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Bramwell's Lunch Beat: SEC Clawback Rules, Tax Evasion, BEPS in the USA

Oct 13th 2015
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lunch beat

SEC readies clawback rules for punishing bad accounting
Maxwell Murphy of CFO Journal wrote that the US Securities and Exchange Commission (SEC) is about to issue new rules that would require companies to punish accounting missteps by clawing back pay from a wider range of top executives. Failure to do so could cost a company its stock listing. Many companies object to the proposed rules, which are awaiting the SEC's final approval after a public comment period ended last month. Corporate critics say the rules could wallop executives who had no knowledge of errors in the books or any role in overseeing them. “There are too many variables in the market” to say what portion of performance-based pay would be at risk under the clawback rules, said compensation lawyer Jim Barrall of Latham & Watkins LLP. Nearly 90 percent of the nation's 100 largest public companies have a clawback policy in place, according to a recent study by law firm Shearman & Sterling LLP.

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Dell may avoid tax hit on deal, but EMC shareholders will pay
Dell Inc. found a creative way to avoid a hefty tax bill for its proposed $67 billion acquisition of EMC Corp. by using a tracking stock as part of the deal. But EMC shareholders won't be able to avoid the tax man, wrote Vipal Monga of CFO Journal. Dell announced on Monday that it made an offer for EMC valued at roughly $33.15 a share, for a total of $67 billion in cash and stock. As part of the deal, EMC shareholders would receive $24.05 a share in cash, and another 0.111 shares of a tracking stock tied to EMC's 80 percent stake in VMware Inc. The tracking stock structure allows Dell to avoid a tax bill that could have topped $10 billion. However, EMC shareholders who get the cash and shares will still have to pay tax that ranges between 20 percent and 39.6 percent on any gains they make from both the cash and the value of the tracking stock.

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Computer scientists wield artificial intelligence to battle tax evasion
New academic research seeks to use artificial intelligence to combat tax evasion by corporate entities, from publicly traded multinationals to private partnerships, wrote Lynnley Browning of the New York Times. Five computer scientists demonstrated how an algorithm could detect a certain type of known tax shelter used by partnerships. First, the researchers translated tax regulations governing partnerships into source code. Then they rendered the transactions underpinning a questionable shelter known as “installment-sale bogus optional basis” (Ibob) as a series of codes. The Ibob shelter artificially inflates the basis value of an asset on a tax return to wipe out taxable gains when that asset is sold. Next, the researchers mapped out in code the tangle of entities that make up typical partnerships. The results flagged specific combinations of transactions and partnership structures that were likely to produce the Ibob dodge.

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Lew: Treasury to implement international tax recommendations
US Treasury Secretary Jack Lew said on Oct. 9 that the Obama administration would implement new rules that would lead to sharing business' information with foreign governments, wrote Bernie Becker of The Hill. Lew praised the final recommendations from an Organization for Economic Cooperation and Development project, known as Base Erosion and Profit Shifting (BEPS), meant to battle offshore tax avoidance, saying there was a “critical need to fix our tax rules to address erosion of our corporate tax base.” Speaking at a Group of 20 meeting in Peru, Lew added, “We are already engaged in the process of BEPS implementation, including country-by-country reporting by large multinational firms, and will continue to work to advance this important agenda.”

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IRS technical guidance roundup (week of Oct. 5)
The IRS issued the following technical guidance last week:

Notice 2015-71 provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the Internal Revenue Code. In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I). The rates in this notice reflect the application of § 430(h)(2)(C)(iv), which was added by the Moving Ahead for Progress in the 21st Century Act, Public Law 112-141 (MAP-21) and amended by Section 2003 of the Highway and Transportation Funding Act of 2014, Public Law 113-159 (HATFA).

Quick Links

  • The ‘Cadillac tax' makes everyone sick (Wall Street Journal)
  • Rick Santorum: A flat tax is the best path to prosperity (Wall Street Journal)
  • Jindal tax plan creates a wonderland of dodging (Forbes)
  • Leading Democratic candidates want to tax Wall Street (CBS News)
  • Jeb Bush to pitch replacing Obamacare with tax credits, higher health savings account limits (Washington Post)
  • Higher taxes on the rich actually wouldn't lower inequality that much (Washington Post)
  • GOP candidates would end tax breaks, but not huge mortgage interest deduction (Washington Times)
  • Solution without a problem? A tax on high-frequency trading (New York Times)
  • Yes, soda taxes seem to cut soda drinking (New York Times)
  • Oil exports should be paired with clean energy tax breaks (New York Times)
  • Tax avoidance fuels global inequality (CNN)
  • Tesla Model X buyers could get $25,000 tax break (Los Angeles Times)
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