Written by Juan Palenzuela

Today Juan Palenzuela ponders the inefficiencies of contemporary tax regimes, and how the French have passed a bill that is the first step to ensure corporate tax accountability.

Good morning,

It has long been argued that big tech companies should pay their fair share in taxes. In the US, Amazon paid a total of $0 in federal income tax in 2017 and 2018. Its British subsidiary, which reported profits of £72m and revenues of £11.3bn, paid just £1.7m in taxes last year. The strategies used by the giants include shifting their intangible capital to tax havens such as Ireland and Bermuda, paying employees in stock options and investing heavily in R&D to maximise tax breaks.

Whilst this may seem unfair, it is perfectly legal. It perhaps also reflects the inefficiency of current tax regimes, rather than the  nature of the businesses themselves. Nonetheless, it could and should be better.

So French senators have decided to take a first step. Yesterday they passed a bill that will tax tech companies with over €750m in global revenue and €25m in France 3 per cent of their annual total revenues generated in the country. In total, the new tax will affect around 30 companies, including the FAANGs.

The move didn’t land well in the White House, and American officials are reportedly even considering retaliatory trade measures. Amazon, championed the White House condemnation, praising an administration that won’t tolerate “tax and trade policies that discriminate against American businesses”.

The Trump view may be misguided but perhaps so was France’s new bill. Several European countries, the UK included, have long been considering introducing tax reforms multilaterally, and the OECD has worked to facilitate an eventual deal. By pulling the trigger unilaterally, French policymakers are risking the possibility of that deal never happening.

News

A study of a fossilised human cranium discovered in a cave in Greece in the ‘70s found that the fossil in question belongs to a homo sapiens that lived 210,000 years ago, making it the oldest homo sapiens discovered outside of Africa so far. It is a radical discovery, as it was previously thought that homo sapiens moved into the continent around 40,000 years ago.

Following the UK's seizure of an Iranian oil tanker last week, Islamic Revolutionary Guard Corps' (IRBC) boats attempted to stop a BP oil tanker from passing through the strait of Hormuz, only to be fended off by a British frigate. It is the latest incident in the escalation of tensions between the West and Iran. It has also resulted in significantly lower Iranian oil output, leading to an undersupply of OPEC’s previously agreed quotas.

In a series of tweets, Donald Trump objected to Facebook’s Libra cryptocurrency plans. If Facebook wants to become a bank, he said, then they must seek a new banking charter and become subject to all banking regulations. Facebook intended to release Libra, a centralised cryptocurrency, in 2020; but increasing scrutiny from the public and regulators is putting the future of the project into question.

Business & Economy

Ford and Volkswagen announced that they are deepening their global alliance which began in January, with new deals that involve the two carmakers collaborating in the development and manufacturing of electric and autonomous vehicles. The alliance is one of the largest between two independent car makers since the alliance between Renault and Nissan in 1999; and it has also raised questions about a potential merger.

Federal Reserve Chair Jerome Powell hinted that the Federal Reserve could cut interest rates soon in the face of global risks that have reduced investment and created below-target inflation. It would be the first time that the Federal Reserve lowers interest rates since the financial crisis of 2008.

Woodford’s fund scandal has triggered the Bank of England to consider new rules to help investment funds to cope with multiple withdrawal requests. Both the Bank and the FCA are looking into the ways in which funds offer daily redemptions to investors, and how could this trigger a fund run.

Markets

What Happened Yesterday?

In the US, the S&P 500 finished 0.45% higher after Federal Reserve chairman Jerome Powell remarks, which investors have welcomed. Adding to Powell’s willingness to cut rates, many other rate-setting policymakers supported the idea at the Fed’s latest policy meeting last month.

Meanwhile in the UK, The FTSE 100 fell 0.3% mainly due to the sell-off of healthcare stocks after the US withdrew a rebate rule aimed at lowering drug prices. The FTSE 250, however, capitalised on a rise in the British Pound to add 0.1%.

According to sources, the Asian business of AB InBev is set to delay its initial public offering set to happen later today. The company was looking to raise between $8.3 and $9.8 billion, making it what would have been the largest IPO so far in 2019. If the final price is not set by Monday, then the IPO will lapse. 

In the US, today begins a run of the ‘big 6’ banks publishing their Q2 results, starting with CitiGroup. It is expected these will be hit by the US Federal Reserve refusing to budget last week on interest rates. Reports have suggested also suggested revenues are down 8-10%. The ramifications from China’s latest economic statistics will also likely play out. The country experienced a 6.2% growth rate in Q2, the lowest growth it has seen in 27 years. The US-China trade dispute has been cited a key factor. The G7 finance ministers are due to meet in Paris on Wednesday, with a number of issues to be resolved. These range from fears over escalating tensions in Iran, arguments that African countries need greater monetary support and increased borrowing by European countries. In the UK, the big events this week are the annual meetings of fashion retailer Burberry and the Royal Mail. Both have had a difficult year, though Burberry is expected to turn around its previously reported 6% fall in pre-tax profits for the year. The Royal Mail meeting will centre on how it can stem the damage from a 32% fall in profits.

What Happened Today?

AGMs

Amigo Palace Capital Urban Lo

Trading Announcements

Gym Grp

Financial Dividend Payment Date

Aberdeen Japan Anglo-Eastern Plantations Arrow Global Camellia Flowtech Fluid Fuller Smith & Turner Georgia H Keystone Law G Marks & Spencer  New Cent.2  Restore   S & U  Sainsbury (J) Sopheon Steppe Cement Tatton Asset M. Tavistock TBC Bank Group

Interim Dividend Payment

BMO Managed Portfolio Income Trust Britvic Inc&gwth Vct Nexus Infrastr. Personal Assets Trust Rdl Real Renew Holdings Topps Tiles Urban&civic

Quaterly Payment Date

Duke Royalty Regional Reit Schlumberger

Special Dividend Payment

Taylor Wimpey U And I Group

International Economic Announcements

(10:00) Industrial Production (EU) (13:30) Producer Price Index (US)

Columns of Note

Writing for the Financial Times, Professor José Antonio Ocampo suggests that multinationals using tax havens be taxed in their home countries. Previous reforms among developed countries, such as the exchange of information between national tax regulators, are not enough. In a climate of austerity, it is not sustainable to have these corporate entities paying little to no taxes. To solve this, Professor Ocampo recommends a global formula that would ensure that multinationals’ tax revenues are apportioned among countries based on objective factors such as sales, employment, resources and digital users. He also supports a minimum corporation tax, on the basis that multinationals will have a reduced incentive to move assets to tax havens. The reform needed, he says, is no longer a technical one, but a political one.

Patrick Bolton et al discuss how to maintain central bank independence on Project Syndicate. They argue that returning to the price-stability mandate, in which banks focus entirely on attaining inflation goals, is a mistake. Instead, banks must serve as guardians of the entire financial system. The authors dive into the recent history of central banking, the financial crisis in particular, to understand why is the price-stability trend resurging and why it is, under today’s context, more important than ever to have active and accountable central banks.

Did you know?

At least six different human species coexisted on Earth 100,000 years ago.

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