May 12, 2009

More Details Released on the Administration’s Tax Haven Proposals

Yesterday, Treasury released details of the Obama Administration’s tax proposals, including a wide variety of proposed tax cuts and tax revenue raisers included as part of the 2010 budget. The Treasury’s document provides additional details regarding the Administration’s efforts, announced last week, to shut down overseas tax havens. In describing this initiative, which is estimated to raise $95.2 billion over the next 10 years, President Obama said “[f]or years, we’ve talked about shutting down overseas tax havens that let companies set up operations to avoid paying taxes in America. That’s what our budget will finally do. On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 business – businesses claim this building as their headquarters. And I’ve said before, either this is the largest building in the world or the largest tax scam in the world.” (The White House press release notes that one address in the Cayman Islands houses 18,857 corporations, few of which have any actual presence on the island.) As noted in this Bloomberg article, the proposals seeking to close corporate tax “loopholes” face some stiff opposition and an uncertain future in Congress.

Among the proposals discussed in more detail in Treasury’s summary include:

– limiting deductions associated with deferred profits retained in foreign subsidiaries of U.S. corporations;

– disallowing foreign tax credits for taxes paid on income that is not yet subject to U.S. tax; and

– treating interest payments received by low-taxed foreign affiliates from high-taxed foreign affiliates as subject to current U.S. tax.

Check out the memos posted in our new “Tax Havens” Practice Area for more details on the Administration’s proposals.

SEC’s Brings Proxy Voting Case Against an Investment Adviser

The SEC recently brought a settled administrative proceeding against INTECH Investment Management LLC and its Chief Operating Officer for exercising voting authority over client securities without having written policies and procedures “that were reasonably designed to ensure it voted its clients’ securities in the best interests of its clients” and also failing to adequately disclose the voting policies and procedures to clients.

The case was brought under Investment Advisers Act Rule 206(4)-6, which was adopted in 2003 and requires that advisers adopt and implement policies and procedures reasonably designed to ensure that they vote their clients’ proxies in the clients’ best interests, including addressing material conflicts that may arise between the adviser’s interests and those of its clients. The rule also requires that advisers disclose to clients how they can obtain information about how the adviser voted proxies, and describe to clients the adviser’s proxy voting policies and procedures.

In the case, the SEC alleged that INTECH had used ISS recommendations for its voting policies, but had moved from ISS General Guidelines to ISS Proxy Voter Service (PVS) under circumstances involving a potential conflict of interest. The SEC alleged that INTECH chose to follow the voting recommendations of ISS-PVS while the adviser was participating in the annual AFL-CIO Key Votes Survey that ranked investment advisers based on their adherence to the AFL-CIO recommendations on certain votes, and the adviser believed that an improved score in the AFL-CIO Key Votes Survey would be helpful in maintaining existing and attracting new union-affiliated clients, without considering the impact on clients not affiliated with unions.

It will be interesting to see if this case represents one isolated incident, or if it reflects a broader area of SEC interest, given the ongoing concerns with proxy voting.

Chairman Schapiro’s Outline for Regulatory Reform

With Congress moving slowly on the financial regulatory reform front, it certainly gives regulators an opportunity to fight for their position in the new reformed landscape. Chairman Schapiro took that opportunity in a speech last Friday before the Investment Company Institute. In the speech, the Chairman outlined her vision of the SEC’s role in the new world order as an independent capital markets regulator that is united, and not divided, in approaching the regulation of the products, disclosure and intermediaries. Chairman Schapiro also endorsed FDIC Chairman Sheila Bair’s call for a single regulator for systemically significant firms coupled with a systemic risk council to provide macro-prudential oversight of risk.

– Dave Lynn