FT report confirms what most all know: governments worldwide need cash and are revving their tax machines.
On its Web site the Organisation for Economic Co-operation and Development (OECD) boasts that when it comes to exchanging information on taxes, over the past two years “more progress toward full and effective exchange of information has been made than in all of the previous decade.” This is part of its, and the G20’s, mission to curb what it thinks it tax avoidance and evasion worldwide.
Of course there’s a fine line between what some consider tax evasion and what some might consider legitimate tax strategies. But make no mistake, with the global financial crisis continuing to sap revenue from governments, tax authorities the world over are working together to tap the great revenue streams crisscrossing the globe.
Take for instance the latest report from the Financial Times. According to the paper, the IRS is targeting cross-border finance deals “worth billions of dollars” between big US and UK banks. The IRS, along with its UK cousins, wants to crack down on what they call “abusive tax avoidance.” The deals in question are known as “structured trust advantaged repackaged securities, or ‘Stars deals,’” according to the FT. All the banks involved, BB&T, Bank of New York Melon, Sovereign, and Wells Fargo all feel the deals are legal.
For treasurers, these developments mean two things. One is that they should help make sure the company’s tax structures across the world are strong and can be “proven” or backed up. Secondly, if the IRS charges in the latest news are proved to have merit, that’s even more bank cash that might be taken off the table for lending or other corporate needs.
And companies should be wary, too. According to tax experts, one area of scrutiny that continues to be a focus is treaty shopping, which is the practice of companies, after generating income or capital gains from one country, look to benefit from a tax treaty between the source country and yet another country. Transfer pricing also remains an issue. In December 2010, Boston Scientific was handed a “notice of deficiency” from the IRS regarding taxes for the company’s Guidant subsidiary. Guidant reportedly ran afoul of the law before Boston Scientific acquired the company in 2006; Boston Scientific was told it was on the hook for $525mn.
So count on global authorities looking to make banks and companies work hard to prove their tax regimes are legitimate. Taxes have been big topics at G20 meetings for the past year. The OECD, citing US Senate estimates, puts the price tag of tax evasion at $100bn a year and another several billion in euro. All of which “means fewer resources for infrastructure and services such as education and health, lowering standards of living in both developed and developing economies,” the OECD said.