The U.S. Senate Finance Committee approved a bill on Wednesday that would repeal export tax subsidies in an attempt to avoid a showdown with the European Union over trade rules, according to press reports.

The bill, which passed by a vote of 19-2, would use the money generated by ending the subsidies — $50 billion over 10 years — to cut the corporate tax rate for manufacturers from 35 percent to 32 percent.

The measure is an apparent response to the World Trade Organization, which said the tax breaks violate trade rules and had led the European Union to impose $4 billion in import tariffs on U.S. goods.

Tucked into the bill, however, is a six-month tax holiday for American companies with foreign operations, who will see their tax rate slashed to just 5.25 percent. These companies have been permitted to defer taxes on the profits they made overseas, as long as they keep the money outside the United States; the money is typically invested in overseas operations or passive investments.

The bill also includes a number of international tax reforms that will make it easier for U.S. multinational companies to take advantage of foreign tax credits.

Lawmakers are hoping the temporary lower tax rate will lure as much as $400 billion in foreign profits back to the United States and encourage the companies to invest this windfall in new plants, equipment, and employees.

“The Administration’s top priority is getting a bill enacted that complies with the WTO ruling and avoids triggering $4 billion in EU trade sanctions,” said Treasury Secretary John Snow, in a statement. “The EU has stated the Congress needs to pass bills out of both houses by the end of the year to avoid such sanctions.

According to The New York Times, however, many tax experts don’t want to validate the strategy of those companies that have been sheltering profits overseas. “The company that left Louisiana is going to pay a 5 percent tax on the widgets they make overseas, and the company that stayed in Louisiana is going to pay a 35 percent tax,” said Sen. John B. Breaux (D-La.), according to the Times. “If that isn’t an incentive to leave, I don’t know what is.”

As for reinvestment of overseas profits in the United States, critics note that the tax break comes with no strings attached. An amendment offered by Sen. Breaux on Wednesday, which would have required companies to reinvest their foreign profits in things like new equipment, was defeated by Republican lawmakers, reported the Times.

Move Away from FASB and ”Back to Cash Accounting,” says Sun’s CEO

Sun Microsystems Inc. chief executive Scott McNealy said that U.S. regulators and accountants have gone “wacko” in a misguided attempt to improve corporate governance, according to wire service accounts of his remarks before Toronto’s Empire Club.

Earlier this week Sun, one of the few former high-flying tech stocks not to stage a rally this year, issued an earnings surprise and said it would take a $1 billion tax charge. And yesterday, one Wall Street analyst was talking up Sun as a potential takeover target.

McNealy said new rules from the Financial Accounting Standards Board and the Securities and Exchange Commission would do little to improve governance. “The FASB, SEC and accountants have gone absolutely wacko on us,” he reportedly said. “I’m a Stanford MBA, I went to most of my classes. I took accounting. I can’t read annual reports, income statements and SEC filings any more. They are absolutely undecipherable. What we need to do is move away from the FASB world and move back to cash accounting.”

Referring to the earnings warning he issued earlier in the week, McNealy said that “If we laid that all out with strict cash accounting, and let the analysts do the analyzing and the investors do the guessing, and stop putting the CEOs and the accountants in charge of making judgments, we’d all be a lot better off.”

“I spend all day trying to close the books making judgments — on whether we should have written up or down our tax credit asset on our books this week,” he added. “And then I had to decide how much to depreciate versus expense.”

McNealy called Sarbanes-Oxley a disaster, saying it was like throwing “buckets of sand in the gears of the market economy.” He added that it would raise the cost of being a public company and discourage risk-taking.

“I can’t believe shareholders haven’t gone nuts (at) the cost of accountants. This is an accounting full employment act, backed by the lawyers and supported by the judges,” McNealy reportedly said. He added that the current environment is discouraging smart, capable people from joining boards, which will cause the level of corporate governance to “plummet” in the long term.

Default Rate for Bank Loans about 20 Percent Lower Than for Bonds

The overall default rate for nonfinancial corporate bank loans in the United States is about 20 percent lower than that for corporate bonds, according to a new reports from Moody’s Investors Service.

The difference in default rates, says the credit rating agency, arises from situations where loans do not default following a bond default that does not entail bankruptcy.

In fact, not only is the default rate on loans effectively lower, but in cases where an issuer defaults but does avoid bankruptcy, “loss of loan principal is a rare event,” says Kenneth Emery, a vice president and senior analyst at Moody’s and the author of the study.

These conclusions help explain why Moody’s typically rates an issuer’s bank loans one or two rating notches higher than its bonds. This “notching” is intended to reflect the secured nature of bank loans over bonds, but the study gives further support to the practice, notes Moody’s.

According to the study, in Europe the overall default rate for loans was approximately 27 percent lower than for bonds. In Europe, however, when an issuer defaults but avoids bankruptcy, there is frequently a loss of principal on its loans, the rating agency points out.

House Committee Seeks HealthSouth Subpoenas

The House Energy and Commerce Committee voted to give its chairman, Rep. Billy Tauzin (R-La.), power to issue subpoenas as he prepares for hearings later this month into alleged accounting abuses at HealthSouth Corp.

Former HealthSouth CEO Richard Scrushy has already agreed to appear before the committee but will refuse to answer questions about its probe of HealthSouth’s accounting scandal, committee spokesman Ken Johnson told Reuters.

The subpoenas authorized on Wednesday would be issued only if Scrushy has a “change of heart” or if others sought by the committee refuse to appear, Johnson said. “The subpoena authority will assure the presence of any witnesses who suddenly get cold feet and refuse to cooperate with our investigation,” he added.

In addition to Scrushy, the committee expects the hearing to include representatives of Ernst & Young, UBS Warburg, and members of the HealthSouth board of directors, the wire service reported.

HealthSouth, an operator of rehabilitation and outpatient surgery centers, has been accused of $2.5 billion in accounting fraud since 1994. To date, 15 former officers have pleaded guilty to fraud charges and have agreed to cooperate with investigations by the Justice Department and the SEC, according to reports.

SEC Ban for Onetime Deloitte Advisory Partner for The North Face

To settle charges of improper professional conduct related to work for clothing retailer The North Face, a retired Deloitte & Touche partner agreed to a three-year ban prohibiting him from appearing before the Securities and Exchange Commission as an accountant, according to the SEC.

The commission found that Richard Fiedelman, advisory partner for The North Face from 1997 through March 1999, engaged in intentional or reckless conduct that resulted in violations of generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS).

Due in part to Fiedelman’s conduct, The North Face’s recognition of profit margin on a barter transaction violated GAAP, and as a result The North Face’s March 31, 1998, financials were materially misstated, the SEC alleged.

The commission added that Fiedelman violated GAAS standards, including the general GAAS standard concerning due professional care, the standard of field work relating to sufficient competent evidential matter, and the standard of field work relating to working papers.

After three years Fiedelman may request reinstatement.

Short Takes

• Royal Ahold NV, the world’s third-largest food retailer which is currently embroiled in an accounting scandal, wrote down $3.8 billion in assets, including assets at its U.S. Foodservice unit.

• The Justice Department is mulling an antitrust challenge to Oracle’s $7.3 billion hostile takeover bid for rival software company PeopleSoft, according to USA Today.