ProPublica reports on the Bank of New York foreign tax credit scheme called STARS (structured trust advantaged repackaged securities). This is a Barclays creation and a $900 million dispute that will generate bad publicity for the IRS if it loses, and bad publicity for the bank, maybe either way. From the report:
At issue is whether STARS was set up primarily to generate artificial foreign-tax credits, as the IRS contends; or was a legal way for BNY to obtain financing at rock-bottom rates. The arguments heard this week will pose a crucial test of the U.S. government's resolve to rein in sophisticated corporate tax planning that has sapped vast amounts of potential revenue. Tax authorities worldwide, notably in the U.S. and U.K., are under mounting pressure to show that large companies are shouldering their share of the tax burden as part of a broader political debate about fairness and corporate social responsibility.
An investigation last year by the Financial Times and ProPublica first detailed how STARS produced tax benefits for U.S. banks beginning in 1999. In all, six banks — BNY (now Bank of New York Mellon), BB&T, Sovereign (now a unit of Santander), Wachovia (now part of Wells Fargo), Washington Mutual and Wells Fargo — participated in STARS deals with Barclays between 1999 and 2006.
...BNY has argued that the deal was a complex but entirely legal, allowing the bank access to low-cost financing from Barclays for its everyday business activities.
In the coming weeks, U.S. Tax Court will hear from the bankers, lawyers and accountants involved as well as a raft of experts. A final decision is not expected for at least several months.
With much at stake, BNY and the IRS appear to be digging in for a protracted battle. In its latest filing, BNY accuses the government of using "emotionally laden" arguments to try to deliver a "sweet sound bite." The IRS says "no rational person" would have participated in STARS if not for the foreign tax credits.The authors conclude: "Let the war of words begin." That about sums it up. Will BNY do a better job than the Poriskys of the world?