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BUSINESSMonday 7 December 2015

Of Mutual Interest:                                                                                                                                                 Wal-Mart suing
                                                                                                                                                                   Puerto Rico over
Despite flat market, many funds will deliver taxable gains                                                                                                          ‘unfair’ tax hike

STAN CHOE                         fund in a taxable account,     The main reason for the           ers expect to pass along                                        SAN JUAN, Puerto Rico (AP)
AP Business Writer                even if you didn’t sell any    jump is that AIG did what         distributions of $3.74 per                                      — Wal-Mart’s Puerto Rico
NEW YORK (AP) — Never             shares. Long-term gains        shareholders hoped it             share, which is about 9 per-                                    operation is asking the fed-
mind that this year has           generally qualify for lower    would after Fairholme Fund        cent of its total assets, as                                    eral court in San Juan to
largely been a dud for            rates than short-term gains.   bought it in 2010 and 2011:       of Wednesday. Last year’s                                       void what it calls an “oner-
stocks. A tax bill is still com-  The value of your holdings     It surged. AIG generated          was $1.63.                                                      ous” and “unconstitution-
ing for many mutual-fund          won’t normally change as       more than $2 billion in gains     Earlier this year, one of its                                   al” tax that unfairly targets
investors.                        a result of the distribution,  for the fund by June of this      investments, Medtronic,                                         the U.S. retail giant.
Now that December is                                                                                                                                               It said in court papers filed
here, funds are lining up         Trader George Ettinger works on the floor of the New York Stock Exchange. Never mind that this                                   Friday that the increased
to pass along something           year has largely been a dud for stocks. A tax bill is still coming for many mutual-fund investors.                               levy on purchases from
called a capital-gains dis-                                                                                                                                        U.S.-based Wal-Mart distri-
tribution to their sharehold-                                                                                                             (AP Photo/Richard Drew)  bution centers by its island
ers. It’s about as appetizing                                                                                                                                      entities constitutes one of
as it sounds.                     which often gets reinvest-     year. And when it sold AIG        completed its $42.9 billion                                     the world’s highest taxes
Investors who hold mutual         ed in the fund. The price      shares, it recorded a big         acquisition of Covidien.                                        and pushes its effective tax
funds outside a 401(k) or         of each fund share in this     gain. Another reason for          The deal created a tax bill.                                    rate to 91.5 percent of net
another tax-advantaged            example would drop to $8       this year’s rise in distribu-     The fund also recorded big                                      income. The tax increase
account must pay taxes on         when it made the distribu-     tions is the explosion in cor-    gains from sales of its hold-                                   will cost Wal-Mart $155
these distributions, even if      tion of $2, leaving you with   porate takeovers. Compa-          ings in Automatic Data Pro-                                     million over six years and
they don’t sell any shares.       the same $10 per share.        nies are finding it difficult to  cessing and Equifax .                                           make its Puerto Rico  busi-
And the bills could be big:       The Fairholme Fund ex-         drum up revenue growth            The fund took the unusual                                       ness unsustainable.
More than a dozen funds           pects to make distribu-        given the still-tepid global      step of explaining what                                         The suit says that Puerto
have already said they ex-        tions of $11.55 to $12.35      economy, so they’re buy-          was behind the distribution                                     Rico’s Act 72 specifically
pect to pass along distribu-      per share next week. That’s    ing competitors instead.          to shareholders in a notice                                     targets “megastores” such
tions in coming weeks that        equal to about 35 percent      Others are combining in           on its website and in gener-                                    as Wal-Mart that have U.S.
are more than 30 percent          of the fund’s assets, as of    cross-border deals to lower       al conversations, says Dave                                     mainland-based related
of their total assets.            Wednesday, and would           their tax rates.                  Mertens, managing direc-                                        entities because local op-
Several factors are be-           dwarf last year’s distribu-    At the Jensen Qual-               tor at Jensen Investment                                        erations are exempt from
hind this year’s distribu-        tion of $3.08 per share.       ity Growth Fund, manag-           Management. q                                                   the tax. It said Treasury Sec-
tions, from home-run stock                                                                                                                                         retary Juan Zaragoza and
picks made years ago to                                                                                                                                            other top government of-
the recent surge in corpo-                                                                                                                                         ficials untruthfully accused
rate takeovers. But first, a                                                                                                                                       it of evading taxes by ma-
reminder on what causes                                                                                                                                            nipulating the prices paid
distributions and how they                                                                                                                                         between related entities
affect investors.                                                                                                                                                  to underreport Puerto Rico
When a fund sells a stock, it                                                                                                                                      income.
records how much it made                                                                                                                                           “In addition to punishing
or lost on it. At the end of                                                                                                                                       multi-national corporations
the year, it totals the gains                                                                                                                                      for assumed tax evasion,
it made from trading and                                                                                                                                           Act72’s precursor also had
distributes those gains to                                                                                                                                         an additional purpose: To
shareholders.                                                                                                                                                      protect and promote lo-
Say you hold a mutual fund                                                                                                                                         cal  businesses,” the suit
whose shares currently                                                                                                                                             states.
trade at $10 each. That                                                                                                                                            Puerto Rico Treasury De-
fund may distribute $2 per                                                                                                                                         partment officials did not
share in capital gains to                                                                                                                                          immediately respond on
you at the end of the year.                                                                                                                                        Saturday to requests for
You have to pay taxes on                                                                                                                                           comment.
those gains if you hold the                                                                                                                                        The lawsuit argues the
                                                                                                                                                                   tax violates the interstate
Head of China’s 4th largest bank resigns amid probe                                                                                                                commerce and equal
                                                                                                                                                                   protection clauses of the
BEIJING (AP) — The head of        comes amid an ongoing          two years’ probation in           nation took immediate ef-                                       U.S. Constitution and Fed-
                                  campaign against corrup-       October after being inves-        fect and that there were                                        eral Relations Act. It asks
China’s fourth-largest state      tion in the Chinese govern-    tigated by the ruling Com-        no matters in relations to                                      the court for swift action
                                  ment, the military and state   munist Party’s anti-corrup-       his case that should “be                                        because the common-
bank has resigned citing          industries.                    tion watchdog body over a         brought to the attention of                                     wealth’s fiscal crisis may
                                  A massive stock market sell-   series of cases. Reports also     the shareholders or credi-                                      impede its ability to refund
personal reasons amid re-         off over the summer has        said a subordinate in the         tors of the bank.”                                              tax payments found to be
                                  also lately focused investi-   bank’s Shenzhen branch            With the economy slow-                                          unconstitutional.
ports of his involvement in a     gators’ gaze on the finan-     had been placed under             ing, profits among China’s                                      The government an-
                                  cial sector.                   investigation for corruption      top four state-run banks                                        nounced in June it would
corruption investigation.         The respected financial        earlier in the year.              slumped in the first three                                      seek to restructure its near-
                                  weekly Caixin reported         A notice Friday on the Hong       quarters of the year, with                                      ly $72 billion debt with an
No details were given             that Zhang had been de-        Kong stock exchange’s             Agricultural Bank’s rising by                                   economy that has been
                                  moted and placed under         website said Zhang’s resig-       just 0.57 percent. q                                            declining for more than a
about the departure of                                                                                                                                             decade.q

Agricultural Bank of China

president Zhang Yun, ac-

cording to reports appear-

ing Saturday.

The resignation of the

56-year-old    executive
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