February 8, 2013

Sen. Chuck Grassley of Iowa made the following comment on the revelation that Jack Lew, President Obama’s Treasury secretary nominee, had money invested in a hedge fund based at the Ugland House in the Cayman Islands, according to various documents.  The Finance Committee will hold a hearing on the Lew nomination next week.  Grassley is a senior member of the Finance Committee.

“President Obama has been almost obsessively critical of offshore investments.  He called Ugland House ‘either the biggest building or the biggest tax scam on record.’  That makes this Cayman Islands investment of his top official and now Treasury Secretary nominee worthy of attention.  The irony is thick.  Members of the Finance Committee will question Mr. Lew about his foreign investments at the hearing.  On the White House claim that Mr. Lew previously disclosed his Ugland House investment, it was disclosed only if you knew where to look and then were able to put the pieces together.  To say this information was fully disclosed to the public is misleading, at best.”

Lew’s public disclosure form listing the hedge fund is attached – see box 3

The source of the President’s quote in the Grassley quote is:

“You’ve got a building in the Cayman Islands that supposedly houses 12,000 corporations. That’s either the biggest building or the biggest tax scam on record.”

Barack Obama on Saturday, January 5th, 2008 in a debate in Manchester, N.H.

The Truth-O-Meter Says:

Yes, but it’s not illegal

Thousands of subsidiaries, many from U.S. corporations, have indeed set up shop — or more precisely, hung a nameplate — at the five-story Ugland House and other financial centers in the Cayman Islands.

They include Coca-Cola, Procter & Gamble, General Motors, Intel, FedEx and Sprint.

But while Sen. Barack Obama is right on the general point, calling the practice “the biggest tax scam on record” is questionable. From the quote itself, it’s hard to tell if Obama is taking issue with the way companies use the Caymans as a tax shelter, or if he’s objecting to the U.S. tax code that makes it possible.

“There’s nothing better than to beat up on a tax haven on a beach,” said Douglas Shackelford, a professor at the University of North Carolina’s business school. “It sounds crooked, but if one really thinks about the facts, I don’t see the grounding.”

Weather isn’t drawing the corporations, of course. The Caymans do not have a corporate income tax. The United States taxes corporate income at 35 percent, higher than most countries.

As long as profits are not brought back to the United States, or “repatriated,” no tax is due. Federal law allows the taxation of “passive income,” meaning the interest earned on profits of those subsidiaries. But typically the companies reinvest the money elsewhere, Shackelford said.

Obama is the co-sponsor of legislation that would crack down on offshore activities by corporations and individuals. The Stop Tax Haven Abuse Act would target an estimated $100-billion annually, including $30-billion from corporations.

According to published financial reports, Coca-Cola alone saved $500-million in U.S. taxes in 2003 through foreign subsidiaries. Its Cayman company controls syrup-producing facilities in Ireland. The subsidiary pays taxes in Ireland at 12.5 percent, still far less than in the United States.

So, Obama is right that thousands of corporations, and some do say more than 12,000, are in one building in the Caymans, but he goes too far when he implies it’s an illegal scam. We rule his statement Half True.

End

Another comment from the President on Ugland House is from a 5-5-09 Bloomberg story:

President Obama referred to Ugland House yesterday.

“On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 businesses claim this building as their headquarters,” Obama said. “And I’ve said before, either this is the largest building in the world or the largest tax scam. And I think the American people know which it is: The kind of tax scam that we need to end.”

For more on this story go to:

http://www.grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=44542

Chuck Grassley Drills Down on Lew’s Cayman Island Investments

BY: Washington Free Beacon Staff

February 13, 2013 11:14 am

SEN. CHUCK GRASSLEY: And now to something that president Obama has made a big deal. On may the 4th, 2009, president which is where you invested your money overseas, quote, on the campaign I used to talk about the outrage of a building in Cayman Islands that had over 12,000 businesses, and I’ve said before, either this is the largest building in the world or the largest tax scam in the world, end of quote. You invested more money there than the average American makes in an entire year. Do you believe the president was accurate in referring to the building, which housed your investment as, quote, and the largest tax scam in the world?

JACK LEW: senator, I’m happy to answer questions about my own investments. I’m also happy to answer questions about tax policy regarding the sheltering of income from taxation. I reported all income that I earned. I id all taxes due. I very strongly believe that we should have tax policies that make it difficult, if not impossible, to shelter income from taxation.

SEN. GRASSLEY: Well, there’s certain hypocrisy in what the president says about other taxpayers and then your appointment, but let me move on. You’ve told finance committee staff that you were unaware of Uggland house and its association with tax scams. That makes me wonder where you have been for the last eight years. The chairman of this committee as well as a former budget committee chairman whose chart is behind us highlighted Uggland house as the nation — to the nation several times. As I said, president Obama preached about it. It’s no wonder that maybe you and the president haven’t proposed legislative solutions to what you consider — or what the president considers a tax scam. So my question, how can you be the president’s top tax enforcer if you haven’t heard of this offshore loophole.

LEW: Senator, this committee has reviewed my taxes for many years. I think it’s clear that I reported all income that I’ve earned, I paid taxes as appropriate. I believe very strongly that people should pay taxes on their income. I have very strong views on how the tax code should be constructed to encourage investment in the United States and I am happy to answer any policy questions you have.

SEN. GRASSLEY: Ugland house ought to be shut down?

LEW: Senator, I am actually not familiar with Ugland house. I understand there are a lot of things that happened there that were a problem.

SEN. GRASSLEY: Let me move on. A case filed in the new york state supreme court in which NYU, New York University is the plaintiff, states that at the same time you were executive vice president, New York University invested in the aerial fund, a Cayman Islands open-ended investment company, created to be used for united states tax-exempt investors and foreign investors, end of quote. Nonprofits sometimes seek to avoid paying taxes on unrelated business income through offshore vehicles like funds in the Cayman Islands. So question, while you were the executive vice president, did NYU have investments in the Cayman Islands to avoid taxes on unrelated business expense? And if so, how many millions of dollars did NYU have invested in the Caymans?

LEW: Senator, when I was at NYU, I was not aware of any policy to invest in a manner that you describe. I was in no discussions regarding the ubit. I was involved in discussions about making sure the endowment was invested to have as good a return as possible and the goal at NYU was to try to have a diverse portfolio that would help the university get income from its endowment.

SEN. GRASSLEY: I’ll close then with this conclusion, since you’re unaware of it and I take your word for it. But it’s certainly a poor reflection on your tenure there if you didn’t know about these investments. You were paid over $800,000 more than the actual president of NYU to know what was going on, and I’m surprised you didn’t know what was going on. Thank you, Mr. Chairman.

For more on this story go to:

http://freebeacon.com/chuck-grassley-drills-down-on-lews-cayman-island-investments/