US Expats Now Must Deal with New Transition Tax

American citizens with businesses outside the country now have a new tax to think about. Known as the “transition tax,” it went to effect at the end of 2017, and will need to be considered for the 2018 fiscal year.

The tax requires businesses to pay 15.5% on foreign earnings held in cash and equivalents, and 8% on other earnings. It applies to shareholders of foreign corporations and includes American owners of small businesses which are based abroad.

The idea of the tax is to “repatriate” or bring back, money that these businesses maintain outside the US. The tax will apply to the company’s accumulated earnings and profits starting in 1986 until the end of 2017.

Although large corporations will have to pay the taxes on cash held in foreign countries, they will also be able to take advantage of the 100% dividends received deduction. This means that they can repatriate their dividends and will not have to pay any taxes.

Small businesses owned by US citizens will have a harder time of it. A small businesses cash flow is constrained by the transition tax. Also, they need to deal with the increase in complexity of the tax system in general.

“Getting clients to understand the law is the first battle, getting them to believe you is the second battle,” said Richard Tannenbaum, a CPA and leader of the global mobility practice at Mazars USA.

Lupin Expecting Approval to Enter US Generic Market

Mumbai-based Lupin Pharmaceuticals is expecting approval from US health regulators to launch about 30 generic drugs into the US market, the world’s largest for pharmaceuticals. At the moment the company has 162 abbreviated new drug applications (ANDAs) which are waiting for approval from the USFDA, (United States Food and Drug Administration.)

The company has its sights set on bringing complex generic drugs and biosimilars to the US market, in addition to continuing to focus on several exclusive and semi-exclusive products in the injectable and oral niche to keep its place as the fourth largest generics company in the market by prescriptions sold.

“We launched 23 products in the US last fiscal (2017-18), with 10 in the last quarter (January-March) alone. We expect to launch 25-30 products in US this year,” Lupin Managing Director Nilesh Gupta.

“Our efforts to maintain leadership position include bringing complex generics and biosimilars to market while continuing our focus on exclusive and semi-exclusive products in the oral and injectable space,” Gupta said.

During the fiscal year 2018 the company is hoping to launch about 30 specific products in to the US market.

Cal 3 Has the Votes to Appear on November’s Ballot

Map of the Cal3 (or Three Californias) proposal by Tim Draper (2017). Map courtesy of Wikipedia.

The initiative to divide the state of California into three separate states, Cal 3, received over 450,000 valid signatures, more than enough to appear on this November’s ballot in search of approval from California voters.

Yes, you read that correctly. The voters in California will decide whether they want California to add two new entities within its borders, to be known as Northern California and Southern California. Just plain California will be the area that includes all the coastal counties from Los Angeles to Monterrey.

The money behind the initiative comes from Silicon Valley investor Tim Draper. He was an early backer of Tesla and Skype and believes three Californias are better than one.

It is unclear if this initiative is an amendment to California’s constitution or a revision. If its considered a “small change” than it will not need approval from the state legislature before it heads to Congress for approval. However, if it is indeed a revision, which is a big change, then it will need to be enacted first by the California state legislature before heading to Washington, D.C.

Draper has tried twice before to split up his home state but failed. This time around he has dedicated $1.2 million of his own funds to push for Citizens for Cal 3. He probably spent an additional million dollars to get the signatures he needed to see the initiative on the ballot.

Polls seem to show that Cal 3 wont pass, with only 17% of Californians saying they would vote for the initiative in November. Since the poll only asked 900 voters, it could be be misleading.

The proposal would give the three new states 6 senators together in place of the two they have now. The number of congressmen would be determined by the population of each newly created state. Even if the proposal were to pass, the initiative will still have many obstacles in its way before it could be implemented. Cal 3 is most likely a bad case of “California Dreaming” for some of the residents of the Golden State.

Good News for Hedge Fund Managers

The hedge fund industry has taken some hits in the last couple of years.  One way this was experienced was through the significant depletion of profits of hedge fund managers’ in 2016.  But today, hedge funds are generally faring much better; hedge fund managers are once again enjoying better returns with greater investment gains and fewer are losing money.

Brahman Capital Corp is one example of this.

“At its apex around two years ago, Brahman managed more than $5 billion, as principals Mitchell Kuflik and Robert Sobel bet big on hedge-fund favorite Valeant Pharmaceuticals Inc. When Valeant’s stock plummeted from $257 to $14 a share, Brahman fell in turn, as the firm reported losses and investors pulled their money. Brahman sold Valeant stock last year and with what is now $3.8 billion of remaining cash pivoted to new ideas like a stake in travel company Expedia, people close to the firm said. This year, Brahman’s main fund is up 17%, the people said.”

More than successful returns, some hedge fund managers are finding that they want to find more hedge funds in which to invest.  This sentiment was echoed by APG Group NV hedge fund manager Ronald Wuijester who said:

“We would like to invest more in hedge funds and private equity but the very best of them virtually have no capacity to accept more of our money.  We don’t want to be on a gliding scale where we accept a lower return for the same amount of risk.”

Hedge funds are back.  Compared to 2016, today’s outlook for hedge fund managers is extremely positive.

Gold to Make a Comeback, Analysts Predict

As a hedge against inflation, gold

Native gold from Nevada, USA. (3.7 ounces). Courtesy of James St. John

gleams. But the stronger the dollar, the lower the price of gold tends to fall.

According to Bart Melek, the global head of commodity strategy at TD Securities in Toronto, investors and observers can expect to see the price of gold to climb as the dollar continues to weaken.

Since April 11, 2018 gold bullion lost about 5% in value, due to a surging dollar. Despite confusion in Italy and other uncertainties around the world, gold was selling for under $1300. Melek is predicting a surge in the price during the final quarter of 2018 to an average of $1375 an ounce, and could possibly hit a high price of $1400.

“As time moves on, there’ll be less and less reasons to get into the U.S. dollar, which will likely reverse some of the flows,” said Melek, a speaker at a precious metals conference in Singapore. “We do ultimately think that as we move into 2019, the U.S. dollar will weaken, which is a very powerful fuel for the gold complex.”

The outlook for the very near future is less optimistic for gold, whcich Melek does not believe will rise given the dollars continued strengthening. In addtion, the Fed is expected to raise interest rates two more times this year. Prices for gold will most likely average at about $1290 in the third quarter, and $1300 in the fourth quarter of 2018.