Bahamas to Re-Examine Tax Laws
By CHRISTOPHER SAUNDERS
Associated Press Writer
NASSAU, Bahamas (AP) — The new Bahamian government will re-examine laws tightening regulation of secretive offshore banks to try to cut costs and reduce red tape, the finance minister-designate said Sunday.
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The Progress Liberal Party government, elected in a landslide on Thursday, "recognizes the need for the Bahamas to meet international standards," said the minister, James Smith.
But Smith, a former Central Bank governor, said the government also had to be sensitive to complaints from the country's offshore banking industry.
Smith spoke in an interview with national television to be broadcast Sunday night. The Associated Press obtained an advance copy of his statements.
The new laws, written to get the Bahamas off an international blacklist of money-laundering and tax havens, also would be reviewed to see if they conform with the constitution.
Smith said businesses had complained that complying with the new standards was costly, cumbersome and full of red tape.
The Bahamas also will reconsider the country stand toward the Free Trade Agreement of the Americas, he said.
"It is very difficult for so many countries in your hemisphere doing something, and you staying on the outside," he said. "You run the risk of being isolated. But we do have a choice at the end of the day to decide to go or not."
The Bahamas has signed on to the FTAA provisionally, with reservations that free migration could make the Bahamas a magnet for poor migrants. This 700-island archipelago of 300,000 people has one of the highest incomes in the region.
Smith on Friday accepted the portfolio to handle day-to-day management of fiscal affairs.
Perry Christie's Progressive Liberal Party won 29 of 40 Parliament seats in the recent elections. Christie is expected to name his 12- member Cabinet by week's end.
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MAY 06, 08:34 ET
Portuguese Government Raises Taxes
By BARRY HATTON
Associated Press Writer
LISBON, Portugal (AP) — Two months after taking power, the Social Democratic Party is boosting the sales tax to 19 percent from 17 percent after pledging during the general election campaign to cut taxes.
But the decision disclosed Sunday brought no outcry.
Amid a broad consensus that tough measures are needed to revive the floundering economy, the conservative coalition government's finance minister, Manuela Ferreira Leite, won praise Monday.
She "had the courage to produce serious, competent and necessary (measures) so that Portugal can resume its attempt to catch up with the rest of the European Union as soon as possible," daily paper Diario de Noticias said in an editorial.
Ferreira Leite's emergency austerity package also included:
- A "total halt" in civil service recruitment;
- The closure of 30 public-funded institutions and the merger of 40 others;
- Ending credit subsidies for young people to buy homes.
The sales tax increase is intended to raise 400 million euros ($366 million) for state coffers over six months.
The cash is needed to help prevent the state budget deficit from exceeding the 3 percent ceiling permitted for members of the euro. That limit was designed to underpin the single currency.
Ferreira Leite warned more austerity measures would be needed to make up an estimated shortfall in state revenue of 1.4 billion euros ($1.28 billion) this year.
Surpassing the 3 percent limit would not only embarrass Portugal, which has worked hard to shed its image as one of the 15-nation EU's laggards.
It could also bring penalties from the European Commission, including a possible cancellation of crucial EU development aid.
The new government, which also includes the right-of center Popular Party, accused the previous Socialist government of overspending as part of its damaging patronage and cronyism.
The sales tax hike and the new government's talk of belt-tightening was also interpreted as a signal that public sector pay awards will be modest. Trade unions are likely to be angered by any attempt make workers pay for the economic mess.
The finance ministry estimates the economy grew 0.8 percent last year and could slip to 0.6 percent growth this year, one of the lowest rates in the bloc.
As it strives to gather revenue, the government has postponed its election pledge of a cut in corporate tax to kick-start the economy.
However, it says it still plans this year to revoke the previous Socialist administration's capital gains tax which the Social Democrats blamed for the Lisbon stock exchange's nosedive.
The Socialists, who ruled from 1995, had doubled capital gains tax to 20 percent.
The Lisbon stock market lost about one-third of its value last year.
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MAY 07, 14:03 ET
Queen Exempt From Inheritance Tax
By ED JOHNSON
Associated Press Writer
LONDON (AP) — Queen Elizabeth II will pay no inheritance tax on her late mother's estate, Buckingham Palace said Tuesday, a collection that included race horses, jewels and art worth an estimated $73 million.
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Inheritance tax on such an estate would normally be 40 percent. But under a 1993 agreement, assets passed from sovereign to sovereign — or from the consort of a former sovereign to the reigning monarch — are not liable to inheritance tax.
Commentators say the lack of controversy over the tax saving shows the queen is enjoying a resurgence in popularity during her Golden Jubilee year.
The Queen Mother Elizabeth, who died March 30 at age 101, lived in lavish style in a fine London house, a large lodge at Windsor Castle, a country retreat and her own castle in northern Scotland. The queen mother was the consort of King George VI.
According to reports in The Sunday Telegraph and The Guardian newspapers, the queen mother amassed $73 million in jewels, art and race horses — a figure Buckingham Palace said Tuesday was "speculative."
The 1993 arrangement with the Conservative government of the time was set out in a public document when the monarch first volunteered to pay income tax.
Buckingham Palace said Tuesday the sovereign was exempt from inheritance tax as he or she needed an "appropriate degree of financial independence" from the government and because a king or queen was unable to "generate significant new wealth through earnings or business activities."
A spokeswoman said, however, that others who inherit assets from the queen mother would pay tax. Details of the queen mother's will have yet to be announced.
Little can be confirmed about the queen mother's estate. Her jewelry collection of diamonds, sapphires and pearls is reported by newspapers to be worth upwards of $27 million.
Over the years, she acquired an art collection that includes a Monet purchased in the 1940s for a few thousand dollars and now thought to be worth several million.
News that the queen will not pay tax on the estate has prompted little controversy in the British press — which is neatly divided into monarchist and republican camps.
"At the moment people think the monarchy functions as an institution as they have seen it trotted out in front of them," said David Nash, senior lecturer in history at Oxford-Brookes University, referring to the queen mother's lavish funeral procession. "They can see they are doing something, and there is an equation of value for money."
The Daily Telegraph, a self-proclaimed royalist newspaper, said Tuesday that it was only right the queen should not pay the tax.
"Others may carp at the cost of the royal family, but we have always felt that the crown is remarkably good value for Britain," the newspaper said.
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On the Net:
Royal Finances: http://www.royal.gov.uk/output/Page308.asp
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MAY 07, 18:50 ET
Drug Makers Face Tax Break Limits
By JANELLE CARTER
Associated Press Writer
WASHINGTON (AP) — Senate Democrats want to limit a tax deduction that pharmaceutical companies take for drug advertising, joining the clamor of lawmakers who say endless drug ads are driving up the cost of drugs.
"Americans today are being forced to subsidize prescription drug advertising both when they pay their taxes and when they pay at the counter for prescriptions," said Sen. Debbie Stabenow, D-Mich., the measure's lead sponsor.
Democrats contend the bill will somehow trickle down to cut drug costs, which rose 17 percent last year, the fourth consecutive year of increases.
Currently, drug companies can deduct expenses for advertising as well as for research costs. The bill would limit the amount companies can deduct for advertising, promoting or marketing to the amount deducted for research and development expenditures.
For instance, a company that spends $110 million on advertising but spends only $100 million on research and development, can deduct only $100 million for advertising.
The drug industry asserts the bill would be useless. "In the vast majority of cases, our companies spend more on research and development than they do on marketing," said Jeff Trewhitt, a spokesman for the Pharmaceutical Research and Manufacturers of America.
Trewhitt said Stabenow should "galvanize herself and her colleagues to reach bipartisan agreement now on drug coverage under a reformed Medicare program."
Several lawmakers have discussed dealing with drug ads as Congress works on bills to provide a prescription drug benefit for older Americans. Rep. Bill Thomas, R-Calif., a sponsor of the legislation being drawn in the House, has said he would like to find some way to address the issue.
Drug ads targeting consumers have risen since 1997, when the FDA loosened its drug promotion rules. Before that, manufacturers advertised mainly to doctors.
In the time since, advertising to consumers has almost tripled to $2.5 billion a year, studies show. And almost a third of adults have talked to their doctor about a drug they saw advertised, according to The Kaiser Family Foundation.
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On the Net: Stabenow on drug costs: http://stabenow.senate.gov/infocus/rxprices.htm
Pharmaceutical Research and Manufacturers of America: http://www.phrma.org/
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May 8, 2002
Tax Report
By Tom Herman
Staff Reporter of THE WALL STREET JOURNAL
Itemized Deductions Are Climbing, But Many Still Don't Take Write-Offs
In recent months, the Internal Revenue Service has been aggressively cracking down on abusive tax shelters. But millions of Americans face a different problem: They don't deduct enough.
New data, based on Internal Revenue Service statistics, show total average itemized deductions of around $25,000 for taxpayers earning between $100,000 and $200,000 a year. That includes about $11,000 in deductions for interest payments and about $3,700 for charity.
For taxpayers raking in $200,000 or more, the average interest deduction was $22,598.
While that may sound like a lot, it isn't. Tax experts say many Americans are routinely failing to take deductions they're entitled to, thus overpaying their taxes by billions of dollars collectively. Chalk it up to ignorance, fear, or both. Many people are so confused by tax laws or so frightened by the threat of an audit that they fail to take perfectly legal write-offs.
The new statistics on deductions were prepared by Jim Seidel of RIA, a New York-based publisher of tax and other business information. The data, based on returns for 2000, can help taxpayers determine if they are taking enough deductions. If your deductions are way below average for your income group, you may have neglected to include some important write-offs you are entitled to take.
One common oversight: Some who run a business out of their house don't take a home-office deduction because they fear it is a red flag for the IRS. Others forget to deduct job-search expenses. And one million or more Americans overpay their taxes by taking the "standard" deduction (a flat amount based on your filing status) instead of itemizing, a recent government study found.
For those who omitted a deduction, there's an easy solution: File Form 1040X to amend your return.
If your deductions are way above the average, take a fresh look at your return to make sure it is bulletproof. Even if you have all the evidence to support an IRS challenge, consider attaching a note of explanation for such items as heavy medical expenses or huge charitable contributions, says David A. Lifson, a certified public accountant at Hays & Co. in New York. One red flag is claiming large amounts of charitable contributions compared with your income.
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The average total deductions for people who itemized for 2000 was $18,777. That was a 4.5% increase from the year before, says RIA's Mr. Seidel.
Of course, you may have very different circumstances than the average for your group. You may live in an area with high state and local taxes, or you may face unusually large medical bills. Even so, the numbers are worth studying.
Figuring out the maximum legal deduction, however, isn't always easy. Among the trickiest items are valuations of used books, clothing, and furniture donated to charity. One solution is to check prices of comparable items on eBay, the online auction firm (www.ebay.com). Another solution is to buy special software called "ItsDeductible" (www.itsdeductible.com), which estimates market value of about 1,000 household items in good, fair and poor condition. The software maker says estimates are based on visits to thrift and consignment shops around the nation. An advantage to using this approach is that you have details to cite in case of an audit.
Just because the IRS may scrutinize a deduction closely doesn't mean it should be avoided. Only about two million returns claim the home-office deduction even though tax advisers say far more people are eligible. The key to this deduction is good recordkeeping and a mastery of the mind-numbing details in IRS Publication 587. (See www.irs.gov.) For example, you typically have to use the home-office exclusively and regularly as your "principal place of business." That means one of your kids can't use your daytime office as a bedroom.
WHO'S NEWS: Mark Matthews, IRS criminal-investigation chief, will leave soon.
IRS officials will announce shortly that Mr. Matthews will join Deutsche Bank AG in coming weeks in a senior post, where he will be "global co-head of antimoney laundering." Dennis Crawford, IRS deputy chief for criminal investigation, is expected to serve as acting chief. Mr. Matthews joined the IRS in late 1999 and has received high marks from IRS officials and outsiders for leading efforts to overhaul the criminal-investigation unit.
IRS Commissioner Charles O. Rossotti says Mr. Matthews helped put in place the "vast majority" of recommendations by a special commission headed by William Webster, a former federal judge. The unit, he said, also regained its focus on investigating tax-code violations and launched major enforcement actions against foreign and domestic abusive trusts.
* * *
NO PAY. Commit to working up to about 300 hours a year, and agree to an FBI background check.
Still interested? The Treasury is searching for U.S. citizens to volunteer for a new "taxpayer advocacy panel" with representatives from every state. Members are supposed to identify key "service" issues affecting taxpayers and "provide critical taxpayer input" on IRS initiatives, the Treasury says.
"Working with taxpayers directly will help us identify issues that may not be on the IRS radar screen," says Nina Olson, IRS National Taxpayer Advocate. "We can also hear their concerns about issues the IRS is already addressing." The application deadline is May 20. For details, visit the Web site (www.improveirs.org) or call 866-602-2223.
To be a member, you must also be "current with all federal tax obligations," the IRS says.
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BRIEFS: Notable and Quotable: White House spokesman Ari Fleischer, appearing on NBC-TV's "Tonight Show with Jay Leno," says he grew up a Democrat and was raised a Democrat. "I changed parties basically right after college, mostly because of foreign policy and defense," he says. "And then I started paying taxes -- and I really became a Republican!" Honors: Washington lawyer James P. Holden of Steptoe & Johnson LLP will receive the American Bar Association tax section's distinguished service award at its Washington meeting this weekend.
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MAY 08, 08:56 ET
EU Plans to Tax Internet Sales
By JIM KRANE
AP Technology Writer
The European Union agreed Tuesday to impose a new tax on products downloaded from the Internet — including software, videos and music — aiming to help Europe's Web-based businesses compete with U.S. companies.
EU Taxation Commissioner Frits Bolkestein said the new tax rules "will remove the serious competitive handicap which EU firms currently face."
Bolkestein complained that U.S. giants of the industry levy no taxes from online customers. The effect has been to give a sales tax loophole to European buyers, who find cheaper-priced goods on U.S.-based sites.
Although U.S. businesses are the focus of the legislation, the tax affects all non-European Internet businesses selling digital products, whether in the United States or elsewhere, said Nicholas Colannino, a European Commission spokesman in New York.
A separate measure that taxes "hard" shipped goods, such as books, could be considered in the future, Colannino said.
The U.S. has complained the EU taxes pre-empt ongoing talks on Internet taxation at the Organization for Economic Cooperation and Development. U.S. trade authorities have said they may lodge a complaint against the new tax at the World Trade Organization.
Rep. Mark Foley, R-Fla., who chairs a congressional task force on the entertainment industry, said he hoped the EU doesn't expand the tax to cover all goods sold online.
"They have single-handedly reversed a fiscally sound philosophy of keeping the Internet tax-free," Foley said. "The only ones who will suffer are their own people."
The European Commission said, however, that the tax "complements the international process at the OECD."
The tax, to be enforced beginning July 1, 2003, would take effect when an Internet customer in, say, Belgium, purchases MP3 music files from, say, San Diego, Calif-based EMusic.com.
EMusic.com would have to determine electronically that the purchaser is located in Belgium. Using that information, EMusic's computers would add the appropriate Belgian sales tax to the purchase.
This formula marks a significant change from the current tax rules, which permit EU residents to buy the same MP3 from EMusic.com without paying tax. But if a European customer buys the MP3 from, say, Stockholm-based eClassical.com, an online vendor of classical music, tax is levied on the sale.
Under the system, as now, European consumers will pay only their own country's so-called value-added tax. U.S. companies will be forced to charge customers the prevailing rate in force where their customers live.
Each of the EU's 15 countries taxes different products at different rates. General value-added rates vary from 15 percent in Luxembourg to 25 percent in Sweden.
The U.S. Treasury Department fears U.S. firms will be required to charge the EU's value-added tax at higher rates than their EU competitors. The department — and American vendors — also worry that EU rules will breed a complicated, difficult-to-enforce tax system that hampers e-commerce in general.
"We continue to be concerned about the potential for discrimination inherent in the new EU VAT regime that applies to downloaded products," said Treasury Department spokeswoman Tara Bradshaw.
Before Tuesday's decision, EU authorities considered handing U.S. companies the same advantages as European competitors, by allowing them to charge a single EU-wide VAT rate.
But member states blocked that idea. They feared companies would all set up for business in low-tax Luxembourg.
The tax has nothing to do with the ongoing U.S.-EU trade spat over American tariffs on foreign steel, Colannino said.
"There's no link at all," he said. "This has been in the works for a while."
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On the Net: http://europa.eu.int/comm/taxation-customs/whatsnew.htm
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May 9, 2002
Bush Will Launch Tax Overhaul Following Congressional Elections
By JACOB M. SCHLESINGER
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The Bush administration will launch a campaign to overhaul the tax code following this fall's congressional elections, Treasury Secretary Paul O'Neill said in an interview.
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"Next year, I think we need to put a major reform proposal on the table," he added.
A main theme of the package will be an attempt to reduce the tax code's complexity, the thrust of the last successful overhaul effort promoted by President Reagan in 1986.
'A Major Reform'
The Bush plan will be "a major reform proposal that's consistent with the ideas of fairness and understandability and ease," said Mr. O'Neill, who has railed against the current code as "an abomination" since taking office just over a year ago. "The thing is a colossal mess," he said.
The plan will also likely be sold as an overhaul, not another tax cut. "I guess I start with the notion that probably in order to make it as noncontentious as possible you try to do something that's revenue neutral so you don't have to fight that battle, too," the Treasury secretary said, meaning that the plan would be crafted in a way that doesn't increase or decrease the money collected by the Internal Revenue Service.
"You can't find many people who say, 'by God, you've taken too much of my money, give me some of my money back,' " Mr. O'Neill said, breaking with some of his Republican colleagues who assert the country is overtaxed. "But there are a lot of people who resent the fact that they can't figure it out."
Top Priorities
Mr. O'Neill's remarks came in a luncheon meeting with Wall Street Journal reporters and editors. Asked what his top priorities were for the coming year, he answered without hesitation: "tax reform and Social Security," the latter a reference to the White House's stalled efforts to partially privatize the government-funded retirement program.
In laying out his views on tax reform, Mr. O'Neill refused to provide many more details about where the administration is heading. Tax reform is treacherous political terrain -- incorporating fundamental ideological debates like income redistribution and business efficiency -- and the Treasury secretary has clearly spent time studying how past efforts have succeeded or failed.
Flashing his famous frustration for Washington debating conventions -- a system he has often flouted, stirring controversy for perceived gaffes -- the 66-year-old former Alcoa Inc. chief executive appeared to be bracing for the particularly difficult task he would face pursuing an issue that will require him to curb his natural outspokenness. "One of the things that's wrong with this town is the penchant for putting labels on things so that people don't have to use their brain to figure out what the hell it is you're talking about," he said, his voice dripping with sarcasm.
Painted Into a Corner
"I'm going to do my level best not to be painted into an ideological corner that says, 'He believes it should be more progressive or less progressive, or it should be a flat tax ... or the rest of the stuff that has been put on the table,' " Mr. O'Neill said. "I don't want to be boxed in by the tradition of how Washington has dealt with these subjects because I think it's too important to be yet another round of high-volume conversation with no product."
Beyond streamlining the current progressive income-tax system -- which imposes a higher tax-rate on higher-income Americans -- two other main overhaul proposals have been put forth in recent years. One would replace the progressive income-tax system with a "flat tax," which imposes the same rate on all families, regardless of income. The other would be a consumption tax -- essentially a sales tax. Mr. O'Neill didn't indicate which option, if any, he favors.
Mr. O'Neill appears to be looking at the Reagan presidency as a political model for how to approach the issue. Mr. Reagan unveiled an outline for tax overhaul at the end of his first term, highlighted the issue during his 1984 re-election campaign, and made it a main focus of the first half of his second term.
New Complexities
"I think the 1986 act was a substantial reform, what they did was really quite good," the Treasury secretary said. "It has eroded a lot since then." The 1986 act eliminated many targeted breaks cluttering up the tax code, but Congress has spent the past 16 years adding new complexities -- including many embedded in a major tax cut that Mr. O'Neill and President Bush pressed for last year.
"Last year was a continuation" of the trend away from the 1986 tax reform, Mr. O'Neill conceded. "We need a break in the continuation. It's not going to be easy to do."
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MAY 09, 07:47 ET
Delayed Tax Refunds Head Out in Aug.
JEFFERSON CITY, Mo. (AP) — About 415,000 Missouri taxpayers should get their delayed income tax refunds by August, perhaps sooner if the state House agrees to tap emergency funds, Gov. Bob Holden said.
Refunds checks have been delayed indefinitely for many taxpayers because of a budget crunch caused by lower-than-expected state income tax collections. Last week, the state said it still owed $167 million in refunds to taxpayers.
On Wednesday, Holden and state Revenue Director Carol Fischer told reporters that using the so-called Rainy Day Fund would allow the state to accelerate tax refund payments.
But House Minority Leader Catherine Hanaway said she opposed using the fund, arguing that "we should not be balancing our budget on the backs" of taxpayers owed money.
If the tax refunds are not paid by Aug. 15, the state will owe 6 percent interest to the people still owed money.
Fischer said 72 percent of refunds due to taxpayers already have gone out.
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MAY 09, 16:19 ET
IRS Stock Option Tax Faces Challenge
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Corporate lobbyists and members of Congress are lining up to oppose a plan by the Internal Revenue Service to collect payroll taxes on stock options. The benefit is used by high-tech companies and others to attract and motivate millions of employees.
Rules proposed by the IRS would impose the 15.3 percent tax, which funds Social Security and Medicare, on incentive stock options and employee stock purchase plans. That would reverse a 31-year-old IRS position on the issue. The rules would take effect Jan. 1.
Opponents say this amounts to a new tax burden, never authorized by Congress, that would disrupt a form of compensation affecting about 10 million people. Companies would face major administrative hassles as early as this summer, they say, and some employees might be forced to sell shares prematurely to pay the tax.
"Employees like to own a piece of the company. People can say, 'I'm part of this organization,"' said John Scott, director of retirement policy at the American Benefits Council, an industry trade group. "The financial disincentive of the tax itself, plus the higher administrative costs, might lead to less of these plans being offered."
Income taxes do not apply when employees are granted options or when they are exercised — that would not change under the IRS proposal. Capital gains taxes must be paid when the stock shares are sold.
Incentive stock options are usually given to employees, often company executives, who then must wait a specific length of time before exercising them. Employee stock purchase plans usually involve discounted stock purchases through paycheck deductions and are available more commonly to rank-and-file workers.
Despite a 1971 ruling to the contrary, the IRS now says the law does not exempt these stock options from payroll tax withholding. The proposed change would require employees and employers to each pay a 6.2 percent tax to Social Security on the first $84,900 of a person's earnings and a 1.45 percent tax each on the employee's total income to Medicare.
Dozens of companies and trade groups are lobbying Congress and the Treasury Department to block the plan. They include high-tech companies such as Apple Computer Inc., Oracle Corp. and Cisco Systems, and more traditional businesses such as Kellogg Co., Marriott International Inc., and Sears, Roebuck and Co. An American Benefits Council Internet site has generated nearly 20,000 letters from employees and companies in opposition.
Their efforts have begun to pay off. Tucked quietly into a pension bill passed by the House last month is a provision by Rep. Amo Houghton, R- N.Y., that would exclude these stock options from the payroll tax wage base. Sens. Hillary Rodham Clinton, D-N.Y., and Pat Roberts, R-Kan., have introduced similar legislation in the Senate.
Ten members of the Senate Finance Committee recently told Treasury Secretary Paul O'Neill in a letter that the IRS proposal appears to run counter to congressional intent regarding stock options. At the very least, they said, the Jan. 1 effective date should be delayed so the "potential adverse effects" of the rules could be carefully examined.
"We urge the administration to reconsider the issuance of these proposed rules before finalizing them," said the letter, written by Sens. Jeff Bingaman, D-N.M., and Orrin Hatch, R-Utah.
Many opponents are planning to testify next week at an IRS hearing on the proposed rules.
Pamela Olson, the acting assistant Treasury secretary for tax policy, said the administration would consider delaying the effective date if putting change into place proves too burdensome. She said the IRS is on solid legal ground but that Treasury would not oppose a congressional effort to stop the new rules.
Halting the IRS proposal would reduce projected payroll taxes by more than $23 billion over the next decade, according to congressional estimates. Social Security officials have said that would have a negligible impact on the financial health of the retirement program.
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On the Net:
Internal Revenue Service: http://www.irs.gov
Treasury Department: http://www.ustreas.gov
American Benefits Council: http://www.americanbenefitscouncil.org
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MAY 09, 19:07 ET
Bermuda Gov't. Lobbies Washington
By MATTHEW TAYLOR
Associated Press Writer
HAMILTON, Bermuda (AP) — Bermuda's finance minister, Eugene Cox, is visiting Washington to try to speak with U.S. lawmakers as they consider legislation aimed at taking a bigger tax bite from American companies that set up shell corporations overseas.
The visit comes as shareholders at tool maker Stanley Works approved a plan Thursday to move the company's legal residence to Bermuda.
A three person team from the Finance Ministry flew to the United States for meetings to "assess and ... influence the discussion on the proposed new tax legislation being considered by the U.S. Congress," a Cabinet statement said.
Cox was accompanied by Financial Secretary Donald Scott and Assistant Financial Secretary Ifor Hughes.
Bermuda recently has come under attack from U.S. legislators as the "tax haven of choice." The legislators have said they are trying to discourage American companies from reincorporating overseas.
The bulk of the collapsed power giant Enron's subsidiaries were located in countries other than Bermuda; just eight of 881 were incorporated on the island. A number of large companies including Stanley Works, Tyco and Ingersoll-Rand have incorporated in Bermuda or stated their intention to incorporate off the mainland.
The proposed legislation seeks to close the loophole whereby a company incorporates overseas and avoids taxes on the company's overseas income.
On Thursday, a plan to move the legal residence of tool maker Stanley Works to Bermuda was narrowly approved by shareholders amid criticism of corporate tax havens.
The move is expected to shave about $30 million off Stanley Works' annual tax bill. Stanley executives argue that will improve Stanley's ability to compete worldwide and retain thousands of U.S. jobs.
But with lingering economic uncertainty and the U.S. involved in a war on terrorism, there is rising pressure in Washington to stop the tax- shelter exodus.
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MAY 09, 20:07 ET
House Committee Kills Air Tax Plan
By ALAN FRAM
Associated Press Writer
WASHINGTON (AP) — A House committee killed a proposal Thursday to double the ticket tax that airline passengers pay for enhanced security. Lawmakers bowed to election-year pressure from the nation's air carriers, travelers and conservative groups.
The House Appropriations Committee used a voice vote to drop the proposal. It would have doubled the $2.50 per flight segment fee travelers have been charged to help finance increased security steps since Sept. 11.
The fee is currently capped at a maximum of $10 per round-trip flight.
House Majority Whip Tom DeLay, R-Texas, led the effort to block the increase, calling it "a ticket tax" on flying. Tax increases long have been anathema for many members of both parties, particularly for conservative Republicans, and conservative groups were among those that had rallied against the proposal.
Because of conservative and industry opposition, several top Republicans had said earlier this week that the proposal was sure to die.
The GOP-led committee had included the tax increase in a bipartisan package providing roughly $29 billion for the Pentagon and dozens of counterterrorism programs. The money raised by the doubling of the fee was supposed to help pay for the ever-growing Transportation Security Administration, the new federal agency responsible for air security.
The airline industry and passengers have complained that the higher tax would hurt carriers' efforts to rebound from the aftermath of the terrorist attacks, which saw a precipitous drop in air travel. The major airlines have said they lost $7.7 billion last year.
"He's rolling over to one industry and saying, 'Oh, sorry,"' Rep. David Obey, D-Wis., said of DeLay. "This is a disgraceful ... amendment."
To make up for the $150 million in revenue the tax increase was projected to provide this year, the committee voted to trim the same amount from the $4 billion the bill would have provided for the new federal agency.
Part of that cut — $75 million — came from the $100 million the committee would have given to help airlines meet a new federal requirement for armored cockpit doors and bulkheads. Obey said that cut would cause delays in strengthening the doors, but Republicans said plenty of money remained.
Bush had requested $4.4 billion for the security administration. But the committee had cut that amount, arguing that the agency seemed to be moving toward creating an oversized, overpaid bureaucracy.
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MAY 09, 20:36 ET
Bill Seeks to Curb Tax Shelters
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Tax shelter promoters and users would be liable for tougher penalties for failing to disclose questionable transactions under legislation introduced Thursday by senior members of the Senate Finance Committee.
"Disclosure is critical to the government's ability to identify and address abusive tax avoidance and evasion arrangements," said Sen. Max Baucus, D-Mont., the committee's chairman.
Past efforts at getting companies and wealthy individuals to disclose these transactions to the Internal Revenue Service have met with limited success. In 2001, for example, only 272 transactions were reported by 99 corporations — out of a total of 100,000 corporate taxpayers.
The bill, introduced by Baucus and Sen. Charles Grassley, R-Iowa, would impose a flat penalty of up to $200,000 on taxpayers who failed to report transactions specifically identified as tax avoidance schemes by the Treasury Department. A 30 percent accuracy-related penalty for underpayment of taxes could also be imposed.
In addition, many of these taxpayers would have to report the penalties to the Securities and Exchange Commission, which would make the transgressions public and threaten to tar the offender's reputation or stock price.
Other transactions identified by the Treasury Department as having the potential for tax evasion could trigger penalties of up to $100,000 if not disclosed.
Promoters of tax shelters, mainly law and accounting firms, would be liable for penalties of up to $10,000 per day if they fail to provide the IRS with a list of investors in tax avoidance schemes. The Treasury Department also could censure these promoters or impose monetary penalties.
The legislation includes many provisions the Treasury Department requested in March to curb tax shelters. The sponsors cited potential tax revenue losses of $10 billion or more a year as one reason the measure could pass Congress this year.
"It's obviously time to end tax shelters," Grassley said. "We have more political will than ever."
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May 9, 2002
German 'Count Dracula' Acts Against High Taxes And Bureaucracy
by Ulrika Lomas
Tax-News.com, Brussels
It was reported earlier this week that an adopted descendent of the Romanian royal family, Ottomar Rodolphe Vlad Dracula Prince Kretzulesco is continuing with plans to create a low tax, anti-bureaucratic 'Kingdom of Dracula' within German borders.
Although the initiative began as a protest against the forced amalgamation of the village of Schenkendorf with seven other nearby villages in order to cut state costs, and is unlikely to represent a serious threat to the German government, the modern-day Count Dracula - a former antiques dealer - feels that there is a serious point to be made.
'We are going to take our battle for independence as far as we can,' the eccentric German told the Reuters news service. 'We're tired of the state working against us rather than for us. They have the mentality of "No, it won't work. No, we can't do that. No, that's not allowed".'
According to the Count, if he is successful in establishing his 'Kingdom', there will be no bureaucrats within the 38 acre estate and nearby village, and a maximum tax rate of 20% will be levied on residents.
Dracula (formerly known as Ottomar Berbig) also told the news service that he is considering a proposal to allow non-residents to purchase honorary citizenships, and has advanced plans for the kingdom's own stamps, passports, and car-license plates.
According to Reuters, the authorities of the state of Brandenberg, where the Count's 48 room castle is located, are not overly concerned about the possibility of an independent low tax state within their borders.
Speaking on Tuesday, Brandenberg's Interior Minister, Joerg Schoenbohm suggested that: 'Perhaps Count Dracula can be persuaded by the argument that declaring a kingdom is unconstitutional.' He added that: 'If that doesn't work, we always have garlic.'
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May 9, 2002
US Digital Industry Unhappy Over EU VAT Plans
by Mike Godfrey
Tax-News.com, Washington
As predicted, the European Union's endorsement of plans to oblige companies in non-EU member states to charge VAT on downloadable and online goods and services has provoked howls of outrage from IT and e- commerce industry groups in America.
Speaking to Wired News, the President of the Information Technology Association of America, Harris Miller warned that: 'What you're doing is you're creating an unintended bunch of tax criminals because you're making a process that's virtually impossible to enforce.'
The ITAA chief went on to criticise the new laws, effective from July 2003, calling them: 'a classic attempt by the Europeans to set up a barrier to try to keep out competitors.'
However, the European Union views the situation differently, and believes that by exempting EU-based companies from charging VAT on online services sold within Europe, and obliging US and other companies to register for VAT in a member state, the 'serious competitive handicap' which European companies currently face will be removed.
The new rules will affect huge US e-commerce operators such as AOL and Time Warner, and there has been speculation over the possibility of retaliation by the American goverment.
According to reports, however, US Deputy Treasury Secretary, Kenneth W. Dam has called for both sides - which are also embroiled in several other trade wars - to hold their fire until a global agreement on e- commerce taxation currently being negotiated through the OECD, has been completed.
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May 10, 2002
IRS Updates Website To Alert Taxpayers To Scams
by Leroy Baker
Tax-News.com
New York - The US Internal Revenue Service announced on Wednesday that it has updated the Tax Fraud section of its website in order to keep taxpayers fully abreast of the latest scams and schemes.
The updated tax fraud alerts page now provides links to news items on recent civil and criminal tax actions against promoters and participants in tax evasion schemes, and offers access to information on recent IRS enforcement efforts and warnings on current scams.
Speaking on Wednesday, IRS Commissioner, Charles Rossotti explained the reasoning behind the improvements: 'Identifying and combating actively promoted tax schemes is our highest compliance priority,' he announced in a statement: 'Nothing undermines confidence in the tax system more than the impression that the average honest taxpayer has to pay his or her taxes while unscrupulous taxpayers are allowed to get away with not paying.'
Warning US citizens to avoid investment and tax minimisation schemes which sound too good to be true, the head of the tax agency's Criminal Investigation unit, Mark Matthews said that he hoped the updated page would help to protect taxpayers by keeping them informed.
Although several recent scams have concentrated on specific sectors of society, such as the promotion of claims for bogus slavery reparation tax credits, Mr Matthews warned earlier this week that tax fraud is 'costly to all Americans'.
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