May 29, 2020

In Myanmar, Flirtations by Investors Turn Into Commitments

NAYPYIDAW, Myanmar — Foreign executives who flew into this dirt-poor country over the past year to tap into what is described as Asia’s last major frontier market often came away skeptical, befuddled or outright disappointed.

“Look, listen, learn — and leave” was the catch phrase that described trips here by executives who saw first-hand the lack of electricity, terrible roads, eager but very undereducated work force and overwhelmed government officials.

Now, two years after Myanmar’s civilian government came to power, the country appears to be moving into another stretch of its journey from military dictatorship to democratic market economy. Flirtations by foreign investors are turning into commitments, vague promises into dollars.

Some of the world’s most prominent multinational companies — Coca-Cola, Unilever, General Electric, Philips, Visa — have started doing business in the country.

“We’re prepared to be very patient,” said John G. Rice, a vice chairman of General Electric, who attended a World Economic Forum conference of foreign executives in Naypyidaw that concluded Friday. G.E. has leased aircraft and sold medical machinery and turbines in Myanmar in recent months and announced it would donate $7 million worth of training to engineers and health care workers.

The overall scale of the company’s investment remains small. G.E. opened an office earlier this year with considerable fanfare but it has only two employees in the country.

“The world is getting used to the fact that Myanmar is no Shangri-La,” said Peter Maher, the head of Southeast Asian operations for Visa. “This is frontier stuff,” he said. “We take it on faith that there will be a market here.”

Since December, when automatic teller machines were reintroduced into the country, the number of A.T.M.’s accepting international credit cards has gone from zero to 160 and spending by foreign cardholders in the country has totaled about $7 million. But as a measure of the still tiny size of the market here, in neighboring Thailand, which has a similar population but a much more developed economy, foreign cardholders spent 400 times as much during the same time period — about $3 billion, Mr. Maher said.

Companies from China and other Asian countries have long had a strong presence in Myanmar, but with the lifting or suspension of European and American sanctions, Myanmar is increasingly turning to the West for assistance in building a country that was impoverished by five decades of military rule.

One of the biggest tests of the country’s ability to attract investors is the auction for mobile phone licenses scheduled to be completed later this month. Fewer than 10 percent of the people in Myanmar have mobile phones, compared with 80 percent in neighboring Bangladesh.

Jaspal Bindra, the group executive director of Standard Chartered Bank, said the winners of the mobile phone licenses would need to invest billions of dollars.

“That’s where you will see investment dollars quicker than later,” he said.

Companies selling food and other consumer goods are also moving quickly. For decades, packaged food and drinks have been imported — and smuggled — into the country from Thailand and China; companies are now seeking to move production here.

Daniel Sjogren, managing director of Carlsberg Myanmar, is presiding over the construction of a brewery in Bago, a city an hour and a half outside the country’s commercial capital, Yangon.

With annual consumption of beer in Myanmar about five liters, or little more than one gallon, per person, compared with 20 liters per person in a more developed territory like Hong Kong, the brewer anticipates years of growth.

But Carlsberg’s investment plans also underline some of the challenges foreign companies face in setting up operations. Yangon, where Mr. Sjogren is moving with his family, is strained by the influx of foreigners. He had difficulty getting his two young children enrolled in an international school and the house he has rented in Yangon is only marginally less expensive than the apartment he is leaving in Hong Kong, one of the world’s most expensive cities.

“If you want a decent house in an area of Yangon with secure electricity, you’re talking $10,000 a month,” he said.

Electricity supply is also an issue at the planned brewery in Bago — the company must install its own electricity supply.

U Soe Thane, a minister and key aide to President Thein Sein, does not hesitate when asked the most frequent complaint by foreign investors: “Electricity,” he replies. Only 13 percent of households have access to electricity, according to a report released earlier this month by McKinsey, the international consulting firm.

“Without electricity it’s just talk,” said Mr. Rice of G.E. “Just about everything you do requires a plug.”

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High & Low Finance: The Corrosive Effect of Apple’s Tax Avoidance

The shameful thing is that we have a tax system that seems to allow multinational companies to choose what they want to pay.

The fact that this costs the government money is important, but that is not the critical element. Revelations about the ability of the rich and well connected to duck taxes can have a corrosive effect on the attitudes of the rest of us. If others who are better off than you can get away with not paying taxes, why shouldn’t you look for a way to cheat on your taxes?

The news in the Senate report about Apple was not that the company had found ways to shift income to low-tax jurisdictions. Lots of multinational companies do that. The news was that Apple had found a way to move a large part of its income to subsidiaries that claimed to not exist anywhere, at least when it came to paying taxes.

Carl Levin, the Michigan Democrat who heads the Senate Permanent Subcommittee on Investigations, had good reason to call that the holy grail of tax avoidance.

In that way, the Apple hearing filled a similar role to the one played by disclosures about Bain Capital, the private equity firm founded by Mitt Romney, during the last presidential campaign. It had been common knowledge that private equity firms had found ways to have most of the money earned by partners taxed at low capital gains tax rates, through what is known as carried interest. What came out last year was that some had found a way to treat all of their compensation that way.

Senator Levin, and the ranking Republican on the subcommittee, John McCain, tried to make the point, again and again, about how unfair the current system is to domestic companies, which cannot hide profits overseas, and to ordinary taxpayers, whose income is derived from salaries and investments that are automatically reported to the Internal Revenue Service.

“The general American public should not have to make up the balance as corporations avoid paying billions in U.S. taxes,” Senator McCain said.

But no other Republican senator seemed interested in that analysis. They praised Apple for avoiding taxes, saying that benefited its shareholders. Senator Rand Paul of Kentucky, a physician, suggested it would “probably be malpractice” for a chief financial officer not to do everything possible to minimize the corporate tax bill.

If that is the standard, perhaps Senator Paul, instead of apologizing to Apple for the fact that the hearing was being held, should have joined in what he called the “vilification” of the company, but for an entirely different reason. As Tim Cook, Apple’s chief executive, testified, there is a whole range of tactics Apple has chosen not to use.

“Apple does not hold money on a Caribbean Island, does not have a bank account in the Cayman Islands, and does not move any taxable revenue from sales to U.S. customers to other jurisdictions in order to avoid U.S. taxation,” he said.

I asked Jeffrey M. Kadet, who spent a career with large accounting firms helping companies to minimize their international tax payments — working in places like China, Japan, Hong Kong, Singapore and Russia — and now teaches tax law at the University of Washington, to review the subcommittee’s report on Apple.

“Apple’s basic structure and planning described in the memorandum appears to be appropriate corporate tax planning in today’s environment and is consistent with what I review with my students in class,” he said in an e-mail. “The company appears to be almost conservative in its approach of not trying to move any portion of profits on sales to U.S. customers into its overseas structure as some other groups have done.”

One such company, as the Senate subcommittee documented last year, is Apple’s archrival, Microsoft.

What Apple did was transfer rights to its intellectual property to a subsidiary that was incorporated in Ireland — and therefore not subject to immediate United States taxation — but managed in California. Under Irish law, that freed the subsidiary from Irish taxation.

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Starbucks Offers to Pay More British Tax Than Required

“Having listened to customers and to the British public, Starbucks in the U.K. will be making changes which will result in the company paying higher corporation tax in the U.K. — above what is currently required by law,” the company said in a statement.

Starbucks said that in 2013 and 2014 it would refrain from claiming certain tax deductions that helped reduce its tax bill in Britain to nothing over the past three years. The company said it would pay taxes over the next two years even if it does not post a profit in Britain, where it has more than 700 shops.

The tax practices of Starbucks, along with those of other U.S. multinational companies, including Google and Amazon, have come under intense scrutiny in Britain in recent weeks, even as the government has announced plans to extend its fiscal discipline for another year.

The chairman of the Public Accounts Committee of Parliament, Margaret Hodge, has accused the companies of “immoral” behavior and protesters have called for a boycott of Starbucks.

U.K. Uncut, a group that is campaigning against the government’s fiscal policies, has called for protests outside Starbucks stores on Saturday. The group dismissed the latest announcement from the company as a ploy.

“Offering to pay some tax if and when it suits you doesn’t stop you being a tax dodger,” Hannah Pearce, a spokeswoman for U.K. Uncut, said in a statement. “Starbucks have been avoiding tax for over a decade and continue to deny that it paid too little tax in the past. Today’s announcement is just a desperate attempt to deflect public pressure.”

In its 14 years of doing business in Britain, Starbucks has paid a total of £8.6 million, or $13.8 million, in corporate taxes there. The company has reduced its tax bill in Britain by channeling revenue through other company subsidiaries in jurisdictions where tax rates are lower. One unit in the Netherlands, for example, receives royalty payments from Britain.

Similar tax-reduction strategies are employed by many multinational companies. But Starbucks said that it would not make such transfers over the next two years.

“Specifically, in 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our intercompany charges,” the company said.

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Labor Dispute Pits France Against ArcelorMittal

“We don’t want Mittal in France because they haven’t respected France,” the industry minister, Arnaud Montebourg, said in an interview published this week in the daily Les Échos, unable to conceal his frustration over the company’s plan to scale back one of its three major French factories and eliminate hundreds of jobs. He called for the “temporary nationalization” and resale of the steel plant, at Florange, in the eastern region of Lorraine.

The ugly dispute pits the French state, in its traditional role as defender of industry, against a company that is trying to reduce capacity in line with the slowdown in the European economy and to cut its $23 billion of debt after Moody’s cut its credit rating to junk. The company wants to close two mothballed blast furnaces at the Florange plant, cutting 629 jobs, while continuing to operate a part of the facility that processes steel for the car industry. Currently the facility as a whole employs 2,700 people. In all, ArcelorMittal employs about 20,000 people in France.

With unemployment hovering above 10 percent, the Socialist government of President François Hollande is desperate to avoid more layoffs by name-brand companies. Several big employers, including PSA Peugeot Citroën, Air France and Sanofi, have announced big job cuts this year. But some analysts say that by taking such a strongly interventionist stand to protect steel workers, France risks sending the wrong signal to multinational companies, whose investment the economy needs if it is to stave off long-term decline.

Mr. Hollande and Lakshmi Mittal, the Indian-born billionaire who serves as chairman and chief executive of ArcelorMittal, met Tuesday evening at the Élysée Palace in Paris, but did not resolve the dispute.

Afterward, Mr. Hollande’s office issued a communiqué saying the president had “reaffirmed his desire to insure the sustainability of jobs at the site and presented the different possible options.” The statement said the discussions would continue.

Giles Read, a spokesman for ArcelorMittal, also said the discussions would continue, but declined to comment further.

To promote France as a destination for foreign investors, the government recently hired the French advertising giant Publicis to create the international “Say Oui to France” campaign, which is running in the United States, Canada, China, India and Brazil.

A glossy brochure notes proudly that France is already home to 20,000 foreign companies and as recently as last year was the leading destination for corporate foreign investment. “Our objective is to leverage France’s attractiveness to remain a key investment destination in Europe,” the brochure says.

But in fact, France is hemorrhaging industrial jobs to such an extent — 750,000 in the past decade — that in a government-commissioned report made public this month, Louis Gallois, a prominent businessman, called for “a competitiveness shock” to stanch the bleeding.

That is why critics say Mr. Montebourg’s hard line against ArcelorMittal is the wrong message at the wrong time.

“The image France is projecting is disastrous,” said Nina Mitz, a public relations consultant in Paris with deep ties to past Socialist governments in France. While she conceded the Florange factory case presented a political thicket for the Hollande government, Ms. Mitz said such bold talk of nationalization — even if served up mainly for domestic consumption — “sends a frightening message, particularly to investors from other countries.”

The government’s stance has invited ridicule from some opportunistic critics. Boris Johnson, the outspoken mayor of London, alluded to the Montebourg threat on Tuesday, telling Indian business leaders they should not “wait to be persecuted by the sans-culottes in Paris,” but should rather bring their business to London.

Mr. Montebourg has since moderated his remarks, saying his objection was to “Mittal’s methods,” which he described as “failure to keep promises, blackmail and threats.”

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