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11 Sep 2008
An investigation by the US congress has alleged derivative 'gimmicks' have been employed in helping hedge funds avoid billions of dollars in taxes.
According to a report on ft.com, the Senate permanent subcommittee on investigations says the strategies enabled investors to avoid paying the 30% withholding tax on income by treating dividend payments as returns on so-called equity swaps, stock loans or other derivatives transactions.
The report includes transactions made by some of the largest investment banks, including Lehman Brothers, Morgan Stanley, Citigroup, Deutsche Bank, UBD and Merrill Lynch.
Carl Levin, a Democrat and chairman of the subcommittee, said impacts of such a scheme have denied the US government of billions of dollars in taxes.
'These are gimmicks which are peddled by American financial institutions [and] designed, concocted and peddled to deny Uncle Sam the taxes that are owed under our law,' he said.
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