Eyes on trade | 20 March 2009
AIG suing taxpayers for its own Panama tax dodging
Here’s a story that will make your blood boil. AIG is suing U.S. taxpayers because it failed to evade as high a level of U.S. taxes as it wanted... in its Panama subsidiary. According to Lynnley Browning at the NYT:
While the American International Group comes under fire from Congress over executive bonuses, it is quietly fighting the federal government for the return of $306 million in tax payments, some related to deals that were conducted through offshore tax havens...
A.I.G. is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds. The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year.
The lawsuit, filed on Feb. 27 in Federal District Court in Manhattan, details, among other things, certain tax-related dealings of the financial products unit, the once high-flying division that has been singled out for its role in A.I.G.’s financial crisis last fall. Other deals involved A.I.G. offshore entities whose function centers on executive compensation and include C. V. Starr & Company, a closely held concern controlled by Maurice R. Greenberg, A.I.G.’s former chairman, and the Starr International Company, a privately held enterprise incorporated in Panama, and commonly known as SICO....
A.I.G. says in part that it is entitled to a refund of $33 million that SICO paid in 1997 as compensation to employees, which it now says should be characterized as a deductible expense.
When U.S. multinationals operate in countries that, I dunno, actually require them to pay taxes and be regulated, then the U.S. Treasury gives them a "foreign tax credit." When they instead shelter income in tax havens like Panama, they can endlessly defer the repatriation of their income, and thus NEVER pay taxes, either at home or abroad. So an accounting challenge is to re-categorize as much of your Panama-hidden income as "expenses," so that they can be deducted if the mother company does repatriate the money. This appears to be AIG’s game at the moment.
Under the Panama FTA, AIG-Panama would be able to sue the U.S. taxpayer for cash damages by claiming common regulatory actions were "tantamount" to an ("indirect") "expropriation." Do we really want to be giving these scoundrels more tools to evade their social obligations?