Comments Guidelines

All comments are pre-moderated. No spam, slurs, personal attacks, or foul language will be allowed.

Monday, November 4, 2013

Ted Cruz's Tax Haven Past

A version of this post was previously published at US News and World Report's "Economic Intelligence" blog: http://www.usnews.com/opinion/blogs/economic-intelligence/2013/10/25/ted-cruz-will-vote-against-tax-haven-reform
Reprinted here under the terms of my contract with US News and World Report.



Time (h/t TPM) reports that Texas Senator Ted Cruz invested $6000 in a company with his college roommate/debate partner, David Panton, which has turned into at least $100,000. While this is true on paper and required Cruz to make multiple amendments to his Senate financial disclosures, the story is of more interest to me for Cruz’s use of a tax haven company.

The tax haven in this case is the British Virgin Islands. Caribbean Equity Partners Limited was founded by Panton, Cruz, and two other partners in 1998. Cruz’s $6000 plus help starting the firm gave him a 10% ownership stake, according to a spokesperson for Cruz in response to my email inquiries. The other partners owned 30% apiece, she said.

Caribbean Equity Partners Limited consisted of two separate units, Caribbean Equity Partners Limited (Jamaica) and Caribbean Equity Partners Limited (BVI). Cruz held stock in both of them. In the Jamaica corporation, he held 100 regular shares plus 250 Class “C” Preference Shares. He held 5000 shares of the British Virgin Islands-incorporated company. This information comes from a Certificate of Divestiture dated January 6, 2003, filed when his wife, Heidi Cruz, took a job in the Department of the Treasury, one of many documents published by Time (see link above). The Cruz spokesperson confirmed his ownership in both companies.

This divestiture, about five years after the company was founded, netted Cruz $100,000, consisting of $25,000 in cash and a $75,000 promissory note from a different company, CEP Investments Holdings Limited. This firm is headquartered in Jamaica but domiciled for tax purposes in the British Virgin Islands, Cruz told Time. He also told the magazine that it is “effectively” a promissory note from Panton, as the company is owned by Panton. Based on what the Time story describes as an “oral provision” with Panton to pay reasonable interest on the note, it has now grown to over $100,000 in value as noted in an October 1 amended disclosure and confirmed by the Cruz spokesperson. As the promissory note shows, it was originally scheduled to have been paid December 31, 2003, but according to Cruz’s spokesperson he and Panton have an oral agreement to postpone payment indefinitely. (For this reason, his $6,000 investment may never grow beyond the $25,000 he has already collected.)

Cruz’s ownership of a firm with a tax haven-based unit does not augur well for him to oppose tax havens, as did some Republicans in the past. Notably, former Senator Norm Coleman (R-Minnesota) co-sponsored the Stop Tax Haven Abuse Act of 2007. Moreover, we find from opensecrets.org that Cruz has received campaign contributions from Goldman Sachs (where his wife now works) PAC and Credit Suisse Group PAC, in addition to tens of thousands of dollars from employees of the two companies. According to the Government Accountability Office, as of 2009 Goldman Sachs had 29 tax haven subsidiaries, including 15 in the Cayman Islands and one in the British Virgin Islands. Credit Suisse, of course, is a Swiss bank under criminal investigation for assisting at least some of its American clients to commit tax evasion.

Bottom line: Senator Cruz is almost certainly a vote against tax haven reform.

Cruz’s spokesperson also issued a statement: “This story is much ado about nothing.  It concerns a 15-year-old business venture from which Sen. Cruz entirely divested more than a decade ago.  He holds no equity interest in any Caribbean business, and has not had any such interest, compensation, or income for more than 10 years. Upon divesting from the venture in early 2003, the Senator received a partial payment and also a promissory note from his business partner and college roommate.  That promissory note--on which [Time’s] entire article is based-- is technically still owed (and thus was voluntarily disclosed), but it has never been paid and Sen. Cruz has never attempted to collect on it.”

2 comments:

  1. "Tax haven," in this instance, meaning if he brings the money back into the U.S., it gets taxed, so they set up a corporation to operate outside the U.S., so it doesn't get hit with corporate income taxes?

    ReplyDelete
  2. I think we should just eliminate the Corporate Income Tax altogether.

    The time and brainpower wasted on computing (and avoiding) that tax is astounding. Just tax the income when it gets to the individuals -- as dividends, capital gains, or pay.

    Then there would also be no excuse for different tax rates for different types of income.

    ReplyDelete