National Whistleblower Appreciation Day

FOR MORE INFORMATION, CONTACT:
Paul Lyons
National Whistleblower Center
(202) 759-0178
p.lyons@whistleblowers.org
http://www.whistleblowers.org

For Immediate Release

Whistleblower Day Celebrated by U.S. Senate and Three Federal Agencies

Washington, D.C. July 29, 2016.  The National Whistleblower Center commends the Council of the Inspectors General for Integrity and Efficiency, the Office of Special Counsel and the Occupational Safety and Health Administration for being the first three federal executive agencies to recognize National Whistleblower Appreciation Day.  The Agencies plan to hold a joint event at the Capital Hill Visitors Center on August 1, 2016, at 1pm.

In 2011 the NWC Executive Director uncovered the history of America's first whistleblowers. (see NYT Column, "The Whistleblowers of 1777"). Ten sailors and marines blew the whistle on misconduct committed by the first Commodore of the U.S. Navy, eventually triggering the Continental Congress to pass America’s first whistleblower law on July 30, 1778.

Whistleblower Day commemorates the actions taken by our Founding Fathers.  The U.S. Senate unanimously recognized July 30th as National Whistleblower Appreciation Day, and urged all federal agencies to commemorate this day. 

In a statement issued today, the NWC Executive Director, Stephen M. Kohn stated:

"The Council of IGs, the OSC and OSHA have taken an important first step in publicly recognizing the contributions of whistleblowers.  We strongly urge every federal agency to follow this lead.   We need to change the culture that views whistleblowers as the enemy.  Our Founding Fathers got it right when they fully supported the first whistleblowers who exposed misconduct, even when their disclosures occurred during time of war.

"We urge Congress to immediately pass pending legislation to close dangerous loopholes in whistleblower protection, including the FBI Whistleblower Protection Enhancement Act and the Whistleblower Augmented Reward and Nonretaliation Act (H4619 & S2591).

"Whistleblower Day is a time for all Americans to reflect on the contributions and sacrifices whistleblowers have made, and to TAKE ACTION to support whistleblowers.”   

 Related links:

National Whistleblower Day website
"The Whistleblowers of 1777" New York Times column
The full story of “The Whistleblowers of 1777 was first published in the The Whistleblower’s Handbook

Facebook and its Transfer Pricing Issues

In addition to Google having European leaders questioning the validity of its transfer pricing models and shifting profits from France, Facebook is also having IRS inquiries about its transfer pricing practices.

As noted in this Reuters' article, the IRS is looking at whether Facebook transferred its intangibles to its Irish subsidiary at too low of a price.  As stated in the Reuter's article, by raising the transfer price of the intangible to the Irish subsidiary, Facebook could have increased taxable profits in the US. The article quotes the complaint which alleges that Facebook may have understated the intangible by billions of dollars.  Facebook was advised in the transaction by Ernst & Young.

Recent news also indicated that Facebook has hired Baker & McKenzie to fight the IRS in this transfer pricing dispute.  As you will recall, Baker & McKenzie just won a major victory against the IRS in the Medtronic case.

In Medtronic, IRS challenged the profit split calculation paid to Medtronic's Puerto Rican subsidiary, by stating that the Puerto Rican subsidiary was nothing more than a contract manufacturer for Medtronic.  Medtronic claimed that its Puerto Rican subsidiary was instrumental in its efforts because it oversaw the quality of Medtronic's products.  The Court determined that IRS's method (valuing the Puerto Rican subsidiary as solely a contract manufacturer) was arbitrary and capricious and therefore IRS abused its discretion. However, the Court didn't stop there, it also stated that Medtronic's proposed model was a better approach (Medtronic chose a comparable transaction involving a competitor and argued that it was actually due a refund), but adjusted the model to better match Medtronic's business.  The Court ended up with the rate the parties had previously agreed to in prior settlements of their transfer pricing dispute.  See these articles: Wall Street Journal and BNA.

While it is refreshing to see that the IRS is challenging US Multinational Corporations at their use of transfer pricing, the question remains whether these challenges will be upheld.  See prior blogs regarding transfer pricing, inversions and earnings stripping.

If you know of a corporation undervaluing assets in its transfer pricing models, contact our firm to discuss filing a tax whistleblower claim.  IRS will pay an award between 15-30% of collected proceeds (tax, penalties, and interest) to whistleblowers who provide substantial and credible information used by the IRS in prosecuting the alleged tax violators.

Why the Panama Papers matter

As a primer, this blog discussed the release of documents from the Panamanian law firm Mossack Fonseca, known as the Panama Papers, which disclose a network of shell corporations and entities established by the Panamanian law firm to assist clients in hiding funds and avoiding taxes.

In the news today, as found in this NY times article, the U.S. Justice Department (“DOJ”), through its Kleptocracy Asset Recovery Initiative (for more information about this unit see this NY times article), has begun a forfeiture action against properties in the U.S. acquired by Malaysian individuals whom allegedly embezzled funds from the 1 Malaysia Development Berhad (“1MDB”, Malaysia’s sovereign wealth fund, designed to be used for investment that would return profits to support the Malaysian people).  

The DOJ is trying to seize $1 billion in assets including the $30.6 million penthouse at the Time Warner Center in Manhattan, a $39 million mansion in the Los Angeles hills, and a $17.6 million tear down home in Beverly Hills.  The DOJ is alleging that the individuals diverted over $3 billion funds from 1MDB for their own use.  The key individuals referenced are the stepson, close friends and associates of the prime minister of Malaysia.  There are even allegations that some of the funds diverted were used to fund the film “The Wolf of Wall Street” and also to purchase paintings from Picasso and Monet. 

The DOJ’s seizure action raises two questions:

1. Why isn’t the government getting tough in preventing US Multinational Corporations (US MNCs) from shifting their profits offshore to avoid U.S. taxes; and
2. Why are US banks allowing individuals to hide money in the U.S.

As previously discussed in this Blog, US MNCs have utilized transfer pricing, earnings stripping and inversions to shift profits from the U.S. to low tax jurisdictions to lower the effective tax rates paid by the US MNCs.  This recent news story (DOJ seizure) raises the question why isn’t the government utilizing more aggressive techniques to stop the US MNCs from shifting this income when the government is seizing asset allegedly begotten from embezzled funds of other nations.  Shouldn’t we first stop US tax income from flowing to low tax jurisdictions, then worry about US assets acquired by other nations’ stolen funds?

The Second question goes to the nature of the Panama papers and the uses of shell corporations to mask the identity of the owners of the shell corporations.  There is now an effort by the government to require banks to know the owners of the shell corporations.  See this NY Times article.  According to the article, the US Treasury is requiring US branches of foreign banks to know whom the beneficial owners of the shell corporations.  While the US Treasury’s plans have not actually translated to actual rules requiring banks to obtain the identities of the owners of the shell corporations it appears as if it is likely to get legislation passed through Congress to enact the more stringent requirements on banks. 

If you have specific and credible information about a U.S. MNC shifting its profits offshore using transfer pricing, inversions or earning stripping, or anyone not paying their taxes by using shell corporations through banks, contact our firm to discuss filling a tax whistleblower claim.  As a reminder, the IRS pays between 15-30% of the collected proceeds (tax, penalties, interest, and other amounts collected) based on the information provided and used by the IRS to stop tax violators.