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Battle Lines Being Drawn As Obama Plans To Curb Tax Avoidance 1505

Posted by ScuttleMonkey
from the getting-worse-before-they-get-better dept.
theodp writes "Barack Obama has squared up for a major battle with big business, announcing a crackdown on offshore tax avoidance and evasion by US multinationals that's designed to raise $210B and make it easier for companies to create 'good jobs here at home'. Obama cited a building in the Cayman Islands where more than 18,000 US companies are housed: 'Either this is the biggest building in the world or it is the biggest tax scam in the world,' he said. 'I think the American people know which it is.' The administration says that more than a third of US foreign profits in 2003 came from Bermuda, the Netherlands and Ireland, and noted US companies paid an effective tax rate of just 2.3% on the $700bn they earned in foreign profits in 2004. Among tech companies affected by the crackdown, Microsoft joined 200 companies who signed a letter complaining that the proposed tax changes would put them at a disadvantage with their rivals, Cisco moaned that the measures 'would adversely impact our ability to invest and grow our business in the US,' and Google declined to comment for the time being."
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Battle Lines Being Drawn As Obama Plans To Curb Tax Avoidance

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  • by Aranykai (1053846) <slgonserNO@SPAMgmail.com> on Monday May 04, 2009 @05:31PM (#27821677)

    Its a building of holding... Duh.

    • by Timberfox (1537013) on Monday May 04, 2009 @05:39PM (#27821797)
      are you allowed to place a Building of Holding inside of another Building of Holding? I figure this would make some sort of unvierse imploding paradox, that rips apart the space-time continuum.
    • by Anonymous Coward on Monday May 04, 2009 @06:35PM (#27822769)

      I block the Politics section for a reason
      But Slashdot seems more and more obsessed with ramming the Politics section down everyone's throats.

      First I had to block the Your Rights Online section because it morphed into Your Rights COMMA On-Line.
      Then Science, because Slashdot turned it into a Creationists/Stem Cell debate section
      Now, 3 stories in the last few weeks have leaked out of Politics (where they rightly belong) and on to the front page/News

      Dear Self-Important Editors:
              You (yeah you) created sections and the ability to block sections for a reason.
              Maybe you should show some self-restraint and put you Damn Fucking soap boxes back in their proper sections.
              I and many others have no desire to be subjected to stories, the main point of which seems to be running screeds on how "Jews control the GOP" or how "Ron Paul was right".
              Your inability to observe the standards of conduct you yourself created shows an utter lack of class.

  • by z-j-y (1056250) on Monday May 04, 2009 @05:34PM (#27821731)

    two ways to solve the tax "scam"
    1. raise overseas tax
    2. lower domestic tax

    guess which road the government takes.

    • by Leafheart (1120885) on Monday May 04, 2009 @05:39PM (#27821805)
      There is a third way.

      Do both
      • by Austerity Empowers (669817) on Monday May 04, 2009 @05:54PM (#27822055)

        And depending on which iteration of the article you have read, that's kind of what everyone is predicting. We'll lower corporate tax while closing loopholes. It's regrettable that this will be necessary, but we've spent 7 years funding multi-nationals in setting up operations outside the US, so they can create some amount of trouble, it's just not optimial for either the US or them.

        On the other hand, we will at least regain some control over what is outsourced. Right now "if it doesn't need to be done here, ship it". This is leaving companies full of redundant white collar middle management, with no real skills or intellectual output. If we make some changes we can theoretically retain some of the R&D work we want to keep here, and by proxy, some of the MFG/"know how" and infrastructure required to do that.

        I am curious who MS's competitor is that they'd me "disadvantaged" to. The same goes for pretty much all of them, I know who my company's major competitors are, and I know they're US based and off-shoring because of each other. I am not aware of any purely foreign based company that is even on our our top 10 competitive threats. In fact 99% of the market is divided into 3 major competitors, all US based.

    • by mollog (841386) on Monday May 04, 2009 @05:44PM (#27821891)
      Will the anti-tax people please explain how to pay for two wars and a large military budget?

      Thanks in advance.
    • by Bombula (670389) on Monday May 04, 2009 @06:28PM (#27822631)

      Here's another option:

      Require companies to generate ONE set of financial statements each year, not two.

      At present, companies create one set of financial statements for shareholders (showing big profits) and one statement for the IRS (showing little or no profits). A simple law that forbids this two-faced scheme would do a great deal to bring companies in line.

  • w00t! (Score:4, Insightful)

    by Improv (2467) <pgunn@dachte.org> on Monday May 04, 2009 @05:35PM (#27821745) Homepage Journal

    I'm not a big fan of the system, but fixing it is a big step in the right direction. I wonder if/when we'll see the EU do the same thing (e.g. with Monaco).

    • Re:w00t! (Score:5, Informative)

      by Elektroschock (659467) on Monday May 04, 2009 @05:39PM (#27821809)

      You know the EU-Commissioner for financial regulation is Irish, he was the architect of the Irish tax evasion wonder for high tech companies.

      When you buy software from Microsoft in Europe it comes from MIOL (Microsoft Ireland Operations Limited). Ireland is a gigantic tax evasion scam for American software companies which drain European markets including government customers without contributions to our social welfare states.

      As one Hungarian said to Ballmer: Give us our money back!

      • Re:w00t! (Score:5, Insightful)

        by LWATCDR (28044) on Monday May 04, 2009 @05:58PM (#27822121) Homepage Journal

        Why blame Ballmer and Microsoft?
        Ireland offers these companies a way to pay less in tax. You really expect them to not take it?
        Ireland sees it as a way to increase their income so they do it. If you want to blame anybody then blame Ireland and or the EU in general.
        Hey I am not a fan of Microsoft but in this case the blame seems really misplaces.
        Of course you could just stop buying Windows.
        You have Linux, BSD, and even Solaris now to choose from and build a local software industry around or you can keep buying Windows and pumping money out of your country. Windows is probably the path of least resistance... Kind of like going through Ireland for software sales.

  • by ArsonSmith (13997) on Monday May 04, 2009 @05:35PM (#27821749) Journal

    What does he think is going to happen? These evil rich businessmen are going to go out and deliver pizzas in their free time to pay the extra taxes? Corporate taxes are exactly the same as raising income tax, except you are paying at the point of purchase rather then the point of earning. The only real point of corporate taxes is to give the government the ability to punish companies that fall out of favor.

    • by JCSoRocks (1142053) on Monday May 04, 2009 @05:47PM (#27821933)
      Thank God someone else realizes this. Although I must point out that taxing companies can also be used for shaping or encouraging a specific type of behavior. E.g. 10% tax rate for all companies and then you get .5% off for being green or .5% off for R&D spending.

      I'm tired of seeing people duped into clamoring for corporate taxes as though they'll somehow benefit from it. Can we replace everything on TV with basic economic and political education for a month? People need figure stuff like this out. Politicians drag out the same tired tricks over and over and the sheeple eat it up like it's free candy.
    • by Xabraxas (654195) on Monday May 04, 2009 @05:49PM (#27821963)

      What does he think is going to happen? These evil rich businessmen are going to go out and deliver pizzas in their free time to pay the extra taxes? Corporate taxes are exactly the same as raising income tax, except you are paying at the point of purchase rather then the point of earning. The only real point of corporate taxes is to give the government the ability to punish companies that fall out of favor.

      You're really going to defend tax cheats? They make a ton of money from US customers and they live in the US but they don't have to pay there fair share of taxes?

      It all makes sense after reading your sig...

      Socialism is a tool of fascists. Used to ease the minds of the masses and to present power grabs in the veil benefits.

      You don't know anything about socialism or fascism. If you really believe your own line then you would be calling pretty much all of Europe fascists. I'm not sure anyone else is really going to agree with you other than other whackjobs.

    • by RiotingPacifist (1228016) on Monday May 04, 2009 @05:58PM (#27822125)

      You make 2 flawed assumptions
      1) consumers will be willing to pay more
      2) price is in related to production cost.

      There are few markets where these are true, generally price is the optimum price for making money from customer ( ~= the most most customers will pay).

    • by DragonWriter (970822) on Monday May 04, 2009 @06:07PM (#27822287)

      Corporate taxes are exactly the same as raising income tax, except you are paying at the point of purchase rather then the point of earning.

      What is proposed clearly is not the same as raising personal income taxes for several reasons, three of the most significant of which are:
      1) Increasing corporate income taxes is not equivalent to raising personal income taxes in general. Even assuming, for the sake of argument (at least till we get to the next item), that raising corporate income taxes had exactly the same effect as raising personal income taxes on the income earned by employees of those corporations, not all personal income comes from employment in entities that pay corporate income taxes since people are employed by tax exempt nonprofits (whose income isn't taxed at all), sole proprietorships, certain classes of partnerships, and S corporations (whose income is subject to personal, not corporate, taxes), and federal, state, and local governments.
      2) Increasing corporate income taxes isn't even equivalent to raising personal income taxes on the employees of the taxed corporations. This equivalency would require the assumption that corporations are paying wages that are above what the market will bear by at least an amount sufficient to cut wages by the exact proportion of the increase in corporate taxes. This assumption is clearly flawed.
      3) Narrowing the opportunities for one form of tax avoidance is not the same as raising marginal rates for the same tax. Making it harder for corporations to avoid certain taxes using mechanisms some (but far from all, or even the majority) have chosen to utilize is not the same raising the rate of corporate taxation, since it has no effect on those entities subject to corporate tax that have not chosen to avoid taxes using the mechanism being attacked. It only negatively impacts those entities currently using the particular tax avoidance measure, not corporations in general.

  • oh no (Score:5, Funny)

    by Anonymous Coward on Monday May 04, 2009 @05:36PM (#27821761)

    Not my free market! Take your hands off my free market Nobama!

    Oops we're bankrupt, give us money Mr. President :(

  • Am I cynical? (Score:5, Informative)

    by NathanE (3144) on Monday May 04, 2009 @05:37PM (#27821781)

    Am I cynical to think that these businesses will just raise the cost of their goods to cover the additional tax, thus making consumers the ones to pick up this $210 billion tab? I somehow doubt that publicly traded companies are excited to see the earnings hit show up in their quarterly statements.

    • by ArsonSmith (13997) on Monday May 04, 2009 @05:43PM (#27821873) Journal

      Nope, they're going to pick up paper routes to make up for the difference.

    • Re:Am I cynical? (Score:5, Insightful)

      by Tokerat (150341) on Monday May 04, 2009 @05:45PM (#27821907) Journal

      They'll have to. Their business model depends on being able to "compete" with lower prices by cheating on their taxes. Money which could have been used to keep your children healthy, or educate them, or yes, even fight terrorism. What's worse, they did it so much that now the apparently depend on it.

      If you can't make a profit playing by the rules then stop trying to make a profit and die. That's how the system is supposed to work, isn't it? (Whether or not that's a dumb idea is an entirely different debate...)

      • by mangu (126918) on Monday May 04, 2009 @05:56PM (#27822093)

        If you can't make a profit playing by the rules then stop trying to make a profit and die

        This is more or less what's happenning to the USA as a whole. American companies simply cannot compete against foreign companies, that's why the industrial sector is moving to Asia. It's useless to say "stop trying to make a profit and die", they died a quarter century ago [msn.com].

        It's the US government at all levels, federal, state, and local, that should learn to live by the rules. When the corporations are moving overseas to places with lower taxes this means your taxes are too high, you should cut government spending and taxes at the same time.

        • by Kelz (611260) on Monday May 04, 2009 @06:12PM (#27822367)
          I hereby declare my small island a country with a 1.5% tax rate and 50 residents. Any corporation that owns a single grain of sand on my beach can say they are based here.

          Never mind that they have all their offices, employees, and executives in the United States, and do all their business with the US and the US's main trade partners. They say they're from this small island with a 1.5% tax rate, and all of a sudden they don't have to pay the taxes that sustain the society they depend on for their workers and offices. Companies which utilize these shelters are leeching off of each and every one of you by basically living in a place and not paying for it. How do you expect a government with a relatively low tax rate compared to other industrialized countries, but 300 million people and tons and tons of land to look after and maintain, to compete against a tiny nation of several thousand that can survive purely on the pithy tax rates they charge their businesses?
        • by Radical Moderate (563286) on Monday May 04, 2009 @06:20PM (#27822495)
          Sorry pal, it's not lower taxes driving companies overseas, it's lower wages. And if you want to volunteer to have your salary reduced to make your shareholders happy, be my guest.
    • Re:Am I cynical? (Score:5, Informative)

      by Todd Knarr (15451) on Monday May 04, 2009 @05:57PM (#27822111) Homepage

      They'll try. They'll be faced with the other side of the equation, though: as prices go up, demand drops. So they'll have to decide how much they can afford to lose in sales.

      To me it only seems fair. As a private citizen I don't get out of paying taxes just because my income was outside the US. I have to file and pay taxes on that income, the only thing I get is a credit against US taxes due for the amount of taxes I paid on that income in that foreign country. The corporations are mad because they had a sweet deal going: don't pay US taxes on foreign income, and make a deal to avoid paying foreign taxes on that same income because they're a US company bringing all those jobs to the foreign country. And now Obama's looking to ruin their nice little sweetheart deal.

  • by Anonymous Coward on Monday May 04, 2009 @05:39PM (#27821807)

    For the infrastructure they use, for the costs they incur upon citizenry, for the government support they receive regularly, and the bailouts they get surprisingly often?

    About. Fucking. Time.

    The common citizen pays far too much of the tax burden, while the corporate "citizen" reaps too many of the benefits. The more they weasel out of, the more we, the people, have to pay.

    • by That's Unpossible! (722232) on Monday May 04, 2009 @06:23PM (#27822535)

      Can you people possibly be this naive?

      Where exactly do you think the businesses are going to come up with the extra money? Unlike the U.S. government, they can't just print more of it. No, they'll raise prices, lower dividends, lower wages, and offer fewer jobs. FEWER JOBS. Does this sound like a good idea?

      You're still paying for all those government services "the businesses" are using up, just indirectly. You fell for it! Bravo.

      • Totally man! (Score:5, Insightful)

        by copponex (13876) on Monday May 04, 2009 @07:23PM (#27823475) Homepage

        If you keep insisting that corporations don't deserve all of their tax breaks and special treatment by the government, the really greedy ones may be put out of business. Then, the network of Fortune 1000 CEOs might make less money, and they might have to actually work, or not even receive hundreds of millions of dollars in bonuses when their businesses are failing.

        This may lead to the end of large, bureaucratic, inefficient mega corporations which exploit people and resources for short term profit, using monopoly tactics and sleazy practices like bribing politicians or using tax havens or ripping off their customers. You might end up with unions, four week vacations, the right to health care, and a lower poverty rate!

        You fell for it! Bravo, douchebag.

      • by dunkelfalke (91624) on Monday May 04, 2009 @07:54PM (#27823989)

        Actually, wrong. It would lead to more jobs. Why? Let me explain.
        Only large companies can afford large scale tax evasion. Because of that smaller local companies cannot compete with large companies (they cannot evade taxes) and go out of business. If large companies cannot evade taxes, smaller local companies suddenly become more competitive and that will actually create jobs.

        Small and medium sized businesses are pretty much the backbone of the economy and provide most jobs by percentage, so rising their competitiveness is a very good idea.

      • by nhtshot (198470) on Monday May 04, 2009 @09:13PM (#27824887) Homepage

        Can you people possibly be this naive?

        Funny, I was going to ask you the same question.

        You act like corporations have no profit margins at all. As if every dollar they spend goes directly to labor and expenses.

        It's quite simple. Profits from a corporation become the property of the shareholders. Either as retained earnings or dividends. Now, dividends are taxed at a flat 15%. Compare that to what you pay in taxes. If you owned the company, and could receive your pay in dividends, your total tax bill would be 15%.

        The other option is to leave the money in the business as retained earnings or to spend it on assets. Want a new 20M aircraft? Instead of taking the money yourself and paying taxes on it before buying the plane, let the company buy the plane and book it as an asset. They get to depreciate it (150% right now thanks to bonus depreciation on aircraft) and not pay any tax on the money used to purchase it. (Simplification, but you get the general idea)

        Corporate income tax exists as some kind of a counterbalance to this sort of behavior. It's intended to discourage principals from leaving most of what is really their profits in the company to avoid paying income tax on them. Now if the company is retaining earnings for a legitimate business purpose (saving for assets, rainy day, etc..) then they'll get the taxes back when they actually spend that money. (If they spend a lot, they can even back claim a net operating loss and get back money from previous years)

        At the end of the day, this is all about making them accountable for the money they should pay tax on.

        It also has NOTHING to do with employees or their ability to hire more. Employees are an expense. Money spent on employees is deductible. If anything, hiring more people would be a good way to AVOID paying the additional tax.

        Again, for those of you that are really dense, or have drunk a lot of red koolaid:

        CORPORATE INCOME TAX IS A TAX ON RETAINED EARNINGS. RE IS CALCULATED AFTER EMPLOYEE COSTS ARE REMOVED.

        Don't let the pundits convince you that it's going to reduce employment. What it will do is force the super-high income bracket that derives most of their income from dividends to pay their fair share.

        My effective tax rate was 38% last year, since my company doesn't make enough to pay me mostly through dividends. Most of my customers effective tax rates were less then 20%. On twice or more income, they pay about 5% total tax more then I did.

        The usual slashdot meme is RTFA. In this case, read a fscking accounting book, or the 1041 instructions before you start spouting off about corporate income tax and what it does.

  • Go Obama (Score:5, Insightful)

    by je ne sais quoi (987177) on Monday May 04, 2009 @05:42PM (#27821861)
    For starters, maybe if corporations started paying their taxes, we could take down the debt some, or maybe we could lower taxes on the rest of us. I don't feel bad for the corporations, maybe they'll just have to forgo paying their executives their excessively huge salaries.

    Also, every time Obama does something wrong, we see a bunch of people making sarcastic comments here on how Obama represents "change we can believe in". I do not agree with everything he has done, but I do like to see this sort of thing, he seems like he is honestly trying to run the government in a fiscally responsible way. That's a big difference from our previous president who refused to cut spending to pay for his tax cuts, and even refused to allow the cost of his several hundred billion dollar unnecessary war to be included in the normal budget. We're all paying for that kind of "limited government" now, as will be our children and grandchildren.
    • Re:Go Obama (Score:5, Insightful)

      by feepness (543479) on Monday May 04, 2009 @07:33PM (#27823649) Homepage

      but I do like to see this sort of thing, he seems like he is honestly trying to run the government in a fiscally responsible way

      Oh, lord you really don't believe this do you? He just posted a 1.75 trillion deficit. $200 billion in corporate taxes is nice and all, but it's like handing a band aid to someone you just shot.

  • by Whatsisname (891214) on Monday May 04, 2009 @05:44PM (#27821877) Homepage

    And of course we can expect this to work flawlessly, and won't make businesses avoid the US, just like other great laws such as SOX.

    How about lowering taxes and making the tax code simpler, so theres not all these loopholes and thus no reason to have the offshort accounts.

    Complicated tax codes create the loopholes that allow this to happen, and this legislation will only make more of them.

    • by saihung (19097) on Monday May 04, 2009 @05:58PM (#27822117)

      The race to lower taxes is a race straight to the bottom. Businesses will continue to use tax havens as long as there is any benefit to doing so, and the simple fact is that a big economy like the USA cannot afford to lower tax rates to what a little place like the Cayman Islands can charge, e.g. basically nothing.

      A better solution is to change conflict laws to ignore the formal jurisdiction of incorporation and instead use the primary place of business. Want to be a Cayman corporation? Then move your ass to the Cayman Islands, along with your entire family. Otherwise, you will be taxed based on where your company really is headquartered. This is something that the major economies of the world can cooperate to make happen, and we don't have to drop our taxes into the toilet to do it.

    • by andytrevino (943397) on Monday May 04, 2009 @06:01PM (#27822181) Homepage

      Mod parent up. People who want to raise taxes on evil "big business" seem to not understand that the end result is that those evil "big businesses" will have to fire people or increase their prices to remain competitive successful.

      Big businesses employ big numbers of people. This concept is lost on most Democrats and populists that scapegoat big corporations. You can't just blame big companies for everything and expect that they'll ignore this and carry on!

      Here in Wisconsin we are looking at a number of laws that will substantially increase taxes on corporations doing business in the state. As a direct result of the anti-business climate in the state, a number of businesses have either relocated operations that were in Wisconsin or actively decided to decline to locate their headquarters in the state -- for example, our famous Miller Brewing Company, formerly headquartered in Milwaukee, merged with Coors of Denver and decided to relocate their headquarters to Chicago.

  • by MrMr (219533) on Monday May 04, 2009 @05:46PM (#27821923)
    What are they talking about?
    We pay over 30% corporate tax. [wikipedia.org] and compulsory health insurance for our personnel.
  • by GlobalEcho (26240) on Monday May 04, 2009 @05:51PM (#27822003)

    Most of those Bermuda/Cayman holding companies exist not to avoid taxes entirely, but rather to keep the US from double-taxing profits that have already been taxed once by Europe/Asia, which is what the US does when this offshore trick isn't used.

    It seems likely to me that if US companies can't do that any longer, many will cease to be US companies. It's not that hard to move HQ to Ireland or Canada or wherever. Then the US can become a nation of grunt workers while the real power and intellect (and taxable personal income) is abroad.

    • by pesho (843750) on Monday May 04, 2009 @06:09PM (#27822317)

      Most of those Bermuda/Cayman holding companies exist not to avoid taxes entirely, but rather to keep the US from double-taxing profits that have already been taxed once by Europe/Asia, which is what the US does when this offshore trick isn't used.

      This is bogus argument. US has tax treaties with most of the rest of the world that prevent double taxation

      It seems likely to me that if US companies can't do that any longer, many will cease to be US companies. It's not that hard to move HQ to Ireland or Canada or wherever. Then the US can become a nation of grunt workers while the real power and intellect (and taxable personal income) is abroad.

      And where will they go exactly to find regulations and tax system that is more friendly to corporation than US? Canada? Really!?

      EU is cracking on tax heavens too and Ireland will not enjoy it's special status much longer.

  • by john_anderson_ii (786633) on Monday May 04, 2009 @05:54PM (#27822069)
    With the "free" (read "internationally managed") trade agreements we have with foreign nations, I don't think "fixing" these "loopholes" will have the effect this administration desires. "Fixing" these "loopholes" and thus increasing the over all tax burden of a corporation may have quite the opposite effect.

    If it becomes more lucrative and less of a tax burden to be a foreign business inside one of these countries with managed trade agreements instead of a domestic one, what will happen? The business will move because tariffs and import taxes become cheaper than domestic ones. That means unemployment grows and tax revenues drop.

    This administration would be well served to tread lightly, and ensure that conducting business withing the U.S. is cheaper than foreign alternatives, else the U.S. may find itself with very little businesses conducting any business at all.
  • *WOOSH* (Score:5, Interesting)

    by MBCook (132727) <foobarsoft@foobarsoft.com> on Monday May 04, 2009 @06:01PM (#27822185) Homepage

    Congratulations on missing the point congress. (surprise)

    Forbes had a great piece on this a few months ago. People aren't going to Ireland / the Caymans because they don't want to pay taxes and just want to cheat... the cost of compliance is too high.

    One of the good things Regan was supposed to have done was get lots of tax money back to the US by simplifying our tax code. Even though they may have brought their money back from countries with lower tax burdens, it was easier to have it in the US.

    There is an opportunity cost to moving your money to another country or using a tax shelter (legal or not). People judge it worth it because of what they have to go through.

    If you simply simplify the tax code so it's not so hard to deal with, people will come back. Things have only gotten worse recently with SarbOx. Closing loopholes is trying to tie the arms of suicidal people to beds. It works much better to try to get them to stop being suicidal.

    There will always be people who try to cheat the system because they are immoral jerks. But if it doesn't take wealthy people a team of 30 tax attorneys to keep their wealth in line, they're more likely to keep it in the US and avoid the hassle of all the international laws (and spending 183 days of the year out of the country, and blah blah blah). No tax breaks for pork farmers on 17-35 acres in areas that don't observe daylight savings time unless they grow at least 3% barley ethanol using sustainable methods.

    The problem is complexity in the tax code, not tax shelters.

    Example [amazon.com] way to fix things.

  • How about this (Score:4, Insightful)

    by shma (863063) on Monday May 04, 2009 @06:03PM (#27822207)
    Companies that cheat a country out of taxes should be barred from selling their products in that country. My guess is that if North America and Europe signed a treaty to that effect (pay your taxes or else you can't operate here), we'd suddenly see a large increase in tax revenue. It's hard to make a profit after you lose 1.2 billion potential clients.

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