President Obama’s Presidential Debate Rope-A-Dope Strategy is paying off. Governor Mitt Romney’s being exposed as telling lies last night. But the biggest lie is the one not noticed by a number of people. Here’s what Romney said at the 35th minute of the debate:
The second topic, which is you said you get a deduction for taking a plant overseas. Look, I’ve been in business for 25 years. I have no idea what you’re talking about. I maybe need to get a new accountant.
ROMNEY: But — but the idea that you get a break for shipping jobs overseas is simply not the case.
ROMNEY: What we do have right now is a setting where I’d like to bring money from overseas back to this country.
That was the lie. Gov. Romney has used something in the IRS Tax Code called The Foreign Tax Credit, and has gained $1 million from it. The Foreign Tax Credit is described as follows according to the IRS:
The foreign tax credit is intended to reduce the double tax burden that would otherwise arise when foreign source income is taxed by both the United States and the foreign country from which the income is derived.
Four tests must be met to qualify for the credit:
The tax must be imposed on you
You must have paid or accrued the tax
The tax must be a legal and actual foreign tax liability, and
The tax must be an income tax
But, and according to The Council On Foreign Relations, the Foreign Tax Credit has been a key tool identified as encouraging the offshoring of jobs out of America. “Some multinationals use cross-crediting to glean foreign tax credits for taxes paid on deferred foreign income, before that income is repatriated to the United States. In essence, the tax code allows firms to “blend their repatriations to minimize or avoid U.S. taxes on foreign source income,” the CFR says.
And the U.S. Tax Policy Center explains how the Foreign Tax Credit works in action:
To understand how the credit works, consider a U.S. company that earns $100 in a subsidiary located in a country with a tax rate of 25 percent so the subsidiary pays $25 tax to the host country. If the subsidiary immediately remits the $100 of earnings to the parent company, the parent company owes $35 of U.S. tax on the $100 (since the U.S. corporate tax rate is 35 percent). However, the company may claim a $25 credit for the tax paid to the foreign country, leaving a net U.S. tax of only $10 (the $35 tax minus the $25 credit).
If the foreign tax rate were 45 percent, and as before the profits are sent home to the parent, the firm would owe $45 in foreign tax, $10 more than the $35 U.S. tax liability. A firm in this situation is said to have “excess credits” of $10 (the $45 foreign tax minus the $35 U.S. tax) because its foreign tax payment exceeds the U.S. credit it may claim in the current year. In some situations, the foreign tax credit system allows firms to use excess credits from one source of foreign income to offset U.S. tax payments on income from another source in a procedure called “cross-crediting.”
Governor Romney Received Almost $1 Million In Foreign Tax Credits
One of the beneficiaries of the Foreign Tax Credit has been Mitt Romney. According to his tax returns for 2008 and 2010, and reports by The Huffington Post and The New York Times, Romney received $787,455 in Foreign Tax Credits in 2008, and an additional $81,000 in 2009, and $129,000 in 2010. What this is, is a complex form of tax evasion that is legal and allows Governor Romney to ultimately pay a very low tax rate.
He is in effect using low tax foreign nations to offset the high-tax United States and on $25 million in income he received from foreign sources between 2005 and 2008. The Huff Post has this quote: “Romney had a significant amount of foreign income,” observed Rebecca J. Wilkins, senior counsel for federal tax policy with the nonpartisan Citizens for Tax Justice. “We don’t know what the source of his foreign income is.” But the only way he can do this is to set up companies overseas – in effect offshore jobs out of the United States – with businesses like Romney’s Bermuda-based corporation, Sankaty High Yield Asset Investors Ltd.
According to CBS News, Sankaty High Yield Asset Investors Ltd. is
Based in Bermuda, Sankaty High Yield Asset Investors Ltd. was not listed on any of Romney’s state or federal financial reports. The company is among several Romney holdings that have not been fully disclosed, including one that recently posted a $1.9 million earning suggesting he could be wealthier than the nearly $250 million estimated by his campaign
According to the website for the company, Sankaty is…
Sankaty Advisors, LLC, the credit affiliate of Bain Capital, LLC, is a leading private manager of fixed income and credit instruments. With approximately $19.3 billion assets under management as of 7/1/2012, Sankaty invests in a wide variety of securities and investments, including leveraged loans, high-yield bonds, distressed/stressed debt, mezzanine debt, structured products and equities.
And digging deeper in the website, it appears the main contact information for this Bermuda-based firm is in Boston: Boston. Sankaty Advisors, LLC. John Hancock Tower 200 Clarendon Street Boston , Massachusetts 02116. Tel : (617) 516-2700. Fax: (617) 516-2710. The officers are listed in this exact way:
Director, Investor Relations
Tel: (617) 516-2335
Director, Investor Relations
Tel: +44 (0)20 7515 5755
Vice President, Investor Relations
Tel: (212) 326-9445
Sankaty has offices in Boston, Chicago, New York, London, and Luxembourg. Here’s Tom Sargeant’s background, as an example of the skill set of Sankaty employees:
Mr. Sargeant joined Sankaty Advisors in 2010. He is a Director of Sankaty Investor Relations responsible for investor relations and business development. Previously, Mr. Sargeant was the Director of International Product Development at Tudor Capital where he was responsible for capital raising and new product initiatives for the Tudor Group across Europe, the Middle East and Asia. Prior to that, Mr. Sargeant was an Executive Director in the Hedge Fund Strategies Group at Goldman Sachs Asset Management. Mr. Sargeant began his career in the Investment Banking Division of Goldman Sachs, advising Technology and Telecom clients on a range of strategic and financing initiatives.
Mr. Sargeant has an M.A. from Oxford University in Politics, Philosophy and Economics, and is a Chartered Financial Analyst.
Thus, if the Bermuda Office has employees, they must be spending a lot of time down there. The address for the Bermuda office is not listed, which could mean it’s just somehow registered in Bermuda to avoid US taxes. But to pay the foreign income taxes, it has to be an operating company in Bermuda, with employees, according to the IRS.
Some have described Sankaty as a “shell” company, but in order to be registered as a Bermuda-based company, it has to have a physical adress listed there. That information’s not turning up anywhere as of this writing. Accounts are, again, that Romney set up the company as a place to collect monies made from corporate activity outside America.
What I don’t know is if Romney declared his employees as based in Bermuda as well – if only to avoid paying the payroll taxes that Sankaty would normally have to pay in Boston and in New York City.
The closing point is that Romney lied in the debate. He has used Foreign Tax Credits to offshore employment, in this case it appears masking employees as working in Bermuda, when it seems they may not.