Cash Tax Holiday, July 20 Basel Rules, Serbia Development Bank: Compliance
The Senate Permanent Subcommittee on Investigations is reviewing how companies might use offshore cash they are seeking to transmit to the U.S. at a low tax rate.
Companies including Apple Inc. (AAPL), Google Inc. (GOOG) and Cisco Systems Inc. (CSCO) are pressing Congress to approve a repatriation holiday that would allow them to transfer overseas profits to the U.S. and pay a tax levy that is less than the current 35 percent statutory rate. Senator Carl Levin, a Michigan Democrat and chairman of the subcommittee, sent a survey to DuPont Co. seeking information about how the Wilmington, Delaware-based company might use repatriated funds.
Elise Bean, the subcommittee’s staff director, wouldn’t comment on the letter. Representatives for DuPont, a chemical and life sciences company, weren’t available to comment.
The survey seeks details about DuPont’s undistributed accumulated foreign earnings, including how much money the company holds offshore, where the money is held, the name of each “controlled foreign corporation” that held earnings at the end of fiscal 2010 and how much money those entities held.
Levin also requested information about which financial institutions hold the offshore earnings, the type of accounts in which the earnings are held, how much money is held in U.S. dollars and whether those earnings were used to purchase assets or make investments in the U.S.
He asked the company to respond by July 20.
Representative Kevin Brady, a Texas Republican, introduced legislation in May that would allow companies to repatriate profits at a 5.25 percent tax rate. Brady said in an interview July 8 that Congress shouldn’t try to micromanage companies’ use of their cash.
For more, click here.
Compliance Policy
EU Version of Basel Bank Capital Rules to Be Published July 20
The European Union said July 8 that it will publish proposals to implement tougher Basel capital and liquidity rules for banks in the 27-nation region on July 20.
Under the new rules lenders would need to “hold more and better minimum capital than in the past; will need to build up ‘capital buffers’ over time so they will have money on-hand in an economic downturn” and will also have to “monitor closely their liquidity positions and leverage,” the European Commission, the EU’s executive arm, said in a statement on its website.
The plans are based on agreements, known as the Basel III rules, reached last year by the Basel Committee on Banking Supervision, which brings together regulators from 27 nations including the EU, U.S. and China, the Brussels-based commission said. The proposals will need to be approved by governments and by lawmakers in the European Parliament before they can enter into force.
Compliance Action
Serbia to Create Development Bank by December, Minister Says
Serbia’s government will probably establish a national development bank by the end of 2011 to help bolster economic growth.
The Finance Ministry will complete a feasibility study next month, which should lead to the bank’s creation in the fourth quarter, Labor Minister Rasim Ljajic told a news conference July 8 in Belgrade.
Serbia’s economy expanded 3.4 percent in the first quarter from a year earlier, driven by exports that the government sees as essential for sustained growth after a recession in 2009. The bank would consolidate state support to business, provided at present through the Development Fund and Export Credit and Insurance Agency. Only Serbia’s northern Vojvodina province has a development bank.
Cyprus Central Bank Introduces Stricter Capital Requirements
Cypriot banks must comply with stricter capital requirements that reflect the systemic risk they pose in compliance with Basel III standards, the Central Bank of Cyprus said.
By the end of 2014, the eastern Mediterranean island’s banks must have available adequate core Tier 1 capital of at least 8 percent of their risk-weighted assets plus the ratio of their balance sheet to Cypriot gross domestic product, the central bank said in a directive July 8. The stricter criteria will apply gradually.
Presently the bank complies “with the core Tier 1 capital ratio required by the central bank with 8.2 percent,” which does not include this year’s profit or our convertible capital bonds, which give us an additional 3.2 percent cushion, Christis Hadjimitsis, senior group general manager at Bank of Cyprus, said in a telephone interview.
The bank, Cyprus’s largest lender, will meet and exceed the required core Tier 1 ratio with expected profit in the coming years, Hadjimitsis said.
Fontana Settles SEC Claims Tied to Merrill, Wells Fargo Trades
Forrest Fontana and his Boston-based investment firm agreed to pay more than $900,000 to settle U.S. regulator claims they violated anti-manipulation rules.
Fontana Capital LLC bet against shares of Merrill Lynch & Co., XL Group Plc (XL) and Wells Fargo & Co. during a restricted period before buying the shares in a public offering, the Securities and Exchange Commission said in an administrative order July 8. The firm made $816,184 in profit on the 2008 trades, the SEC said.
SEC rules prohibit investors from selling short a stock, a bet that its price will fall, within five business days of participating in a public offering of the same security. The provision, known as Rule 105, aims to prevent investors from artificially depressing the price shortly before the sale.
Lisa Wood, Fontana’s attorney at Foley Hoag LLP in Boston, didn’t immediately comment.
J&J’s Scios Unit Charged in Misbranding of Natrecor Drug
Johnson & Johnson (JNJ)’s Scios unit was charged by U.S. prosecutors with misbranding the heart drug Natrecor because the medicine’s labeling allegedly lacked adequate directions for use.
Scios Inc. distributed misbranded Natrecor throughout the U.S. from August 2001 to June 2005, according to a charging document filed July 7 in federal court in San Francisco.
The charge is a single misdemeanor count under the Federal Food, Drug and Cosmetic Act, said Shaun Mickus, a spokesman for New Brunswick, New Jersey-based Johnson & Johnson.
“With regard to the investigation that led to the misdemeanor charge, the parties have reached an agreement that is pending approval by the court,” Mickus said last week in a phone interview. He declined to comment further.
The charge carries a maximum fine of $200,000 or twice the gain or loss resulting from the illegal conduct and unspecified restitution, according to the charging document.
Joshua Eaton, an attorney with the Justice Department in San Francisco, didn’t immediately return a voice-mail message seeking comment.
The Justice Department in 2009 joined two whistleblower lawsuits accusing Scios of marketing Natrecor for unauthorized uses. The practice cost the government-run health insurance program Medicare “substantial amounts,” the department said.
The government alleges in one lawsuit that the company and its subsidiary promoted the drug for serial, scheduled outpatient infusions, a use not approved by the Food and Drug Administration and not covered by Medicare.
The lawsuit is pending in federal court in San Francisco. A related lawsuit was dismissed.
Johnson & Johnson and Scios deny engaging in off-label marketing of Natrecor, the company said in court documents.
The criminal case is U.S. v Scios, 11-461, U.S. District Court, Northern District of California (San Francisco).
Courts
Caterpillar Accused of Demoting Executive Discovering Tax Dodge
Caterpillar Inc. (CAT) used offshore subsidiaries in Switzerland and Bermuda to avoid about $2 billion in U.S. taxes from 2000 to 2009, boosting its earnings through a “tax and financial statement fraud,” according to a Caterpillar executive’s lawsuit.
The company, the world’s largest construction-equipment maker, sold and shipped spare parts globally from an Illinois warehouse while improperly attributing at least $5.6 billion of profits from those sales to a unit in Geneva, according to the suit filed by Daniel J. Schlicksup. He was a global tax strategy manager for Caterpillar from 2005 to 2008.
Schlicksup, 49, sued in U.S. District Court in Peoria, Illinois, in 2009, claiming he was moved to a job that limits his career opportunities because he complained to superiors that the “Swiss Structure” ran afoul of U.S. tax rules. He’s seeking a court order to give him back his old job and prevent any retaliation.
His lawsuit, which calls the structure a “tax dodge,” followed a request for job protection he filed with the U.S. Department of Labor under provisions of the Sarbanes-Oxley Act, court records show. The law bars retaliation against corporate whistle-blowers. Schlicksup declined to comment for this story. His attorney, Dan O’Day, declined to say whether Schlicksup has taken his concerns to the Internal Revenue Service.
Schlicksup’s lawsuit, which is in the evidence-gathering phase, alleges that the Swiss structure is improper because it has no legitimate business purpose beyond cutting Caterpillar’s U.S. tax bills.
Caterpillar spokesman Jim Dugan said the company has engaged in no wrongdoing, and its attorneys said in a court filing that Schlicksup’s transfer wasn’t a demotion. Dugan declined to comment on the suit’s specific allegations, saying Caterpillar “complies with applicable tax laws and regulations.”
The case is Schlicksup v. Caterpillar Inc., 09-01208, U.S. District Court for the Central District of Illinois (Peoria).
For more, click here.
Interviews/Speeches
Buffett Says Banks Are ‘Plenty Profitable’ After Leverage Cut
Warren Buffett, whose Berkshire Hathaway Inc. is the largest shareholder in Wells Fargo & Co. (WFC), said the U.S. will benefit from reduced leverage at banks and that financial firms will be able to earn sufficient returns.
Banking can “still be plenty profitable,” Buffett told Bloomberg Television’s Betty Liu July 8 on the “In the Loop” program in an interview from Sun Valley, Idaho.
Regulators are limiting banks’ revenue on debit card transactions and overdraft fees and have raised capital requirements. Buffett, 80, said financial limits may increase stability.
For more, click here.
Haldane Says Regulators Should Examine Risks From Faster Trading
Andrew Haldane, the Bank of England’s Executive Director for Financial Stability, said regulators should address stability risks posed by technological advances to speed up financial-market trading.
“This rapidly changing topology of trading raises some big questions for risk management,” Haldane said in a speech at the International Economic Association 16th World Congress in Beijing July 8. “While this evolution in trading may have brought benefits such as a reduction in transaction costs, it may also have increased abnormalities in the distribution of risk and return in the financial system.”
The rise of practices such as high-frequency trading, a computer-driven trading method that can permit thousands of transactions in a second, has created a “race to zero” among firms seeking market advantage, he said.
Comings and Goings
Pozen Said to Be Considered for Acting Head of Antitrust Unit
Sharis Pozen, a senior Justice Department adviser, is a top candidate to become acting head of the agency’s antitrust division, a person familiar with the matter said.
No decision has been made on filling the position being vacated by Christine Varney, the person said. Varney is leaving the department next month to work for Cravath, Swaine & Moore LLP, a second person familiar with the matter said.
Pozen currently is Varney’s chief of staff and counsel. Gina Talamona, a Justice Department spokeswoman, didn’t immediately return a call seeking comment.
Jobs for Unemployed Bankers Targeted in Delaware Budget
Delaware may be turning to tax incentives in an effort to create jobs in a state where M&T Bank Corp. (MTB) and HSBC Holdings Plc (HSBA) together laid off more than 1,000 employees in the past year.
Governor Jack Markell is urging the state legislature to pass a bill that would provide a $1,250-per-employee tax credit to financial institutions that hire 200 or more state residents. Bloomberg’s Megan Hughes reported on ‘InBusiness with Margaret Brennan’.
For the video, click here.
To contact the reporters on this story: Carla Main in New Jersey at cmain2@bloomberg.net
Ellen Rosen in New York at erosen14@bloomberg.net
To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.
Rate this Page