Two giant global banks helped at least a dozen hedge funds skirt full tax payment on more than $100 billion worth of stock trades, according to a new congressional investigation made public Monday.
The probe by the Senate Permanent Subcommittee on Investigations will be the subject of a daylong hearing on Tuesday and also spells more trouble for the embattled Internal Revenue Service.
At issue is whether complex financial deals arranged by London-based Barclays Bank PLC and Germany’s Deutsche Bank AG deliberately helped hedge funds skirt U.S. tax laws for financial advantage and bend rules designed to protect the financial system from excessive borrowing to finance speculative bets.
The IRS in 2010 issued a warning against the financial instruments at question in the Senate probe, but roughly four years later, no additional tax money has been collected from the hedge funds involved, Senate investigators said…
The Senate report alleges that Deutsche Bank and Barclays conspired with the hedge funds to create a complex investment vehicle that gave the appearance of being a brokerage account like those used by ordinary Americans who play the stock market.
The difference, however, is that these accounts, called “basket options,” involved billions of dollars in rapid and constant computerized trading. The hedge funds, the report said, were taking short-term profits but being taxed as if they were ordinary investors holding stocks for a year or longer. They were taxed at a rate of 15 percent to 20 percent instead of the rate of ordinary income, which is as high as 39 percent….
WASHINGTON: Senate panel: Banks helped hedge funds skirt taxes | Economy | McClatchy DC.