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Bramwell’s Lunch Beat: As the Inversion World Turns

Oct 16th 2014
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World Health Organization backs higher tobacco taxes to cut smoking
The World Health Organization (WHO) approved guidelines on Wednesday urging countries to increase cigarette taxes to help discourage smoking, wrote Martinne Geller of Reuters.

The guidelines, which leave it to individual countries to determine their own tax rates, were adopted by a conference of the parties to the WHO’s Framework Convention on Tobacco Control, a treaty signed by 179 countries with the aim of reducing tobacco use and improving global health.

“Any policy to increase tobacco taxes that effectively increases real prices reduces tobacco use,” said the draft guidelines, according to the article, noting that young people and others with lower disposable income were more responsive to tax and price changes.

WHO has previously suggested a benchmark rate of 70 percent of the retail price of a pack of cigarettes as a target that would save lives, but in the new guidelines it stopped short of recommending a one-size-fits-all approach, Geller wrote. The guidelines also encouraged earmarking tax revenue for programs, such as awareness-raising, health promotion, and disease prevention, to help curb tobacco use.

AbbVie board recommends shareholders vote against Shire acquisition
Shayndi Rice of the Wall Street Journalreported on Thursday that pharmaceutical giant AbbVie Inc. officially reversed course on its plans to buy Dublin’s Shire PLC, saying it was recommending shareholders vote against the $54 billion takeover deal it had signed in July in light of new tax rules from the US Treasury Department.

AbbVie’s withdrawal of support for the deal, the year’s biggest agreed-upon merger, is a win for the Obama administration, which raised a ruckus this summer about overseas merger deals, known as inversions, that help the corporate buyer avoid US taxes, Rice wrote. The Treasury Department in September adopted rules making the deals more difficult and less lucrative. Because AbbVie’s agreed-upon deal hadn’t closed, the new rules applied to it.

Last Wednesday, AbbVie said the new rules “eliminated certain financial benefits of the transaction, most notably the ability to access current and future global cash flows in a tax-efficient manner as originally contemplated in the transaction. This fundamentally changed the implied value of Shire to AbbVie in a significant manner.”

North Chicago, Illinois-based AbbVie said if shareholders followed its recommendation, AbbVie would owe Shire a breakup fee of about $1.635 billion. AbbVie had agreed to purchase Shire and relocate the company’s headquarters to the United Kingdom. At the time, AbbVie said the deal would have allowed it to lower its tax rate to 13 percent by 2016, from 22 percent this year, according to the article.

Durbin statement on reports of AbbVie reconsidering inversion
It comes as no surprise that the news of AbbVie’s U-turn on the Shire deal pleased Sen. Richard Durbin (D-IL), who has been vocal against US companies – especially those located in Illinois (remember Walgreens?) – that have considered using the inversion tactic.

In July, Durbin sent a letter to AbbVie CEO Richard Gonzalez urging him and the board of directors to reverse their plans to invert.

In a statement on Wednesday, Durbin said, “I’m encouraged by reports that AbbVie will reconsider its decision to move its tax address out of the United States. When corporations choose to invert and don’t pay their fair share of taxes, they leave the rest of us to pick up the tab. That isn’t right, and I hope that more companies will see the light.

“The Obama administration has taken action to help curb this practice,” he added. “Congress must follow suit by passing a legislative solution to eliminate incentives for companies to renounce their corporate citizenship and turn their backs on American taxpayers.”

Class-action lawsuit over Infuse could put Medtronic-Covidien deal at risk
Jim Spencer of the Minneapolis Star Tribunereported earlier this week that a federal judge in Minneapolis has pushed forward a lawsuit involving Medtronic Inc.’s problematic Infuse bone growth product that could complicate the company’s controversial $43 billion acquisition of Covidien.

US District Judge John Tunheim will let lawyers for Medtronic investors explore an alleged coverup of Infuse’s bad side effects by Medtronic officials and doctors the company paid to do research. Off-label use of Infuse has allegedly injured thousands of patients.

Tunheim also said the plaintiffs in the investors’ class-action lawsuit could pursue a claim that former Medtronic CEO William Hawkins purposely made misstatements to stock analysts to hide the fact that the Food and Drug Administration had refused to approve the next iteration of Infuse, a product called Amplify, Spencer wrote.

Experts say the ability to examine Hawkins’ alleged misstatements, along with alleged manipulation of scientific research to cover up Infuse problems, could produce damaging publicity as Medtronic tries to consummate an already contentious attempt to buy the Irish devicemaker Covidien. If the investors’ case gets to a jury that believes company officials knew of Infuse’s problem but tried to hide them, a legal shield Medtronic has used to avoid thousands of personal injury claims might also be pierced, according to the article.

Cutrale-Safra raises Chiquita takeover bid
Shares of Chiquita Brands International closed sharply higher on Wednesday after a team of Brazil-based corporate suitors sweetened their proposed takeover offer for the banana-market giant by nearly 8 percent, wrote Kevin McCoy of the USA Today.

The increased all-cash “definitive” offer by the Cutrale Group and Safra Group raised anew the prospect of a takeover that could block Chiquita's plan to complete a corporate tax inversion by buying Ireland rival Fyffes – a deal that aimed at creating the world's largest banana seller.

Cutrale-Safra, a global agribusiness firm paired with an investment company, raised the team's offer to $14 a share, or roughly $657.5 million based on Chiquita shares outstanding as of Aug. 4, McCoy wrote. The initial takeover bid in August offered $13 a share, or nearly $611 million.

Calling the offer “more favorable” to Chiquita shareholders, the team said the planned Fyffes deal raises “serious doubts” about the business performance of the Irish firm and Chiquita following the proposed tie-up.

Charlotte, North Carolina-based Chiquita said Wednesday that it would review and consider the Cutrale-Safra offer “in light of the best interests of the company and its shareholders.” The statement came one day after the company filed an investor presentation that outlined shareholder benefits of the proposed Fyffes deal, including an implied pro forma share price of $15.59 for the combined Chiquita-Fyffes. The company also said Chiquita was on track to meet its 2014 profit forecast, according to the article.

The big mystery: What’s big data really worth?
As more companies traffic in information and use big-data analytic tools to find ways to generate revenue, the lack of standards for valuing data leaves a widening gap in our understanding of the modern business world, Vipal Monga of the Wall Street Journalwrote on Oct. 12.

Corporate holdings of data and other “intangible assets,” such as patents, trademarks, and copyrights, could be worth more than $8 trillion, according to Leonard Nakamura, an economist at the Federal Reserve Bank of Philadelphia. That’s roughly equivalent to the gross domestic product of Germany, France, and Italy combined.

Supermarket operator Kroger Co. records what customers buy at its more than 2,600 stores and also tracks the purchasing history of its roughly 55 million loyalty-card members. It sifts this data for trends and then, through a joint venture, sells the information to the vendors who stock its shelves with goods ranging from cereals to sodas, Monga wrote.

Kroger does say that it follows US Generally Accepted Accounting Principles, which prohibits companies from treating data as an asset or counting money spent collecting and analyzing the data as investments instead of costs.

The Financial Accounting Standards Board (FASB) has struggled to update its rules for an economy increasingly driven by information and intellectual property. The FASB has debated the question of intangible assets twice between 2002 and 2007. Both times, complications convinced the agency to drop it from the agenda. Last month, however, members of the advisory council again advised the board to research intangibles, said FASB spokeswoman Christine Klimek, according to the article.

FASB pursues improvements to stock option accounting
Tammy Whitehouse of Compliance Weekwrote on Tuesday that the FASB has begun work on targeted improvements for accounting for stock options and other forms of share-based payments.

The FASB added a project to its agenda to improve the accounting for share-based payments that a company makes to its employees in five specific areas. The board is looking for some improvements that will reduce the complexity and simplify the accounting as part of its broader simplification initiative. And depending on the outcome of some early stage research, changes could be in the wind for the accounting around share-based payments made to nonemployees as well.

Whitehouse wrote that as it takes up a simplification project, the FASB made some early tentative decisions around the improvements it has in mind, focusing on the requirements around minimum statutory withholdings, the presentation of employee taxes paid when the company withholds shares to meet those minimum withholding requirements, the accounting for forfeitures, the accounting for income taxes upon vesting or settlement of awards, and the presentation of excess tax benefits.

In an alert to clients, Ernst & Young (EY) says many companies find the existing requirements around share-based payments complex and costly to apply. “We support FASB’s effort to simplify the accounting for share-based payments for public and nonpublic entities,” EY wrote, according to the article.

Former UBS manager testifies against Raoul Weil
Andrew Grossman of the Wall Street Journalreported that bankers for UBS AG used the prospect of tax-free profits from hot Internet stocks to highlight the value of secret Swiss bank accounts and gin up trading commissions during the dot-com bubble, a former UBS manager testified on Wednesday.

“We went up to the client and said, ‘Why don’t you take the profit?’” Hansruedi Schumacher told jurors at the trial of former UBS executive Raoul Weil, according to the article. “‘It’s 100 percent. The gain is all yours.’”

Schumacher took the stand in federal court on Wednesday morning as the first major government witness in the case against Weil, the former head of UBS’s wealth-management division. The 54-year-old Swiss national is charged by the US Justice Department with conspiring to aid tax evasion.

Schumacher was indicted in 2009 for his role in aiding tax evasion, but has agreed to cooperate with the government, Grossman wrote. Bankers at Swiss Bank and, later, at UBS, knew they were helping many of their more than 15,000 American customers hide money – sometimes from their wives, sometimes from the IRS.

They maintained a shorthand to keep track, he said. “Simple” or “black” accounts hadn’t been declared to the IRS. “Complex” or “white” accounts had been, according to the article.

Scott Brown: Close IRS branch in Cincinnati
Bernie Becker of The Hillwrote earlier this week that former Sen. Scott Brown (R-MA) urged the IRS to kill a Cincinnati-based location that has played a central role in the agency’s Tea Party controversy.

“I believe the Cincinnati branch responsible for this sordid affair must be officially disbanded so that it can no longer have the opportunity to violate the First Amendment rights of law-abiding organizations seeking tax-exempt status,” Brown, now trying to unseat Democratic Sen. Jeanne Shaheen in New Hampshire, wrote to IRS Commissioner John Koskinen in a letter on Monday, according to the article.

In the letter, Brown both wrongly identifies the IRS commissioner in office when the improper scrutiny occurred and splits from most GOP lawmakers in focusing on the Cincinnati office’s role in the controversy, Becker wrote.

Brown said on Monday that Shaheen was among the lawmakers pressing the IRS to more fully scrutinize applications from Tea Party groups, having reached out to then-commissioner John Shulman in 2012. The previous IRS chief is named Doug Shulman.

Top GOP lawmakers, like House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) and Rep. Jim Jordan (R-OH), have also tried to downplay the Cincinnati office’s role in the controversy, according to the article.

Quick Links:

  • A quick and dirty guide to getting away with insider trading (Going Concern)
  • Survey: What was the salary at your first accounting job? (Going Concern)
  • Accounting estimates: What investors should want (Accounting Onion)
  • Warren Buffett sells more than 245 million Tesco shares (BBC News)
  • Your tax refund – fastest, biggest, & easiest. Not so much! (Huffington Post)
  • What you need to know about the tax extenders up for a vote (Huffington Post)
  • How growing tax receipts cut the deficit to an Obama-era low (MarketWatch)
  • What does closing the ‘Double Irish’ tax loophole mean for pharma? (Wall Street Journal)
  • Will Irish tax law change stop corporate inversions? (Forbes)
  • Billionaire hedge fund manager John Paulson’s inversion bet falls sharply (Forbes)
  • Red tape roundup: Reckoning the costs of federal tax compliance (Forbes)
  • The tax implications of same-sex marriage (Washington Post)
  • Same-sex couples gain more clarity regarding their state taxes (Tax Foundation)
  • Economic growth drives the level of tax revenue (Tax Foundation)
  • Foreign countries offer US retirees discounts, tax breaks and more (CNN Money)
  • Emanuel plan avoids tax increase amid pension woes: Muni credit (Bloomberg Businessweek)
  • Chicago lawyer behind NFL players’ tax deals is indicted (Chicago Tribune)
  • Vaping for tax freedom (National Review)
  • Soda tax is wrong formula, regardless of ideology (Berkeleyside)
  • SEC warns companies to not interfere with whistleblowers (Due Diligence)
  • My response to the IRS saying I can’t speak on my own behalf (Dinesan Tax Times)
  • Affiliated group can use graduated tax rates even if personal service corp. is a member (Tax Litigation Survey)
  • Thomson Reuters releases Checkpoint special report on 2014 year-end tax planning (Thomson Reuters)

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By Christopher Everspark
Jun 25th 2015 20:11 EDT

Is raising taxes on cigarettes the best way of reducing smoking?

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