Romney's old firm in spotlight over tax avoidance

Mitt Romney and his wife Ann arrive for church in New Hampshire yesterday (Reuters)

The source of Mitt Romney's personal wealth continues to generate awkward headlines after it emerged that regulators have subpoenaed Bain Capital, the private equity firm he once headed, during an investigation into its tax arrangement.

New York's Attorney General, Eric Schneiderman, is seeking internal documents that will establish whether Bain – along with 11 other firms – have been foregoing management fees in favour of investments in the funds which they manage. Investments are taxed at a far lower rate than ordinary income.

The practice falls into a legal grey area. Some lawyers consider it an aggressive but legitimate means of tax avoidance; others believe that it strays beyond the bounds of legality. Bain Capital is believed to have used it to avoid paying around $220m (£138.6m) in taxes, according to the New York Times, which broke news of the subpoena at the weekend.

Mr Romney left Bain over a decade ago, but continues to profit handsomely from his ties to the firm, and in the past two years earned roughly $13m from his share of its profits.

A spokesman yesterday insisted that the tax strategy at the centre of Mr Schniederman's probe is: "a totally legal practice."

His financial arrangements have been an electoral talking point for months. The Republican candidate, believed to be worth upwards of $250m, continues to ignore calls to follow the protocol followed by almost every modern predecessor by releasing up to a decade's worth of his federal tax returns.

Instead, his campaign has published information relating to just the past two years. It reveals Mr Romney has a Swiss bank account, squirrels some of his fortune away in such tax havens as the Cayman Islands, and last year paid 15 per cent taxes, roughly half the rate of a middle-class American.

Democrats have used the issue to vilify the Republican, portraying him as a predatory capitalist whose wealth puts him out of touch with ordinary voters.

Vice-presidential candidate Paul Ryan admitted that he "misspoke" when he claimed to have completed a marathon in "two hours fifty-something." In fact it took him more than four hours.