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A federal tax rule could close a loophole or create a headache

A view of the US Treasury building in Washington, DC-Chip Somodevilla/Getty Images

Wednesday is the deadline for interested parties to comment on a new proposal about corporate taxes from the Treasury Department. The rule, intended to address a practice known as "earnings stripping," is part of the Obama administration's ongoing effort to rein in companies it says are taking advantage of tax loopholes or trying to avoid US taxes through inversions. It addresses one of the many ways companies move money out of the US tax system into other countries.

Here's how it works: A company in the US gets acquired by a company someplace with lower taxes. Then, at least on paper, the foreign part of the company makes a loan to the US one. Here's where it becomes tricky: The US company pays interest to the foreign partner, and interest is deductible, so those payments disappear as far as US taxes are concerned, and magically become earnings someplace with a lower tax rate. In other words, a corporation can essentially issue debt to itself to make its numbers look lower for US tax purposes.

But if that loan was instead considered equity, stock in the US company, then the cash flowing back the other way would become taxable dividends rather than interest payments. The Treasury wants to clarify when that distinction should be made, and there are tons of fine print since corporations issue debt to their subsidiaries frequently, and for a variety of reasons. The goal of the new rule is to block the loophole in which a legitimate money-lending situation isn't what's going on.

Hundreds of commenters have already weighed in, both on the fine print and on the speed with which the rule is being rolled out. The Obama administration is pushing to keep the rule on a tight schedule in order to get it finalized under the current administration.

"This is going to be heavy lifting for the Treasury Department to keep its loophole closed tight, but accommodate business practices that both taxpayers and the government do not think are abusive," said Steve Rosenthal, a senior fellow at the Tax Policy Center. "It's a very challenging enterprise."

Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers, said corporations use debt to move cash around all the time -- and for them, compliance will be a nightmare.

"They are going to blow up our cash management systems," she said.

And, given the speed at which the regulations are rolling out, she said "the amount of uncertainty is incredible.

She also argues compliance would be expensive and complicated. But the Treasury's argument is that the US is losing far more than that in tax revenue because of earnings stripping.

"For sure, the rules are complicated," Rosenthal said. "The problem that needs to be addressed is straightforward. And solving the problem is critical, because in effect it allows US multinationals to elect how much taxes they want to pay."

Oi investor urges new board after record Brazil bankruptcy filing

SAO PAULO A minority investor in Oi SA (OIBR4.SA), Brazils largest fixed-line phone carrier, has called for the replacement of most of its board after the company filed for the countrys biggest-ever bankruptcy protection.

Nelson Tanure, a Brazilian investor with a contentious track record, and partners have been buying up shares through a fund controlled by Bridge Administradora de Recursos Ltda, according to four sources familiar with the matter.

In a late Thursday filing, Oi said Bridge, acting on behalf of a fund holding 6.6 percent of Ois capital, had given eight days to call a shareholder meeting to replace board members. The company said it was reviewing the request.

The shareholder activism underscores deep divisions on Ois board that derailed recent negotiations with creditors. Battle lines on the board remain from an ill-fated 2013 merger with Portugal Telecom, pitched as a lifeline for Brazils struggling national champion, which soured when poor cash management by the Portuguese partner came to light.

Bridge and Tanure representatives declined to comment. A source close to Tanure said he was the main investor and chief representative of the fund, adding that he went to Ontario and New York recently in a bid to organize an investor group.

Oi said in its filing that the activist investor aims to replace five board members appointed by Pharol SGPS (PHRA.LS), formerly Portugal Telecom, and a former chief financial officer.

Those Pharol board members balked at former Chief Executive Bayard Gontijos negotiations last month aimed at a debt-for-equity swap that would have diluted existing shareholders, sources said at the time. The impasse triggered Gontijos resignation, followed by the filing for bankruptcy protection.

Pharol warned that opportunistic investors may try to gain advantages against companies going through financial troubles. Measures that generate instability may cause losses and should be avoided by all Oi shareholders, said a company statement.

Ois common shares (OIBR3.SA), which have doubled in value since the companys bankruptcy filing nearly three weeks ago, closed 4 percent higher on Friday.

Pharol is currently the largest shareholder in Oi, with 27 percent of voting shares, a steep barrier for any rival investor group looking to change the board at a shareholder assembly.

Tanure last made news in Brazils telecommunications industry with a lawsuit against the controlling shareholder of Ois rival, TIM Participações SA (TIMP3.SA), in 2012.

Through another investment vehicle, Tanure accused Telecom Italia SpA (TLIT.MI) of abusing its control of TIM by appointing a chief executive the company knew was a target of an Italian investigation into irregular SIM card activations.

Tanure, who made a fortune buying troubled shipyards and a small bank in the 1990s, entered the telecom sector through long-distance operator Intelig Telecom, which was acquired by TIM in 2009.

(Additional reporting by Silvio Cascione and Alberto Alerigi Jr.; Writing and additional reporting by Brad Haynes; Editing by Andrew Hay and Bernard Orr)

Practice Intelligence: How Your Practice Management System Can Help Prevent Theft In Your Office

Has your practice ever experienced internal theft? Respondents to surveys by the American College of Medical Practice Executives (ACMPE) and Medical Group Management Association (MGMA) reported that 68 – 82% of practices have been victimized by employee theft or embezzlement. Further, the Association of Certified Fraud Examiners has conducted surveys indicating that organizations lose approximately 5% of gross revenues to fraud, waste, and abuse annually. Are you taking practical, easy and cost-effective steps to protect your practice?

In most internal frauds, an employee needs motive, opportunity, and an ability to rationalize the action. While you can#39;t control motive and rationalization, you and your Practice Management (PM) System can limit opportunity. By evaluating and strengthening your internal control system, you can limit your exposure to losses from fraud.

  • Confirm that you are taking full advantage of your PM#39;s security groups. Categorize your staff (front desk, technicians/nurses, billing department, physicians, etc.) and consider what permissions each group should have.
  • Some questions to consider:

    • Which users should have access to financial records?
    • Which users should be able to delete claim information or payments?
    • Which users should be able to edit data that has already been entered?
    • Which users should be allowed to write off balances or create insurance adjustments?
  • Medical practices often have a great deal of cash moving through them. Ensuring that you have strong cash management policies will reduce the possibility of an employee embezzling money without your knowledge.
    • Cash Receipts - Require all patient payments to be captured in the PM System and generate receipts for patients. On a daily basis, reconcile the PM System#39;s cash receipt entries with the cash box and the ultimate bank deposit. Require a manager or supervisor sign off on the reconciliation.
    • Petty Cash - Consider separating petty cash from a change fund to make change for patients. Keep the change fund at a consistent dollar amount each day and balance out the drawer at the close of business.

      Keep petty cash locked in a secure place and maintain a log to account for the movement of money through petty cash. Establish rules about which employees can access petty cash and be consistent.
  • Use the reporting functionality of your PM System to confirm that all encounters for the day have been posted and closed.
  • Reconcile bank statements to the financial reports from your PM System. If the numbers do not match, investigate and determine why.
  • Track adjustments and write offs to understand normal patterns so that variations can be more readily identified.
  • Whenever possible, allocate financial responsibilities among several employees so that the physical custody of assets (ie patient payments) is maintained by employees who are not responsible for the accounting over those assets. Additionally, it is best if the authorization of financial transactions is the responsibility of an individual having no access to either the physical assets or the accounting records. As an example, the employee that physically collects and deposits patient payments should not be the same employee who is responsible for the entering of transactions in the practice#39;s accounting records.

Theft in medical practices is all too common. However, there are some relatively simple policies and procedures that can be adopted to limit your practice#39;s exposure to fraud. Don#39;t become another fraud statistic!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Another Article On Philip Morris? Yes... But Let's Look A Little Closer At Cash Flows

This kind-of-busy chart shows the change in the interest expense over the past 11 quarters (Y2 Axis) and also the percent the interest expense is of CFFO before interest is deducted (ie CFFO + Interest expense) (Y1 Axis). At around 10% of CFFO + Interest, this is a low interest expense... although with the addition of about $1.5B in new net debt over the past 12 months, the interest expense has jumped back up following 4 consecutive quarters of decline. Others have shown concern over PMs debt. Im not concerned at all.

The last CF chart I find useful is a quarter-by-quarter measure of Discretionary Operational Cash. This is the CFFO that is available to management after all operational expenses are paid, all dividends are paid and all investing activities (CFFI) are paid. It is the discretionary cash management has available to do usually a mix of things like pay down debt, buy back stock, increase cash holdings or payout a special dividend. Over the past 11 quarters, PM has generated (in $millions) $21,701 in CFFO, paid $4,312 in CFFI (including CapEx) and paid out $16,775 in dividends, leaving $614 to do other things with.


I am not at all concerned about PM dividend sustainability over the next several years. The decline in revenues is of concern, but minor concern. Tobacco stocks have the enviable advantage of dealing in a product to which its customers are, for the most part, addicted. So even with a long-term secular decline in tobacco product sales, the future cash flows are about as assured as any future product can be. Certainly, governments overseas could make tobacco sales more difficult or governments could increase excise or other taxes, taking a bigger bite out of the future cash flows. But governments have a perverse interest in seeing sales of cigarettes increase as their excise taxes will be based on sales. This gives management more flexibility in managing to support the dividend, particularly when insiders are holding over 3.3 million shares of PM. The strategies they will use I know not... nor does anyone else. But a dividend cut would not only reduce dividends to insiders, but would send the share price on a quick trip to the basement. Aint gonna happen.

6 Arrested In Connection With Thane ATM Cash Van Robbery Case, Rs. 3.12 Crore Recovered

Thane: In a breakthrough in the case of robbery of nearly Rs 9.16 crore from the office of an ATM cash handling company in Thane, police today said they have arrested six persons and recovered Rs 3.12 crore from them.

The six persons were arrested on Thursday and the hunt is on for around 15 others who were also involved in the robbery that took place in the wee hours of June 28, Maharashtra Director General of Police Pravin Dixit said.

Mr Dixit said the six arrests were made from Thane and Nashik in joint effort by a police team, including personnel of the Crime Branch, who cracked the case.

Three four-wheelers, a pistol and a knife used by the accused in the robbery were also seized, and the hunt was on for another weapon and other things like CCTV and DVR taken away by the accused, police said.

A gang of seven robbers, wielding knives and chopper, had on Tuesday robbed the office of the ATM cash handling company in Thane and decamped with nearly Rs 9.16 crore.

The incident took place when the robbers, who had their faces covered with monkey caps and handkerchiefs, barged into the office in Teen Hath Naka area when 4 to 5 staffers were engaged in counting the money.

The robbers kept the three security guards and staffers at gun-point while some of them stacked off the cash.

They also disconnected the CCTV camera and looted it along with some mobile handsets.

As per police, the company handled cash for bank ATMs, malls and jewellers. At the time of the incident, the cash collected was kept in the office.

The DGP said that without any clue of the crime as the CCTVs were also stolen by the robbers, police worked on technical inputs and human intelligence and cracked the case within 48 hours. He expressed confidence that the others accused would also be nabbed soon.

To a question, he said the company had not informed about its functioning in the city and also not intimated the police immediately after the robbery.

Our priority now is to recover the balance cash and also arrest the others accused, he said, adding that later on they will decide on further steps with regard to the company and also work out a system for such cash management firms.

To a query, the DGP said after the robbery, the gang members assembled at Wadivare near Nashik and distributed the booty among themselves, with each one taking Rs 10 to 20 lakhs depending on his place in the gang, he said.

Those arrested have been identified as - Nitesh Bhagwan Awhad alias Golu (22), Amol Arun Karle (26), Akash Chandrakant Chavan alias Chingya, Mayur Rajendra Kadam alias Ajinkya (21), all residents of Thane, and Umesh Suresh Wagh (28) and Harishchandra Uttam Mathe (30) from Nashik.