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ANR: PCAOB, China Agree to Cooperate on Enforcement, Inspections Not So Much; More Apple, Please; Tax Reform Creeps Back | 05.24.13

~ It's a half-day, capital market servants, so if something interesting happens be sure to get in touch with us quick. Have a safe holiday weekend.

PCAOB Enters into Enforcement Cooperation Agreement with Chinese Regulators [PCAOB, MOU]
The Public Company Accounting Oversight Board today announced that it has entered into a Memorandum of Understanding (MOU) on Enforcement Cooperation with the China Securities Regulatory Commission (CSRC) and the Ministry of Finance (MOF). The MOU establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in both countries’ respective jurisdictions.  More specifically, it provides a mechanism for the parties to request and receive from each other assistance in obtaining documents and information in furtherance of their investigative duties. "This agreement with China is an important step toward cross-border enforcement cooperation that is necessary to protect the interests of investors in U.S. capital markets,” said PCAOB Chairman James R. Doty. “We look forward to continued progress with our Chinese counterparts to reach an agreement on cross-border inspections of PCAOB-registered firms as well,” he said.

An Agreement Opens Some Chinese Audit Papers to the U.S. [DealBook]
Whether the agreement will result in more cooperation remains to be seen, however. China retained the right to reject requests if they violated Chinese law or “essential national interest.” In addition, the agreement covers only enforcement actions, not routine inspections of audit firms. […] Under the new memorandum, [Doty] said, if the board is investigating a potential fraud, it will be able to ask for papers from the Chinese audit firm through the Chinese regulators. The securities commission regulates the larger firms, but many smaller ones are regulated by the finance ministry. The regulator would then decide whether to forward them to the American inspectors.
Explaining Apple’s Irish Tax Dodge [Bloomberg]

Jon Weil: "The structure is a farce, regardless of whether there’s a loophole that may have been threaded. The Internal Revenue Service has the authority to label it a sham and attribute the income to the parent company, according to a Senate investigative report released at this week’s hearing. However, the IRS has been hesitant to use its power this way out of concern it would lose in the courts, which have tended not to take action against foreign shell corporations. The tax code isn’t working, and so far authorities haven’t tried to fix it. What Apple did was legitimate, you might say. Apple has a duty to maximize returns for shareholders. Tax planning is part of that. Except, this smacks of abuse."

The Corrosive Effect of Apple’s Tax Avoidance [NYT]
Floyd Norris: "The shameful thing about Apple Inc.’s ability to structure its business to avoid United States taxes was not that it did it. In fact, as Apple executives tried to point out at the Senate hearing at which their tax strategies were detailed, they could have chosen to pay much less in American taxes than they did. The shameful thing is that we have a tax system that seems to allow multinational companies to choose what they want to pay. The fact that this costs the government money is important, but that is not the critical element. Revelations about the ability of the rich and well connected to duck taxes can have a corrosive effect on the attitudes of the rest of us. If others who are better off than you can get away with not paying taxes, why shouldn’t you look for a way to cheat on your taxes?"

Let’s get rid of corporate taxes altogether [Wonkblog]
Ezra Klein: "Mitt Romney got roundly mocked for saying, “corporations are people, too,” but he had a point. Talk to tax economists for very long and they’ll make a variant of the same argument. The question in corporate taxation isn’t whether it’s paid by people. Of course it is. It’s how much of it is paid by shareholders, how much of it is paid by workers, how much of it is paid by customers, etc. But there’s a simpler way to tax those people then by taxing corporations and having corporations pass the costs along to them: You could just tax the people directly. Depending on who you want to pay, you could raise payroll taxes, or raise capital gains and dividend taxes, or raise income taxes. The problem is we’d need to increase those taxes by quite a lot: The corporate income tax is expected to bring in more than $370 billion this year."

KPMG can't arbitrate claims by Madoff feeder fund investors – court [TRN&I]
A group of investors who lost $20 million in a fund that funneled money into Bernard Madoff's Ponzi scheme can continue to sue KPMG in court instead of arbitration, a Massachusetts appellate panel has ruled. The plaintiffs, who invested in hedge funds operated by Tremont Capital, had accused KPMG of not adequately performing its auditing functions and failing to notify investors of "red flags" about Madoff's scheme. KPMG had argued the claims by the 27 investors were subject to its arbitration clauses in engagement letters with the two hedge funds, Rye Select Broad Market Prime Fund and the Rye Select Broad Market XL Fund.

In Tax Overhaul Debate, Large vs. Small Companies [NYT]
Some of the biggest and most powerful companies in the United States are fighting for a cut in the official corporate tax rate, arguing that it is necessary to allow them to compete more effectively in the global market. But the nation’s millions of small businesses fear they will be the ones paying for it. “We are in favor of comprehensive tax reform that includes both corporate and personal tax, but we are not happy with anything that raises the rate for us,” said Chris Whitcomb, the tax counsel for the National Federation of Independent Business, the leading small business lobbying and advocacy group, representing about 350,000 members. The conflict, which in some ways is even larger than the controversial issue of how to properly tax multinational corporations on their global profits, arises because the vast majority of American businesses, including some large, well-known companies and prominent Wall Street firms, actually do not pay corporate taxes at all.
Senate Releases Tax Reform Option Paper on Economic Security [TaxProf]
More holiday weekend reading.
Florida Man Reveals Murder Plans to Police After Butt-Dialing 911 [Gawker]

Law enforcement officials in Florida believe they know who was behind the May 5th shooting death of a Lauderhill man — because the mastermind accidentally butt-dialed 911 and practically confessed to the crime. Scott Simon, 24, was charged with first-degree murder in connection with the slaying of 33-year-old Nicholas Walker after Simon phoned 911 by mistake and was recorded telling another person that he intends to follow Walker home and murder him. Walker was subsequently found dead of gunshot wounds inside a crashed Buick sedan along I-95. An argument at a nearby Waffle House reportedly preceded the crime.


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