An Inquiry Into Manulife Financial Corporation's (MFC) Tax Accounting
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Earlier today, The National Post reported that Manulife Financial Corp. (NYSE: MFC) is facing an inquiry into its accounting practices by U. S. state enforcement officials in connection with Manulife's role in a controversial tax shelter that has collapsed amid the credit crisis.
The Attorney General of Indiana and authorities from other states where the Canadian insurer operates have asked Manulife Financial to provide greater disclosure about how it is treating questionable tax schemes on its books.
The Indiana AG launched its probe after Manulife said that it is forcing a non-profit electricity co-operative in the state into bankruptcy by claiming a $120-million payment on a complex financial transaction constructed around an elaborate tax-avoidance structure viewed by authorities as abusive.
The inquiry is aimed at gaining a better understanding why Manulife's U. S. subsidiary, John Hancock, has been unable to reach a settlement with the Indiana utility, the Hoosier Energy Rural Electric Cooperative, which serves about 350,000 customers in the U. S. corn belt.
The Financial Post saw a letter that was sent to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi, that warned that "foreign corporations" were exploiting the credit crisis and forcing vital utilities into financial distress.
Manulife is now in a position to claim the $120-million because of a lowered credit rating of one of the parties to the complex tax deal agreed in 2002. This would permit Manulife to reap the full benefits of the deal -- set up to transfer tax benefits -- before the U. S. IRS steps in.
But the National Post says the chances of Manulife succeeding in recovering those funds may actually be slim. Congressional aides told the Financial Post that leading Senators are drawing up a law that would create a punitive excise tax of up to 120% on monies recovered by Manulife and other financial companies engaged in similar efforts to shut down tax deals with non-profit utilities early.
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Manulife Financial Corporation is a life insurance company and the holding company of The Manufacturers Life Insurance Company and John Hancock Financial Services, Inc.
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