TaxBlog

KPMG is being investigated by the IRS for a scheme involving YUM! Brands.

A court has said that two documents prepared by KPMG, analyzing the tax consequences of transactions by restaurant company Yum! Brands Inc., are protected from a summons issued by the Internal Revenue Service.

The IRS has been investigating Yum for its creation of a captive insurance company and related stock transfers between 1997 and 1999. According to the agency, the transactions resulted in a $112 million loss for tax purposes, but not book purposes.

As part of Yum’s response to an informal document request, the company produced a privilege log listing seven documents it believed were protected from IRS because of the work product doctrine. Five of the documents were eventually given to the IRS after the parties entered into a limitation of waivers agreement.

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Virgin Blue appears to be under the hammer from the ATO after conducting a restructure to maximise the GST benefits. Thanks to Esco for the story.

US-based International Lease Finance Corporation leased Virgin Blue the 11 Boeing planes that made up its first fleet. It charged the nation’s second-biggest airline a fee and, as a foreign company, was able to claim GST refunds from the tax office.

The restructuring proposed by Mr Godfrey was allegedly designed solely to extract extra GST credits by creating a series of transactions to shuffle the ownership of the airliners between different companies.

The ATO claims the deals are not eligible for GST credits because ILFC owned all the companies involved in the transactions, the sales were not conducted at “arm’s length” and had no Australian connection.

The ATO is demanding repayment of $71 million in GST credits and $42 million in penalties, saying ILFC and its agents “took steps to prevent or obstruct” tax office investigators.

Further details have been released that the ATO has accused Virgin Blue executives of destroying documents relating to an elaborate taxation scheme after the airline became the target of an investigation.

This is an interesting situation. Accounting firms have recently become gun shy because of all of the legal action happening in the States. However EY doesn’t seem too concerned and has waded into this one with all guns blazing.

In terms of the legal action by the ATO it’s the usual situation. Tax loophole, company takes advantage of it, ATO allege that the “restructuring” was conducted only for tax purposes. So when it goes to court, whether virgin will come out on top will depend on how well they’ve covered their backs on this one.

There’ll be more to come on this one…

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This is an interesting story from America about how the Senators on the Finance and House Ways and Means committees pay tax agents to complete their tax returns.

Even more interesting is some of their comments:

“It’s onerous and everybody knows it,” said Rep. Richard Neal, D-Mass.

Isn’t that like kicking yourself in the head? One of the few people who can change the tax system is saying that he doesn’t like it.

How about this one for stupid quote of the week:

Rep. Jim Ramstad, R-Minn., does not do his own returns, but he agreed it might be a good idea to try. “I think it is important that we operate in the real world,” he said.

He’s saying he’s not in the real world? No, no he’s in political world.

And to top it off:

“This… is truly revolutionary because no one can remember the last time a member of the tax-writing Senate Finance Committee actually completed their own tax return”

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Brahma Sharma the Partner in Charge of tax at KPMG has said:

Braham Sharma, senior tax partner at KPMG, said the New Zealand business tax rate was now well above the average 29.99 per cent across the Asia-Pacific region and the 30 per cent rate in Australia.

Companies looking to invest in other countries looked first at headline corporate tax rates and then to investment and tax incentives, such as tax holidays and accelerated depreciation provisions, he said.

Generally, New Zealand did not offer incentives and its tax rate was relatively high, which put it behind other countries looking to invest here, he said.

This comes after KPMG’s recently release global tax survey.

What I find interesting about this story is that KPMG has of late been seeking more publicity. Murray Sarelius published an article in the NZ Herald last week on the how the new tax rules will affect international expatriates. KPMG seem to shy away from publicity and it is usually PWC’s tax partner John Shewan who is quoted. It will be interesting to see if the trend continues, or if theses were two one off events.

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Does Deloitte providing IRD services create a conflict of interest?

A consortium headed by Deloitte is expected to win a multi-million-dollar contract at Inland Revenue to provide technology for the Government’s Kiwi Saver scheme.

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