Banks trade barbs with U.S. Senate panel in tax avoidance probe
By Douwe Miedema
WASHINGTON (Reuters) - Deutsche Bank and Barclays on Tuesday locked horns with a U.S. Senate committee that has accused them of selling option products to hedge funds to help them avoid taxes.
Renaissance Technologies, a hedge fund, defended the so-called basket options it used, saying at a hearing of the Senate Permanent Subcommittee for Investigations that they served legitimate business purposes.
The hearing follows the publication of a study this week by Senator Carl Levin, the Michigan Democrat who heads the panel, which said the two banks helped Renaissance and other hedge funds to avoid billions of dollars in taxes.
"Renaissance ... purchased (basket) options ... for substantial non-tax business reasons," Renaissance Capital Chief Financial Officer Mark Silber said. "We would have purchased these options regardless of their tax treatment."
The two banks enabled at least 13 hedge funds to conduct $100 billion in securities trades, Levin's report found. Deutsche sold the products to 13 hedge funds, while Barclays had only Renaissance as a client.
In the case of Renaissance alone, the fund paid an estimated $6.8 billion less in taxes than it should have done, the report said, by booking short-term trading profits as long-term capital gains, which are taxed at a lower rate.
Presiding over the near five-hour meeting with minimal assistance from fellow panel members John McCain and Ron Johnson, both Republicans, Levin dwelled on who controlled the option accounts: the bank or the hedge funds.
Levin in one instance accused Gerard LaRocca, a senior Barclays executive, of "waffling" when answering a question. Continued...