That’s how much General Electric paid its longtime external auditor KPMG in fees from 2000 to […]
A love affair that spanned more than 110 years is coming to an end. General […]
109 years. That’s how long KPMG has been General Electric’s auditor. When that engagement started, […]
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Last fall, we reported that KPMG had issued an internal preservation notice to its employees […]
Recently, Congressman Paul Ryan (R-WI) was chattin’ up some citizens at a townhall meeting where he told a little anecdote about asking a GE “tax officer” how long the company’s tax return was for this year. He was told (and the Weekly Standard confirmed) that it was in the nabe of 57,000 pages. Granted, GE filed their return electronically, so there’s no way we can officially know what the count is but the combination of the world’s best tax law firm and a grip of savvy loaned KPMG employees managed to keep it under 60k. Nice job, everyone. [TWS via TaxProf]
You may remember earlier this year when The New York Times broke a little story about General Electric’s tax savvy ways and the best tax law firm the universe had ever seen (aka the GE tax department).
The report�������������������� href=”http://www.goingconcern.com/2011/03/jon-stewart-reacts-to-ges-tax-savviness/”>a few people to get bent out of shape because the Times said GE was enjoying $14.2 billion in profit while “claim[ing] a tax benefit of $3.2 billion.” What that “benefit” really entailed was a mystery but many people jumped to the conclusion that it was a “refund” and ProPublica (possibly a little peeved that they got scooped) tried to set the record straight on the Times story.
Despite all the back and forth, everyone was pissed at GE. The company lost a Twitter joust with Henry Blodget and then a bogus press release went out claiming the company was returning the “refund” of $3.2 billion and the Associated Press ran it. Slightly awkward.
The latest twist comes from a tip we received earlier about a “Preservation Notice” sent to all KPMG employees yesterday from the firm’s Office of General Counsel (“OGC”).
URGENT TARGETED PRESERVATION NOTICE: GENERAL ELECTRIC’S LOAN STAFF ARRANGEMENTS
Please be advised that until further notice from KPMG LLP’s (KPMG or firm) Office of General Counsel (OGC), you are hereby directed to take all steps necessary to preserve and protect any and all documents created or received from January 1, 2008 through the date of this Notice relating or referring to the loaning, assignment or secondment of tax or other professionals to General Electric Company and its direct and indirect subsidiaries, affiliates and divisions (collectively “General Electric’s Loan Staff Arrangements”).
As Klynvedlians know, these preservation notices come out so often that you barely even notice them. When you do notice them is when the partner in charge of your team informs you about it before it hits your inbox. What follows is basically the biggest CYA exercise you’ve ever seen. They roll in giant dumpsters and every last scrap of paper you’ve ever written on gets throw in and eventually it gets shipped off to OGC. Your life doesn’t really change all that much other than you’re not allowed to delete another email EVER. At least that’s how I remember it.
ANYWAY, this notice seems a little different. Why exactly? Here’s a excerpt from McKenna’s post:
In defiance of [Sarbanes-Oxley] provisions, KPMG – GE’s auditor – provides “loaned staff” or staff augmentation to GE’s tax department each year. These “temps” perform tasks that would be otherwise the responsibility of GE staff. Sources tell me KPMG employees working in GE tax have GE email addresses, are supervised by GE managers – there is no KPMG manager or partner on premises – and have access to GE employee facilities. They use GE computers because the software required for their tasks is GE proprietary software.
This type of “secondment” to an audit client is never allowed. KPMG should know better.
YEESH. So any documents going back to January of 2008 that relate or refer to someone being assigned under this allegedly dubious arrangement must be preserved. You don’t have to be John Veihmeyer to know that’s a METRIC ASSTON of documentation. It’s not that GE’s tax needs are seasonal; they’re more like “perpetual” or “infinity times infinity.” A company with the best tax law firm already in house that also has an arrangement with a their auditor to throw a few more people at the problem indicates that they are working on this shit 24/7. For KPMG, it amounts to a nice little revenue stream and it keeps lots tax staff busy throughout the year.
But what caused the notice? That’s the question. Our tipster speculated that the PCAOB and SEC might be up to something but per standard operating procedure, neither will confirm nor deny the existence of any investigation or inquiry. KPMG spokesman George Ledwith did not respond to an email seeking comment.
Like we stated previously, these preservation notices are a dime a dozen but because this one deals with General Electric and presumably their tax compliance it qualifies as outside the norm. If you’re in the know or know of someone in the know or have anything else to add, email us or comment below.
News Corp. has 152 subsidiaries in tax havens, including 62 in the British Virgin Islands and 33 in the Caymans. Among the hundred largest U.S. companies, only Citigroup and Morgan Stanley have more tax haven subsidiaries than News Corp., a 2009 U.S. Government Accountability Office study found.
News Corp. had nearly $7 billion permanently invested offshore in 2009, money on which it does not have to pay taxes unless it brings the money back to the United States. Meanwhile, it can use that money as collateral for loans in the United States, where interest paid is a tax-deductible expense.
This and other tax planning strategies result in a 20% tax rate for the company. And not a single phone hacked!
Please be advised that the David Cay Johnston column published on Tuesday stating that Rupert Murdoch’s U.S.-based News Corp made money on income taxes is wrong and has been withdrawn. News Corp’s filings show the company changed reporting conventions in its 2007 annual report when it reversed the way it showed positive and negative numbers. A new column correcting and explaining the error in more detail will be issued shortly.
As of now, Johnston’s post remains unchanged and what I blockquoted above doesn’t seem to be in dispute but the situation appears to be fluid.
Here’s a portion from Johnston’s new column:
Readers, I apologize. The premise of my debut column for Reuters, on News Corp’s taxes, was wrong, 100 percent dead wrong.
Rupert Murdoch’s News Corp did not get a $4.8 billion tax refund for the past four years, as I reported. Instead, it paid that much in cash for corporate income taxes for the years 2007 through 2010 while earning pre-tax profits of $10.4 billion.
For the first time in my 45-year-old career I am writing a skinback. That is what journalists call a retraction of the premise of a piece, as in peeling back your skin and feeling the pain. I will do all I can to make sure everyone who has read or heard secondary reports based on my column also learns the facts and would appreciate the help of readers in that cause.
Johnston goes on to explain in detail how the error occurred. He also states that a number of the facts originally reported, including the number of News Corp. subsidiaries in tax haven (that we blockquoted above), remain.
At the company’s shareholders meeting Keith Sherin said “This is the best earnings outlook we’ve had in the last 10 years,” which indicates that tax planning might not be everything. [Reuters]
Earlier this morning, the Associated Press ran a story based on a hoax press release that stated General Electric had opted to give back its “refund.” You may recall there was a fair amount of wailing and gnashing of teeth after a New York Times article made the company look like huge international conglomerate attempting to minimize its legal tax obligation (talk about nerve). As you may be aware, the “refund” is actually a “deferred tax benefit” and we can’t think of any company that would simply give those back after some pesky article from the Times. Anyhoo, the AP has bit of egg on its face and GE is once again a punching bag and has re-reiterated the fact they DID NOT GET A REFUND.
Of course the last time GE went on a PR offensive, they got schooled by Henry Blodget. On Twitter. So instead of wading back into that scary end of the pool, they shuffled out a spokeswoman to simply say, “It’s a hoax and GE did not receive a refund.”
This is really a missed opportunity for GE, in our opinion. Jeff Immelt could have seized this opportunity to have a sense of humor about the whole thing, acknowledge the efforts of the Yes Men (the hoaxers) and say, “You know, we’re a big company with the best tax law firm right here, in-house, and sometimes people hate on us *cough*The Times*cough* because they do such a good job. And maybe we employ a bunch of Treasury Department alums too. I mean, we’ve got the money. Why wouldn’t we do it? These Yes Men guys, they’re okay. They’re trying to be funny in sort of an Onion sorta way and we’re cool with that. I read The Onion once. It seemed pretty humorous.”
Remember that New York Times story that put the universe on notice that General Electric made truckloads of money and ended up with a $3.2 billion “tax benefit”? It also mentioned that their tax department is known as the “best tax law firm” and is staffed with a small army of former Treasury whiz-kids and turbo-tax nerds to legally minimize the company’s tax obligation. The story got all sorts of people worked up from Jon Stewart to Henry Blodget and it whipped up a small amount of hysteria amongst the masses who had the courage to read an esoteric tax article that went on for more than one page.
Today a new report from ProPublica (a rebuttal of sorts, since they got scooped by the Times) is “Setting The Record Straight on GE’s Taxes“:
Did GE get a $3.2 billion tax refund? No.
Did GE pay U.S. income taxes in 2010? Yes, it paid estimated taxes for 2010, and also made payments for previous years. Think of it as your having paid withholding taxes on your salary in 2010, and sending the IRS a check on April 15, 2010, covering your balance owed for 2009.
Will GE ultimately pay U.S. income taxes for 2010? After much to-ing and fro-ing — the company says it hasn’t completed its 2010 tax return — GE now says that it will pay tax.
Also, part of the ProPublica report clarifies that the whole “financial reporting vs. tax reporting” thing:
GE’s 2010 financial statements reported a $3.25 billion U.S. “current tax benefit,” which is where the Times, which declined comment, got its $3.2 billion “tax benefit” number. But a company’s “current tax” number has nothing to do with what it actually pays in taxes for a given year. “Current tax benefit” and “current tax expense” are so-called financial reporting numbers, used to calculate the profits a company reports to shareholders.
In other words, the Times left out the tricky stuff or maybe just didn’t a bang-up job explaining the tricky stuff. But framing the shrewd tax planning and lobbyists working for a giant corporation is far more provocative than book-tax differences and defining deferred tax assets. Relevancy be damned!