulators at the US Securities and Exchange Commission (SEC) have also been filing fewer accounting fraud cases, reducing companies’ restatement risks, Kester noted.
SEC enforcement: Case length and settlements
Speaking of the SEC, Audit Analytics noted in a blog last week  that the number of SEC enforcements spiked in 2011 and 2012 (735 and 734 enforcements, respectively), likely due to the lag between the 2009 crash and the time it takes to bring an enforcement action forward.
But as Derryck Coleman wrote, it has been proposed that the sheer number of enforcements alone is not a good enough indicator of the SEC’s ability to police the market. After analyzing cases the SEC opened and closed between 2010 and 2012, a counter-intuitive trend emerges from the data: The quicker a case was settled, the larger the average settlement.
According to the data, cases that lasted less than a week featured an average settlement of $31.5 million compared to the average settlement of nearly $6.7 million for cases that lasted more than one year.
“This suggests that companies may be willing to settle large cases in an attempt to avoid admitting wrongdoing or criminal indictment,” Coleman wrote. “A quicker settlement may also make it harder for other stakeholders to bring a lawsuit against the firm.”
A deal to dodge the tax man in America
Ian C. Read, chairman and chief executive of Pfizer Inc., is in London this week trying to sell a skeptical public there on his $106 billion takeover plan for rival AstraZeneca PLC. On Tuesday, he is scheduled to testify to a parliamentary committee about a deal that has been described in the British tabloids as “too dangerous” and has raised a bevy of nervous questions about potential job losses.
But as New York Times DealBook Editor-at-Large Andrew Ross Sorkin wrote  yesterday, the real question is why Read is not being called to testify in Washington to explain the real purpose of this megadeal: a mega-tax-dodge.
“The deal represents a potential tipping point in a trend among United States companies to acquire foreign competitors and reincorporate abroad in low-tax countries, a process known as an inversion,” he wrote. “An informal survey of bankers indicated that the trend is real. Since Pfizer announced its offer, at least a half-dozen bankers have counted more than 17 incoming calls from Fortune 500 companies requesting an analysis of merger prospects that involve an inversion.”
Drug CEOs say not ready to leave US yet as rivals flee
Merck & Co.’s Ken Frazier, whose company is the second-largest US maker of brand-name pharmaceuticals behind Pfizer Inc., and Mylan Inc.’s Heather Bresch, the leader of the nation’s biggest generic drug maker, don’t want to leave the United States if it can be helped, they told Bloomberg News in separate interviews.
But unless Congress acts to level the tax playing field with the rest of the world, others may be forced to follow the examples set by Pfizer and Actavis PLC, they said, according to an article  today by Drew Armstrong of Bloomberg.
“The loser in this is our country,” Bresch said during an interview in New York, according to the article. “No one seems to care about that. Congress can’t find it within themselves to make our country competitive.”
Frazier said in an interview in Boston that the solution is not to leave, but to work with Congress to lower the US corporate tax rate of 35 percent so that it’s in line with the rest of the world, including the United Kingdom’s 21 percent rate.
“I continue to be optimistic, because we’re a rational country of rational people,” Frazier said, according to the article. “We’re proud of being an American company, but we’d like to be on an even playing field with our European and Japanese competitors.”
What if congressional elections were run like the NFL draft?
An interesting column  yesterday from Forbes tax contributor Kelly Phillips Erb. Here’s a sample: “In the NFL, teams choose players based on evaluations of abilities, performance, and potential. Similarly, states could evaluate congressional candidates on similar criteria – rather than TV ads and billboards.
“In February, before the draft, the NFL holds a scouting combine. Players are invited to show up and run, pass, and catch, demonstrating what makes them NFL material. Similarly, congressional candidates could show up and demonstrate what makes them Senate or House material. What do they know about the tax code? How fast can they whip up a proposed budget? Can they dash down the halls of Capitol Hill in sufficient time to override a veto? These are the kinds of things states need to know.
“Representatives from each state could compare notes, check out voting patterns, and assemble their top picks for office – just like they do in the NFL. You could compare all kinds of stats.”
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