What's New News Scan: GAO says deferral on foreign earnings distorts economy News From the Fierce Network:
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News Scan>> Accounting and Tax: GAO says deferral on foreign earnings distorts economy The General Accountability Office says multinationals' ability to defer tax on income earned abroad until they repatriate it may not be the boon to U.S. competitiveness that proponents claim. Instead, the GAO says deferral provides multinationals with a competitive advantage over domestic companies that can't take advantage of that tax break. And of course deferral adds to the federal budget deficit. The study also disputes claims that an alternative "territorial" system favored by multinationals based on where companies do business would be preferable, as the GAO points out that such a system could encourage multinationals to shift more income to low-rate jurisdictions. The amount already shifted there is impossible to estimate with any accuracy, although experts say the total for all companies is in the trillions of dollars. The study could aid legislative efforts in Congress to curb deferral. Read more >> Accounting and Tax: The New York Times isn't the only dealmaker leaving money on the table Corporate tax expert Robert Willens tells us that a lot of other companies fail to use the horizontal double dummy structure for cash and stock deals, and pay tax they don't have to pay as a result. "The Times is not unusual," Willens said in a phone interview. Yet companies would not face any pushback if they took advantage of the tactic, according to Willens. "Its efficacy was all debated and laid to rest in the 1980s," he says. "There's no question about the outcome and one's entitlement to it. That's not even an issue at this point." Nor does the use of a horizontal double dummy disadvantage the seller, since it would pay the same amount of tax on the deal no matter how it's structured. "It isn't a zero sum game," Willens notes. And how did the IRS come to allow such an easy-to-use tax tactic for acquirers? "It was an oversight, basically," he says. (As for my rather dumb question as to whether horizontal double dummies are allowed only on stock-and-cash deals, the answer is yes, since the device can be used only for deals designated as reorganizations and those require stock as well as cash. When the acquired company is sold, its tax basis is stepped up by the amount of cash included in the deal. Yet that makes me wonder whether a minimum amount of stock must be used in a reorganization, since otherwise an acquirer could theoretically use a double dummy to avoid a ton of tax simply by using only a sliver. I'll see what Willens has to say about that as well.) Read more >> Management: Can multinationals make it in emerging markets on volume alone? Analysts doubt that Qualcomm can do so. And that raises questions about other multinationals' focus on emerging markets. Yes, they're growing faster than developed ones. But disposable income in most is still considerably lower. So if wages don't rise fast enough to enable companies to sell premium-priced products there in significant quantities, multinationals tapping consumers in those markets may have to see revenue growth compensate for a lack of margin. Based at least on Qualcomm's results, that's not happening in the smart-phone business. An added concern: That same wage growth would raise multinationals' costs if they're manufacturing there. Read more >> Capital: A reality check on Twitter IPO hype We hate to rain on this parade (actually we're happy to, being trained if not born skeptics), but its useful to recall that the micro-blogging site isn't expected to become cash-flow positive until 2016 (scroll down the thread to the table). And even that prediction rests on assumptions that may be rather rosy. Meanwhile, the multiple of revenue that the company is trading at needs to be adjusted upward for all the share options and warrants it has issued and will continue to issue going forward. At its frothy opening price (some 73 percent above its initial estimate and close to where it finished the day), that takes the multiple from the 20s well into the 30s, according to Miriam Gottfried of the WSJ. And that places even more weight on those assumptions. Read more. Relatedly, Twitter's IPO was the second for CFO Mike Gupta, who previously took Zynga public. >> Management: QE and you, cont'd Q3 GDP growth came in better than expected. Good news, no? The market sold off early yesterday because investors worried that better-than-expected growth means the Federal Reserve will take away the Quantitative Easing punch bowl. Yet demands for the Fed to do so keep issuing from those who think Bernanke & Co. are artificially inflating asset prices, with investment guru Jim Rogers the latest to lament what he called "a sea of liquidity." Meanwhile, the Fed itself is trying to shift the market's focus beyond tapering. Two influential Fed economists recently published papers that say the Fed will keep interest rates low for longer than expected even after QE ends to prevent permanent damage to the economy from sub-par growth (though there is some debate in the blogosphere about whether the papers mean the Fed won't tighten before 2017). And the Boston Fed warned about a policy regime that relies exclusively on monetary policy to manage the economy. Yet what else is there, when fiscal policy is a non-starter because of the budget impasse in Washington, D.C.? Answer: Nothing except low interest rates as far as the eye can see. That is bad news only if you believe the policy will bring on inflation, and it's hard to see how that will happen when demand remains dormant. As for concerns about financial bubbles and another financial crisis as a result of their popping, how would the end of QE not help bring all that about? We suppose gradual tapering would take the air out of those prices slowly rather than rapidly, and that is what QE critics want to see happen. But given the lack of other action from Washington, it seems to us that QE's end would do the same thing to an already weak economy. Whether low rates and QE alone are enough to bolster its recovery is another matter. Read more here and here >> Management: IBM's Mark Loughridge to retire from "dental surgery" IBM CFO Mark Loughridge, a company veteran slated to retire at year's end, was a protégé of finance legend Jerry York, as he explained while hosting an internal celebration of the company's 100th anniversary a bit more than two years ago that I had the privilege of attending and writing about. Actually, the company wasn't at all happy with the piece I did on this (or at least my PR handler wasn't, as she gave me grief about it after it was published.) Yet I never understood the complaint, as I thought Loughridge's anecdotes about serving under York were quite interesting and amusing. In any case, Loughridge's money quote about York was how his mentor's intensely meticulous approach to finance was akin to "dental surgery," and that Loughridge soon came to appreciate the usefulness of the comparison. So no doubt would anyone who admired York. Read more Briefly noted: > Middle-market companies' revenue growth seen slowing. Article > CFTC exits could stymie Dodd-Frank rulemaking. Article > CME says it spends $30 million a year to support open outcry trading on Chicago floor. Article > Another trading outage, this time in the OTC markets. Article > P&G and General Mills start using fleets powered by natural gas, citing not only sustainability but also savings and reduced price volatility. Article > White House gets behind legislation to boost minimum wage to $10, following hikes in a number of states. Article > Another estimate of the cost of the government shutdown ($2B or 0.6 percent of GDP). Article > Corporate treasurers ran for cover during the impasse. Article > Social media needs better tools to help business take full advantage. Article And finally… The IRS sent $4 billion in refunds last year to fraudsters using stolen identities, including 655 refunds that went to a single address in Lithuania.
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Friday, November 8, 2013
| 11.08.13 | A rosier economic view
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