February 7, 2023

Ireland Defends Tax Laws to Critics at Home and Abroad

There, in the Hollyhill Industrial Estate and elsewhere in Ireland, Apple employs a mere 4 percent of its global work force. But there, too, Apple recorded a staggering 65 percent of its worldwide income — $26 billion last year — enabling the company, according to Senate investigators, to markedly reduce its tax bill in the United States and the rest of the world.

Such arrangements are not uncommon in Ireland, where for years authorities have not only tolerated but encouraged multinational companies like Google, Facebook, Pfizer, Johnson Johnson and Citigroup to set up shop and provide good jobs, in return for helping those companies pay less tax around the world.

But on Tuesday, as Timothy D. Cook, Apple’s chief executive, found himself on Capitol Hill being questioned about Apple’s tax practices, Ireland came under sharp criticism for its attractiveness as a pied-à-terre for American companies doing business in Europe. At the eye of that storm: a special corporate tax rate of only 2 percent that Senate investigators say Apple worked out with Irish tax authorities.

Carl Levin, the Michigan senator who heads the Senate Permanent Subcommittee on Investigations, said Apple was “exploiting an absurdity” by using three Irish subsidiaries to legally avoid taxes.

The United States Senate is hardly Ireland’s only critic on tax matters. Britain, France and other European Union countries have long been annoyed by Irish policies. During hearings in the British Parliament last week, Margaret Hodge, a member of the opposition Labour Party and chairwoman of the Public Accounts Committee, which oversees taxation, upbraided Matt Brittin, Google’s vice president for North and Central Europe, that the company’s tax practices were “devious, calculated and, in my view, unethical.”

Even before the Senate subcommittee invited Mr. Cook to testify, the British prime minister, David Cameron, declared that the topic would be a focus of the meeting of the Group of 8 richest countries he plans to convene next month at Lough Erne in Northern Ireland.

“We need a truly global solution,” Mr. Cameron wrote in a letter to Herman Van Rompuy, president of the European Council, in April. “As I am sure you will agree, the path to reform starts with the basic recognition that current global tax rules do not reflect the modern and globalized economy that our citizens live and trade in.”

Ireland, with an economy that ranks 47th in the world, is not a member of the Group of 8.

Ireland’s deputy prime minister, Eamon Gilmore, on Tuesday disputed the Senate report’s contention that Apple paid a special rate, saying “Ireland doesn’t negotiate special tax rate deals with any companies.” He said that if Apple was not paying its fair share elsewhere in Europe, the fault lay in “loopholes” in other European countries that make it too easy for companies to avoid taxation.

“That’s an issue that has to be addressed first of all in those jurisdictions,” Mr. Gilmore told reporters in Brussels.

The charge by the Senate subcommittee that Apple avoided paying $44 billion in taxes in the United States by keeping the bulk of its $102 billion cash hoard offshore has struck a nerve here in a recession-racked country where unemployment is 15 percent and the government is looking for ways to repay an 80 billion euro bailout, now equivalent to $103 billion, that it received from the European Union and the International Monetary Fund in 2010.

“There is something wrong with this picture — the revenues of these companies keep increasing while our workers are getting crushed,” said Peter Mathews, a chartered accountant who is also a member of the Irish Parliament for the governing Fine Gael party. “Apple’s cash pile is about the size of our national income. Why not have them pay a 4 percent levy to contribute to our national recovery?”

Apple, which set up its first overseas headquarters in 1980 in Cork to assemble Macintosh computers, has a long history with the Irish. Its 4,000 workers — the largest Apple labor force in Europe — is significant in a country of only 4.6 million people. Apple’s employees assemble iMacs and Mac Pros and are also engaged in research, customer service and other support functions. “Our tax system may be lax, but in exchange we get jobs and more foreign investment,” said Stephen Kinsella, an economist at the University of Limerick who contributes to the influential Irish Economy blog. “No doubt about it, the benefits outweigh the costs.”

Irish politicians through the years have stood behind the country’s official 12.5 percent corporate tax rate, so much so that three years ago when the previous government negotiated the international bailout, it refused to budge when European negotiators wanted to make a higher tax rate a condition for a deal.

Government figures show that in 2010 the effective rate on the gross income of companies here was only 6 percent, and economists say that in some cases — as with Apple — it can go lower than that. That stands in contrast to the effective corporate tax rate in other countries: 29 percent in the United States, 22 percent in Britain, 27 percent for France and 24 percent for Germany.

More than 600 American companies have set up in Ireland, employing 100,000 Irish workers and enjoying the advantages of an English-speaking work force and low taxes.

Representatives of several American companies, including Amazon and Starbucks, have, like Google and Apple, insisted that they comply with the law.

“Apple does not use tax gimmicks,” Mr. Cook told the Senate subcommittee Tuesday.

Under European Union law, companies based in one European country are permitted to do business across the 27-nation bloc, and Internet companies, in particular, use that rule to book their European revenue in the country offering the greatest tax benefits. For many, that is Ireland.

But if Ireland were to change its approach to taxation, other low-tax European countries like Luxembourg and Slovakia would simply take its place.

“Back in the 1970s and ‘80s, when Ireland was a poor state desperately trying to attract investment, tax was a weapon that others weren’t using,” said Richard Murphy, founder of the Tax Justice Network, a group in London that campaigns against tax havens. “So Ireland developed a twofold strategy: low rates and not too many questions. It became the conduit state of choice.”

Landon Thomas Jr. reported from Dublin and Eric Pfanner from Serraval, France.

Article source: http://www.nytimes.com/2013/05/22/business/global/ireland-defends-attractive-tax-rates.html?partner=rss&emc=rss

Fair Game: JPMorgan’s Follies, for All to See in a Senate Report

That’s the takeaway for both investors and taxpayers in the 307-page Senate report detailing last year’s $6.2 billion trading fiasco at JPMorgan Chase. The financial system, thanks to dissembling traders and bumbling regulators, is at greater risk than you know.

After bailing out the nation’s banking system in 2008, taxpayers and investors have been assured that such a crisis will not happen again. The Dodd-Frank legislation was supposed to make our system safe from the kinds of reckless banking activities that brought the economy to its knees.

The Senate report disproves this premise with vigor.

Its pages of e-mails, testimony, telephone transcripts and analysis show that traders in the bank’s chief investment office hid money-losing derivatives positions, if only temporarily; that risk limits created by the bank to protect itself were exceeded routinely; that risk models were changed to minimize losses; that bank executives misled investors and the public; and that regulations are only as good as the regulators enforcing them.

Remember that this is a report examining JPMorgan Chase, the bank that enjoys the best reputation among its peers. One can only wonder: if JPMorgan Chase traders think nothing of misrepresenting the value of their trades to minimize losses, what are the financial world’s lesser players up to?

Unfortunately, that is not something investors are likely to learn until it is too late and a wrong-way bet blows up an institution’s balance sheet.

Before delving into the report and its findings, let’s congratulate the Permanent Subcommittee on Investigations, led by Senator Carl Levin, a Michigan Democrat. This is the second time in recent history that this subcommittee and its staff have served the public by illuminating the dark corners of the financial world — the first being the riveting hearings and reports on the causes of the 2008 financial crisis, which dove deep on Washington Mutual, Goldman Sachs and the credit ratings agencies.

The hearings on Friday were equally compelling, with Mr. Levin and John McCain, the Arizona Republican who is the subcommittee’s ranking minority member, subjecting current and former JPMorgan executives, including Ina Drew, the former head of the chief investment office, to penetrating and pointed questions.

“Besides the traders who mismarked the book, who should be held accountable for breaching JPMorgan’s own internal risk limits and adjusting its risk models?” Mr. McCain asked of Douglas L. Braunstein, vice chairman at the bank. After Mr. Braunstein cited the significant reductions in compensation of JPMorgan executives as one measure of accountability, Mr. McCain replied: “It’s hard for me to accept that serious responsibility was assumed by the top management of JPMorgan especially in light of e-mails that say that these decisions were, according to Ms. Drew, fully discussed and vetted by the top management of JPMorgan.”

Hoping to understand JPMorgan’s practice of relaxing its valuation method on the troubled investment portfolio, Mr. Levin asked of Mr. Braunstein: “Is it common for JPMorgan to change its pricing practices when losses start to pile up in order to minimize the losses?”

After a bit of back and forth, Mr. Braunstein said: “No, that is not acceptable practice.”

Not acceptable, perhaps, but that is what occurred, as the Senate report shows. Normal practice at the bank and across the industry is to value these kinds of derivatives at the midpoint between the bid and offer prices available in the market. But in early 2012, as it became apparent that JPMorgan’s big trades at the chief investment office were going bad, the bank began valuing the portfolio well outside the midpoint. This reduced its losses.

For example, in January 2012, the portfolio valuations hewed closely to the midpoint on all but 2 of the 18 measures, the Senate investigators found. A month later, 5 of the 18 valuation measures deviated from the midpoint. In March, however, all 18 deviated, and 16 were at the outer bounds of price ranges. In every case, the prices used by the bank understated its losses.

While these valuation shifts were taking place in the chief investment office, JPMorgan’s investment bank officials continued to mark their identical positions using the midpoint value.

RISK limits, intended to protect the bank from losses, were also routinely breached at JPMorgan Chase, the report found. From late 2011 to the first quarter of 2012, Senate investigators saw a huge jump in the number of risk-limit breaches — to more than 170, from 6. Then, in April 2012 alone, risk limits were exceeded 160 times.

Article source: http://www.nytimes.com/2013/03/17/business/jpmorgans-follies-for-all-to-see-in-a-senate-report.html?partner=rss&emc=rss

Fair Game: New Rule Gives Commodities Speculators a Break

But these hardships for consumers provide another reason to check in on Dodd-Frank, that package of financial reforms that Congress passed in 2010. Here’s why:

Congress told federal regulators to write rules that would ensure that Dodd-Frank does what it’s supposed to do, which includes protecting consumers. But the Commodity Futures Trading Commission has proposed rules that critics say might actually encourage speculation in the commodities markets, rather than reduce it.

Senator Bill Nelson, a Florida Democrat, says that as things stand, the C.F.T.C.’s plan could cost ordinary Americans.

“Despite a clear directive from Congress to rein in excessive speculation, regulators still are listening too much to Wall Street and not acting quickly enough to protect American consumers,” Mr. Nelson said last week.

Granted, prices of various commodities, including heating oil and gasoline, fell last week amid all the economic gloom. But that’s no reason to give speculators a pass.

There are those who reject the notion that financial speculation has made commodity prices more volatile and even driven up prices in recent years. Some of them work for the C.F.T.C.

But Michael Greenberger, a professor at the University of Maryland Law School, says that a majority of academic studies on this issue — from Texas AM, Rice and Stanford — demonstrate the ill effects of speculation on energy and food prices.

Indeed, a bipartisan report by the Senate Permanent Subcommittee on Investigations in 2009 concluded that there was “significant and persuasive evidence” that skyrocketing wheat prices reflected high levels of speculation in that market.

That report highlighted trading linked to commodities indexes and other financial instruments, a field that’s exploded with the growth of commodity index investment funds.

“Dodd-Frank was intended to include these commodity index swaps with strict limitations on the participation of speculators in the commodities staples futures markets,” Mr. Greenberger says. But the response from the C.F.T.C. “is a horrifically weak rule.”

At the center of the debate are rules that would place a cap on how many financial contracts traders can accumulate for any given commodity. The idea is to prevent a small group from dominating an entire market.

The C.F.T.C. has proposed a limit of 25 percent of the deliverable supply of the underlying commodity. Mr. Nelson last week proposed a bill that would put that position limit at 5 percent of the deliverable supply. He says the C.F.T.C.’s limit is so high that it would encourage speculation and make markets more volatile.

The C.F.T.C. declined to comment, as the rule is still being considered.

Commodity index funds are big business. Such funds have attracted as much as $350 billion from investors in recent years. As such players have grown, the influence of commercial traders, like food producers and airlines that use the commodities markets to hedge against price swings, has declined. Hedging has gotten more expensive, and those higher costs have been passed on to consumers. Dodd-Frank determined that position limits were a solution to excessive speculation.

Mr. Nelson’s bill, the Anti-Excessive Speculation Act of 2011, sets limits in energy contracts that would apply to speculators as a class of traders, aiming to cap the overall level of speculation in the market at its historic 25-year average. In the oil markets, speculative trading accounts for about half of all trading. He says his plan would reduce that figure to about 20 percent. He cited research showing that speculators may add $21 to $27 — or about 25 percent at current prices — to the price of a barrel of oil.

“This legislation aims to ensure that prices at the pump better reflect the true supply and demand for oil — and not the activities of speculators,” he says.

The C.F.T.C. proposal has drawn other criticism as well. It also would allow for greater position limits for commodities contracts that are settled for cash, rather than by physical delivery of the underlying goods. Most of these financial contracts trade on unregulated exchanges.

The proposal would let traders in cash-settled contracts hold five times the amount of contracts allowed for traders of physically settled versions in the final days of trading, or the so-called spot month. Traders employing this higher limit cannot participate in the market for the physically settled contracts.

That’s a bad idea, according to the Commodity Markets Oversight Coalition, a group of commodities end-users including smallish heating oil companies in Vermont, New Mexico and Maine. In a comment letter to the C.F.T.C., the group said that because the spot month is when futures prices converge with the spot price of an underlying commodity, allowing five times the leverage in cash contracts at that time would probably increase volatility and costs for end users who are hedging.

“The adoption of the current proposed rulemaking will increase the threat of price manipulation, especially in the final days of trading,” the group wrote, adding that Congress didn’t intend to allow position limits to give favorable treatment to unregulated exchanges at the expense of regulated markets.

Interestingly, a recent enforcement action filed by the C.F.T.C. against several crude oil speculators seems to confirm the possibility for manipulation using outsize amounts of cash-settled contracts. Outlining the case filed last May against Parnon Energy, based in California, and its affiliate Arcadia Petroleum, which is based in London, the C.F.T.C. accused the companies of manipulating the market for crude oil in early 2008 using a combination of physically settled and financially settled contracts.

At the time the C.F.T.C. contended that the manipulation took place, there were market-imposed limits on the number of physically settled contracts a trader could hold but no caps on the cash-settled version. The scheme generated $35 million in improper profits, the C.F.T.C. said.

Parnon denied the C.F.T.C.’s accusations and is contesting them in federal court.

According to the Federal Energy Regulatory Commission, the collapse of the $10 billion Amaranth Advisors hedge fund in 2006 also involved manipulation conducted through a combination of cash-settled and physically delivered contracts, in that case, for natural gas. Once again, there were limits on the physical contracts but none on those settled for cash. The Energy Regulatory Commission settled with Amaranth Advisors in 2009 for $7.5 million.

The C.F.T.C. might still change its proposal. The commission is expected to vote by mid-October. Stay tuned.

Article source: http://feeds.nytimes.com/click.phdo?i=ff3b162ab6c9cc1199dae9878724ebe9

DealBook: Goldman’s Shares Drop Sharply After Downgrade

Goldman SachsBrendan Mcdermid/Reuters

Shares of Goldman Sachs are under pressure following a scathing report from an outspoken industry analyst.

On Thursday, Richard X. Bove of Rochdale Securities slashed his price target on the investment bank’s shares and changed his rating to sell, saying that pressure was building for the Justice Department to take action against Goldman Sachs.

“It now appears that the pressure on the Justice Department to bring a criminal lawsuit against Goldman is building to a high pitch,” Mr. Bove said in the report.

“The new Matt Taibbi article in Rolling Stone magazine is another all-out attack on the company. However, this time the attack is backed by a 650-page Senate report signed by both a Democrat and a Republican,” Mr. Bove wrote, referring to a recent report by the Permanent Subcommittee on Investigations that concluded Goldman had misled clients about mortgage-linked securities.

Senator Carl Levin, who headed up the Congressional inquiry, has sent his findings to the Justice Department to figure out whether executives broke the law.

Such was the topic of the latest piece by Mr. Taibbi, who famously called Goldman Sachs a “vampire squid” in a 2009 article on the bank. His recent article was titled: “The People vs. Goldman Sachs. A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges.”

Goldman’s stock was down more than 3 percent in early trading on Thursday. It is currently trading around $142. It closed 2010 at $168.16.

Mr. Bove had a buy rating on Goldman just a month ago, with a price target of $188. On April 19, he reduced his outlook to neutral after the firm reported first-quarter earnings. His current price target is $120. Still, most Wall Street analysts consider Goldman a buy.

“It is clear to outsiders that there must be a major restructuring of the company at the board and executive suite levels or Congress will not be satisfied. The company continues to fight such a change,” Mr. Bove wrote in his latest note to investors. “This is not a good investment. The stock should be sold. When the government/company conflict is resolved, then one can review what the structure of Goldman is and rethink reinstituting positions.”

Goldman had no immediate comment.

Richard Bove’s Sell Rating on Goldman Sachs

Goldman Sachs Report by Richard Bove

Article source: http://feeds.nytimes.com/click.phdo?i=02ab3f6d358ebab9b89c7289fdc79074