Modern-day Robber Barons update: Investment banks helped foreign hedge-fund investors dodge taxes

[marmar]

from the Wall Street Journal:



Street Firms Accused of Tax Scheme
By JESSE DRUCKER
September 11, 2008; Page C1


Some of the country's biggest investment banks and brokerage firms -- including Morgan Stanley, Lehman Brothers Holdings Inc., Citigroup Inc. and Merrill Lynch & Co. -- marketed allegedly abusive transactions that helped foreign hedge-fund investors avoid billions of dollars in U.S. taxes over the past decade, according to a report by Senate investigators.

The yearlong probe, which relied in part on internal bank documents and emails, concludes that Wall Street firms actively competed with one another in dreaming up complex transactions that allowed hedge funds to avoid withholding taxes imposed on dividends paid by U.S. companies.

Some of the internal emails show that bank officials and hedge-fund managers were concerned the deals might run afoul of the Internal Revenue Service.

The report is scheduled to be released Thursday at a hearing in Washington by the Senate Permanent Subcommittee on Investigations, which is examining what it says is $100 billion a year lost to offshore tax abuses.

The report is critical not only of banks and hedge funds, but also of the IRS and the Treasury Department for what the committee calls a failure to enforce the tax law governing this area.

Foreign investors, such as offshore hedge funds, are liable for a tax on the dividends they receive from U.S. investments, generally at a rate of 30%. ......(more)

The complete piece is at: http://online.wsj.com/article/SB122109613823821913.html?mod=hpp_us_whats_news