Burger King Deal, China Graft, Tax Rebate: Compliance

Burger King Worldwide Inc.’s deal to buy Tim Hortons Inc. and move its address to Canada will proceed, a day after the U.S. Treasury Department announced plans to crack down on corporate inversions.

Scott Bonikowsky, a Tim Hortons spokesman, said yesterday the deal is “moving forward as planned” and is driven by long-term growth and not tax benefits. The actions to curb inversions announced Sept. 22 by Treasury Secretary Jacob J. Lew are getting an immediate test as eight U.S. companies with pending deals decide whether to continue moving forward.

Health-care stocks in the U.S. and Europe dropped in response to Treasury’s actions. Companies with unannounced deals may be reconsidering, particularly if the benefits would stem from access to U.S. companies’ foreign earnings.

Lew’s goal was to have companies reconsider inversion deals they’re already working on. He also left open the prospect of future action aimed at earnings stripping, the post-inversion transactions that companies use to reduce taxes on U.S. income.

The Treasury announcement heightened the tension between the government and companies considering obtaining foreign addresses to lower their tax bills. Lew and President Barack Obama made clear that they were prepared to use rulemaking authority to try stop some deals, even at the risk of a backlash from the companies and from Republicans, who complained that Lew’s moves went too far.

Compliance Action

End of Palm-Greasing Means Xi Graft Crackdown Seen Aiding Growth

The crackdown in China by President Xi Jinping on everything from gift giving to excessive wining and dining is leveling the business playing field, said Beijing-based Joerg Wuttke, president of the European Chamber of Commerce in China.

Even as antitrust probes zero in on foreign companies from Microsoft Corp. to Qualcomm Inc., the government’s anti-corruption campaign is making business easier in the world’s second-biggest economy.

Economists forecast Xi’s crackdown will boost gross domestic product growth by 0.1 to 0.5 percent in 2020, according to the median estimate in a survey of 17 economists by Bloomberg News.

Xi, who became president last year, is trying to unwind a culture of bribery and graft that has hurt the government’s legitimacy and jeopardized economic growth. China ranked 80th in Transparency International’s Corruption Perceptions Index for 2013, below nations including Senegal and Tunisia. Singapore was rated the cleanest in Asia.

Courts/Tribunals

Bankers Who Repay Bonuses Might Get Tax Back After Ruling

Bankers who have to give back all or part of their bonuses might be able to get a tax rebate after a U.K. tax tribunal ruling.

The U.K. Upper Tribunal ruled Sept. 22 that Julian Martin, who received a signing bonus when he started his job at JLT Risk Solutions Ltd., could recoup some taxes because he repaid part of the money when he resigned within five years.

The ruling could be some solace to London bankers who face increasing demands to repay compensation if they lose money or are accused of wrongdoing. The Bank of England is considering rules that would allow it to claw back bonuses for as long as seven years.

The Upper Tribunal upheld a ruling from a lower court in April 2013 that U.K. tax authorities appealed. A spokesman for Her Majesty’s Revenue and Customs said the agency was “considering the judgment carefully.”

Interviews/Commentary

Cross-Border Swap Dispute Risks Trade War, CFTC’s Giancarlo Says

U.S. and European regulators risk a permanent breakdown in financial markets if they can’t end a dispute over transatlantic oversight of the $700 trillion swaps industry, a Commodity Futures Trading Commission member said.

J. Christopher Giancarlo, who joined the CFTC in June, said the U.S. agency should retract some of its overseas policies to boost coordination with Europe and prevent a trade war that would imperil economic growth.

“We simply cannot allow uncoordinated regulatory reforms to permanently divide global swaps markets,” Giancarlo said in a speech prepared for delivery today at a Futures Industry Association conference in Geneva. “I call for this reset to avoid a trade war in financial markets akin to that which worsened the Great Depression.”

The CFTC and European Union regulators have struggled to align swap-trading rules after the 2008 credit crisis, when largely unregulated trades helped fuel the meltdown. Regulators sought new rules to reduce risk and increase transparency by having better data on the market and by requiring most swaps to be guaranteed at central clearinghouses and traded on exchanges.

Giancarlo, a former executive at interdealer broker GFI Group Inc., said the CFTC overreached in its cross-border policy, which has resulted in traders overseas avoiding deals that would lead to U.S. oversight under the 2010 Dodd-Frank Act.

George Says Small Banks Hurt by Regulatory Overhaul

Federal Reserve Bank of Kansas City President Esther George talked about community banking and financial regulation. She spoke at a community banking conference hosted by the St. Louis Fed.

For the video, click here.

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