Here's my Top 10 links from around the Internet at 3.30 pm today in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read article today is #1 on how to avoid tax when you are a large international company. Transfer pricing looks like a lot of fun through a tax haven.
1. How to avoid paying tax - Reuters reports on how Starbucks avoids paying taxes in Britain.
Reuters highlights how Starbucks tells its analysts it is very profitable in Britain, yet, surprisingly, it tells the British tax man it is not profitable...
There's a few multi-nationals who do this.
Apple and Google are particularly adept at paying barely any tax anywhere by making transfer payments for 'intellectual property' to companies set up in tax havens.
It's a theme in a increasingly multi-nationalised world.
It makes perfect sense from a shareholders' point of view. But when much of the world's economic activity migrates into the stateless cloud, there might be a few tax revenue and wealth equality consequences...
Over the past three years, Starbucks has reported no profit, and paid no income tax, on sales of 1.2 billion pounds in the UK. Yet transcripts of investor and analyst calls over 12 years show Starbucks officials regularly talked about the UK business as "profitable", said they were very pleased with it, or even cited it as an example to follow for operations back home in the United States.
Presented with the contradiction between Starbucks' UK accounts and its comments to investors, Starbucks' CFO Alstead identified two factors at play, both related to payments between companies within the group.
The first is royalties on intellectual property. Starbucks, like other consumer goods businesses, has taken a leaf out of the book of tech companies such as Google and Microsoft. Such firms were identified by Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, in a September hearing on how U.S. companies shield billions from tax authorities. He said they were engaged in "gimmickry" by housing intellectual property units in tax havens, and then charging their subsidiaries fat royalties for using it.
Like those tech firms, Starbucks makes its UK unit and other overseas operations pay a royalty fee - at Starbucks, of six percent of total sales - for the use of its ‘intellectual property' such as its brand and business processes. These payments reduce taxable income in the UK.
2. Separatists winning - Across Europe separatist movements are gaining steam as the grumpiness grows with the European project and the long, long recession.
Reuters reports on pushes for independence in Catalonia, Scotland, Belgium and Bavaria.
Flemish nationalists scored sweeping gains in Belgian local elections on Sunday, Scotland agreed terms on Monday for a 2014 referendum on independence from Britain, and Catalan separatists expect a regional election next month to advance their cause.
Just as nation states are ceding more power over budgets and economic policy to the European Union, regional grievances and conflicts that have simmered for centuries have taken on new intensity in fights over a shrinking pie of public money.
Richer regions such as Catalan-speaking Catalonia and Dutch-speaking Flanders, which already have wide-ranging autonomy, resent paying for poorer areas such as Spanish-speaking Andalucia and French-speaking Wallonia.
4. Greek crisis bubbling away - The Guardian reports Greek officials saying a deal to extend its bailout has not been done on the eve of this week's summit. It runs out of money in November.
Greek officials have admitted that friction with international creditors was such it was unlikely a package of austerity cuts that have been set as the price of further aid would be approved by the Athens parliament before mid-November.
At no other time has near-bankrupt Greece so needed the €31.5bn (£25bn) in rescue funds dependent on the measures. With public coffers set to run dry by the end of November, the country could be forced to default on its debt mountain if there are further delays in the disbursement, put on hold since July.
5. Watch the politics - Markets are now driven by central banks rather than economics, and ultimately economics and markets are driven by politics.
An example is the latest wipe out of an Austerity government in Lithuania. Here's the BBC:
These voter reactions are what will ultimately drive markets and economics. The austerity is not working.
Lithuanians have voted out their conservative government after one of the world's deepest recessions, incomplete results suggest.
Two leftist parties, Labour and the Social Democrats, appear to have finished first and second, and their leaders have met to discuss coalition. Correspondents said PM Andrius Kubilius' government had been punished for cutting pensions and public wages.
6. Round three - Bloomberg reports on how emerging markets are entering their own slowdowns, following in the wake of Europe in the last couple of years and America in the couple of years before that.
China may not be able to rescue us again.
Three years after industrializing nations led the world out of the U.S. mortgage meltdown-induced recession, the reliability of the power source is waning as Europe’s debt crisis persists. The International Monetary Fund sees them growing an average 5.8 percent in the half-decade through 2016, almost two percentage points less than the five years before the 2009 slump.
Finance chiefs at the IMF and World Bank annual meetings left Tokyo this weekend at odds over how to address the issue, with South Korea’s central bank chief urging Asia to add stimulus as Russia and Brazil called on rich nations to fix their own challenges. At stake is a world economy Bank of Israel Governor Stanley Fischer calls “awfully close” to recession.
“There is a concern that in the near term the engine of growth that provided such a great support seems to be slowing,” said Jacob Frenkel, chairman of JPMorgan Chase International and Fischer’s predecessor in Israel. “They still continue to grow, but we’re seeing a slower pace than anticipated all over the world.”
7. Grim outlook for Chinese exporters - FT.com reports on the rapid slowdown in China's exporting factories.
To Zhou Dewen, head of an industry lobbying group in Wenzhou, the famously entrepreneurial city in eastern China, the situation is “already worse than 2008”. “The difficulties are bigger and they are far more widespread.”
As China prepares to release growth data this week that is expected to confirm the slowdown in the world’s second-largest economy, companies around the world are registering the impact.
US companies such as Caterpillar, the earthmoving equipment manufacturer, and Alcoa, the aluminium producer, have warned of the impact on demand. Cummins, the engine manufacturer, last week said it planned to cut up to 1,500 jobs, in part because of the decline in the Chinese market.
Shannon O’Callaghan, an analyst at Nomura, said: “At the start of the year most US companies were saying they thought China would get better in the second half. But by the summer, it was clear it was not getting better. If anything, it’s getting worse.”
8. Some good news - FTAlphaville reports iron ore prices, which are so crucial for Australia, have rebounded over US$110 a tonne.
As regular AV readers will reccall, we’ve been sceptical of the belief that China’s demand for steel will be pulled ever-upward by the country’s (supposedly) inevitable urbanisation and per capita-GDP growth, mainly based around the work by Nomura’s Matthew Cross but also the broader views of China’s economic development held by Michael Pettis. Both would say the assumption relies on a circular argument: “China will grow because China will grow”, or because some other countries have grown, or because it has grown in the past.
In the shorter term, Cross suggested in the past few months that the falling prices for Chinese steel was a bearish signal for iron ore.
But prices are up, now. And while some steel plants certainly cut production, the cuts didn’t appear to be widespread. The most popular explanation is that mills were running down their inventory of iron ore and now they’re having to re-stock after overshooting.
9. Ready for the fallout - CNBC reports the Swiss Army is preparing for civil unrest in the rest of Europe.
Switzerland launched the military exercise “Stabilo Due” in September to respond to the current instability in Europe and to test the speed at which its army can be dispatched. The country is not a member of the union or among the 17 countries that share the euro.
Swiss newspaper Der Sonntag reported recently that the exercise centered around a risk map created in 2010, where army staff detailed the threat of internal unrest between warring factions as well as the possibility of refugees from Greece, Spain, Italy, France, and Portugal.
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