This week in tax: JPMorgan reaches settlement in French case
This week JPMorgan agreed to pay €25 million ($29.6 million) as part of a settlement with the French government over allegations that the company helped Wendel executives commit tax fraud.
JPMorgan has not admitted wrongdoing as part of the settlement to end the long-running investigation into the bank’s role in enabling illegal tax avoidance. The clients in question were 11 executives and three board directors at European investment company Wendel Group.
JPMorgan allegedly provided financing to the executives to help minimise capital gains tax. This reportedly allowed the Wendel executives to insulate more than €300 million from the French tax authority.
“We are happy to bring an end to this case, which concerns a single transaction made by clients in 2007,” said JPMorgan in a public statement. “Even though we did not offer tax advice on the transaction, we fully co-operated with the investigation and continue to think that we acted in conformity with French law.”
Thierry Marembert, a lawyer representing JPMorgan from Kiejman & Marembert, stressed that the US bank had “a very limited role” in the alleged tax fraud. “It’s important for the bank to have peaceful relationships,” said Marembert.
The US bank is set on turning Paris into its main EU-based trading hub and aims to bring 800 employees to the office by the end of 2022.
Yet the case dates back to a series of transactions made from 2004 to 2007. The transactions were related to a share-based bonus scheme. The French government opened an investigation in 2012 after the French tax authority filed a complaint about the arrangements.
The JPMorgan settlement is one of a series of similar plea bargains in France since 2016 when anti-bribery and anti-corruption law Sapin II was passed. Sapin II allows French prosecutors to sign settlements for financial crimes.
In this case, the accused executives and board directors include former Wendel chair Ernest-Antoine Seillière and former CEO Jean-Bernard Lafonta. All of the accused deny the allegations.
However, Wendel Group has not been accused of any wrongdoing. The investment company has not commented on the case publicly at this time.
ITR headlines this week include:
Brazilian tax group pushes for racial inclusion in the tax industry
English language requirements and elite university credentials are keeping black people out of jobs in the tax profession that they are qualified for in Brazil, according to Black Tax Matters (BTM).
The tax profession is no stranger to many of the problems of wider society, including a lack of diversity and inclusion in top positions in businesses. Black Tax Matters is one group trying to address these problems in Brazil.
BTM is a group of tax professionals aiming to change hiring processes through education and mentoring. The group whose name alludes to the Black Lives Matter (BLM) movement is dedicated to the inclusion of black professionals in the tax and accounting areas, especially in leadership positions.
“The idea of creating Black Tax Matters was to empower and accelerate the careers of black tax professionals in Brazil,” said Maíra Oltra, regional head of tax at Stripe, Latin America and the founder of Black Tax Matters.
Oltra who has worked on diversity in companies such as Heineken and Amazon realised that there were very few black tax professionals in leadership positions. “We started looking at our networks and found that black tax professionals existed but just not in leadership positions,” said Oltra.
“Since we started in October 2020, we’ve recruited a lot of people to help on our pillars. We don't make any money, so it's everybody working pro bono and using their time to help with the project,” she added.
US Congress seeks TCJA changes ahead of global minimum tax rate
The US Senate Finance Committee is proposing modifications to international provisions in the Tax Cuts and Jobs Act (TCJA) to support the OECD’s pillar two proposal for a global minimum corporate tax.
Senate Finance Committee Chairman Ron Wyden released draft legislation to adjust key provisions in the TCJA to support a global minimum corporate rate. This includes changes to the global intangible low-taxed income (GILTI) rules, foreign derived intangible income (FDII) and the base erosion and anti-abuse tax (BEAT) to align US tax law with the OECD’s pillar two proposal.
The draft legislation released on August 25 proposes to replace jurisdictional blending in GILTI – combining all foreign income and taxes in one global average calculation – with country-by-country minimum tax calculations.
“It’s not a perfect country-by-country approach though because the system splits high-tax foreign income from low-tax foreign income, and then averages a top up tax on low-taxed foreign income of tested units below the GILTI rate,” said one tax director at a pharmaceutical company.
Some key modifications include repealing the exemption on 10% deemed returns on qualified business asset investment (QBAI) on overseas income and applying a country-by-country high-tax exclusion to the GILTI regime to follow pillar two’s global anti-base erosion (GloBE) rule approach.
“A move to a mandatory high-tax exclusion system could amplify timing differences in the recognition of income and foreign taxes for US and foreign tax purposes,” said Rodney Lawrence, partner in international tax at KPMG US.
The Senate Finance Committee noted that it was considering ways to address timing issues in the country-by-country high-tax exclusion where losses in one year may impact the taxes in another year. It also highlighted that axing the QBAI exemption will onshore more factories and jobs too.
Next week in ITR
ITR will be continuing its coverage of the most important tax trends in the Asia-Pacific region, particularly when it comes to the TP challenges of COVID-19, the increasing pace of digitalisation and the limits of desk-based audits.
The World Economic Forum (WEF) is set to publish a report on regulatory guidelines for cryptocurrencies, including how such assets should be treated for tax purposes. This may be crucial for governments considering reforms to crackdown on crypto transactions.
Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.