Details of the Romneys' offshore investments are evidenced in the couple's recently released 2011 tax returns, the GOP presidential nominee's financial disclosure statements, a trove of internal Bain documents posted by the Internet site Gawker.com, and filings in Luxembourg and Ireland obtained by McClatchy.
As of Dec. 31, 2011, Romney and his family had as much as $50 million or more invested abroad, according to his disclosures. His extensive offshore investments have drawn scrutiny for multiple reasons:
—Romney pioneered Bain Capital's offshore strategies, forming partnerships and companies in the late 1990s in Bermuda, the Grand Caymans and Luxembourg that helped spawn a system now criticized for minimizing tax revenue.
—By refusing to release more than two years of his tax returns, fewer than most party nominees in recent presidential elections, Romney has fueled suspicions that he has something to hide, perhaps related to his offshore investments.
—Documents released to date have enabled Democrats to paint the former Massachusetts governor as an aristocrat who's capitalized on tax loopholes that are out of reach for average Americans.
"We've never had a candidate like this before, that's for sure, who had all this stuff, the foreign companies and bank accounts," said Daniel Shaviro, a law professor specializing in tax policy at New York University. "I admit I'm in many ways not sympathetic to his candidacy, but it does really raise questions about his thinking and about his values."
Jack Levin, a Chicago attorney who has worked for dozens of private equity funds and teaches tax law at Harvard University and the University of Chicago, takes strong issue with such criticism.
"I'm just shocked that people say, 'Just because you've had a fair amount of success, Mr. Romney, and then you want to run for office, you should be lambasted for having complied with the law over the 30 years (in which) you've had a fair amount of success,' " he said. "That just drives every successful person out of running for office. … I think it's unfair to criticize them for doing what's permissible."
Levin, a tax policy adviser to Barack Obama's 2008 campaign but undecided about his presidential vote this year, said he has performed legal work for Bain Capital, but not in the last dozen years. He said he doesn't know details of the deals in question. His firm, however, still works for Bain, and its members are among leading donors to Romney's campaign, having given at least $393,667, according to the nonpartisan Center for Responsive Politics.
Among the transactions that are piquing interest are those flowing from Bain's purchase of ownership interests in two U.S. chains, the arts and crafts retailer Michaels Stores and HD Supply Inc., Home Depot's former home improvement supply arm, whose sales were being hurt by a sharp downturn in the housing market when it was acquired in 2007.
In each case, Bain Capital and its co-owners later bought back debt at a fat discount as those companies struggled for survival. Michaels Stores' outstanding debt fell by $164 million to $28 million. At HD Supply, Bain bought $953 million in debt for $689 million, a drop of $264 million.
The Internal Revenue Code normally imposes a 35 percent tax on the sum of canceled debt if it was purchased by the underlying company or a related party. By lending through Luxembourg, and in HD Supply's case through a string of companies in Luxembourg, Ireland and the Caymans, Bain created separation from those businesses, tax lawyers said.
Further, under a tax treaty between Luxembourg and the United States, Luxembourg does not impose its usual 30 percent withholding tax on interest payments, meaning that the companies could take tax deductions for the interest they paid, but their owners could avoid tax on interest paid on the debt.
Based on the limited disclosures, it appears that HD Supply "got to basically recapitalize their company without paying this cancelation of indebtedness tax," said Adam Rosenzweig, who teaches tax law at Washington University in St. Louis. He said that Bain also effectively got to convert interest income that's taxed at 35 percent into capital gains that are taxed at 15 percent. "It's a pretty clever structure."
However, he asked: "Is the goal of complying with the system to comply with the literal letter of the law or to comply with the intent of the law? I don't think anyone can say the intent of Congress in enacting the statutes is (to create) this structure."
Members of Congress, he joked, "weren't smart enough to think of this."
©2012 McClatchy Washington Bureau