Friday, January 23, 2015

EU Believes Apple, Fiat Tax Deals Broke Rules

BRUSSELS—European Union regulators explained why they think tax deals granted to Apple Inc. in Ireland and Fiat SpA in Luxembourg constituted illegal state support—the next stage of an investigation that could result in the companies paying huge sums in extra taxes to the governments concerned.
In documents released Tuesday, the EU laid out the reasoning behind its decision to open formal tax investigations in June. While the probes are in their early stages, a final ruling against the tax deals could result in back taxes being owed by Apple, Fiat, Starbucks Corp. and potentially other companies.
The announcements are likely to set off alarms for a swath of multinationals and funds operating in Europe, particularly those that, like Fiat, arrange their financing and treasury operations through Luxembourg, experts said. 
"Taxpayers across Europe will be reviewing their affairs carefully in the light of this development to make sure they are robust to challenge," said Neal Todd, a partner with Berwin Leighton Paisner LLP in London.
In a hard-hitting letter to the Irish government published Tuesday, the European Commission, the 28-member bloc's central antitrust authority, said it had reached the "preliminary view" that tax deals struck with Apple in Ireland in 1991 and 2007 constituted state aid. 
"The commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple," the letter said.
A spokesman for Apple said the company had "received no selective treatment from Irish officials over the years," and that its tax payments "in Ireland and around the world have increased tenfold" since 2007. "We're subject to the same tax laws as the countless other companies who do business in Ireland," the spokesman said.
At issue are the tax rulings, or so-called comfort letters, sent by governments to multinationals to give clarity on how a specific tax will be calculated. These would be illegal if they gave selective advantages to some companies.
The commission said it had specific doubts—based on an analysis of exchanges between representatives of Apple and the Irish tax authorities—about the methods used to calculate taxes payable by two of Apple's subsidiaries in Ireland: Apple Operations Europe and Apple Sales International.
AOE manufactures personal computers and provides other services to Apple subsidiaries in Europe, the Middle East and Africa, and ASI procures finished Apple products from third-party manufacturers and sells them to overseas distributors.
In its letter, the commission said the costs attributed to AOE appear to have been "reverse engineered" to arrive at a specific taxable income. The regulator also says that excerpts from conversations between Apple and the Irish authorities indicate the reduction of Apple's tax rate after a certain threshold "would have been motivated by employment considerations."
Apple employs more than 4,000 people in Cork, Ireland, where all its Irish subsidiaries are based.
The Cupertino, Calif.-based company paid less than €20 million ($25.4 million) in taxes in Ireland for each of the years 2010-2012 through the two Irish subsidiaries that the commission has focused on, according to the commission's letter.
Apple set aside about $12 billion for U.S. federal and state income taxes in fiscal 2013, on sales of $62.7 billion in the Americas, according to a filing with the U.S. Securities and Exchange Commission. The company, which doesn't break down revenue by country, set aside just $1.1 billion for foreign income taxes over the same period, on sales outside the Americas of about $88 billion. It reported foreign pretax earnings of $30.5 billion that fiscal year. 
Apple could be asked to pay up to $200 million in back taxes, said Heather Self, a tax partner at Pinsent Masons LLP in London. She said the company could also agree to pay a smaller amount to settle—or pay nothing if Ireland offers a robust defense.
The commission doesn't fine countries for providing illegal state aid.
An Irish government spokesman referred to previous comments saying Ireland was "confident that there is no breach of state-aid rules" in the Apple case.
In a parallel development, the commission also published its letter to Luxembourg's government on Tuesday, saying it had reached the "preliminary" conclusion that a tax decision concerning Fiat amounted to state support for the car maker, and the regulator had "doubts" about the deal's conformity with EU law.
That investigation is potentially more significant than the Irish probe due to the large number of funds and other companies that are based in Luxembourg and could be affected by future investigations, experts said. The EU's probe has also spread to Inc. 's operations in Luxembourg and other companies operating there, according to a person familiar with the matter.
The EU's state-aid rules are meant to prevent governments from offering sweetheart tax or subsidy deals to companies that distort competition inside the bloc.
The EU has also said that it was seeking information from the governments of Belgium and the U.K. in separate tax enquiries. The EU said the documents requested from the U.K. related to its overseas territory of Gibraltar.

Fire district consolidation

See my blog from June 8, 2011 about conversation I had with a city councilor where I talked about consolidation of services as the costs did not make sense and that is what happened in Australia in the 90's. Aivars Lode

Tuesday’s election results were historic for taxpayers who have clamored for more than a decade to consolidate Collier County’s empire of separate fire districts.
In each of four fire districts with a say in mergers, voters supported consolidating by percentages ranging from 61 percent to 70 percent.
Mergers passed to combine East Naples and Golden Gate fire districts and to blend North Naples and Big Corkscrew fire districts. This creates opportunities to trim administrative costs while adding frontline personnel and quick response equipment.
Taxpayers will save by not needing a new fire administration building in East Naples, projected to cost $5 million or more, because the merged district can use Golden Gate’s new headquarters. In the northern part of the county, the merger prevents separate districts from having to build two stations not far from one another on opposite sides of the boundary.
Benefits in North Naples-Big Corkscrew include reducing the number of chiefs, cutting costs, and redirecting the savings into front-line personnel and equipment. The merger is projected to save taxpayers $2.3 million in the first five years.
More than two-thirds of voters in a 2010 straw ballot supported the idea that independent fire districts in Collier County and other districts operated by county government should merge. Tuesday’s results are a welcome call to end fire district fiefdoms in Collier County.

Regulators fine global banks $4.3 billion in currency investigation

I identified this back in July of 2012, and now fines are being levied. Aivars Lode

By Kirstin Ridley, Joshua Franklin and Aruna Viswanatha
LONDON/ZURICH/NEW YORK (Reuters) - Regulators fined six major banks a total of $4.3 billion for failing to stop traders from trying to manipulate the foreign exchange market, following a yearlong global investigation. 
HSBC Holdings Plc, Royal Bank of Scotland Group Plc, JPMorgan Chase & Co, Citigroup Inc, UBS AG and Bank of America Corp all faced penalties resulting from the inquiry, which has put the largely unregulated $5-trillion-a-day market on a tighter leash, accelerated the push to automate trading and ensnared the Bank of England.
Authorities accused dealers of sharing confidential information about client orders and coordinating trades to boost their own profits. The foreign exchange benchmark they allegedly manipulated is used by asset managers and corporate treasurers to value their holdings.
Dealers used code names to identify clients without naming them and swapped information in online chatrooms with pseudonyms such as "the players", “the 3 musketeers” and “1 team, 1 dream." Those who were not involved were belittled, and traders used obscene language to congratulate themselves on quick profits made from their scams, authorities said.
Wednesday's fines bring total penalties for benchmark manipulation to more than $10 billion over two years. Britain's Financial Conduct Authority levied the biggest penalty in the history of the City of London, $1.77 billion, against five of the lenders.
"Today's record fines mark the gravity of the failings we found, and firms need to take responsibility for putting it right," FCA Chief Executive Officer Martin Wheatley said. 
He said bank managers needed to keep a closer eye on their traders rather than leaving it to compliance departments, which make sure employees follow the rules.
The investigation already has triggered major changes to the market. Banks have suspended or fired more than 30 traders, clamped down on chatrooms and boosted their use of automated trading. World leaders are expected to sign off on regulatory changes to benchmarks this weekend at the G20 summit in Brisbane, Australia.
In the United States, which has typically been more aggressive on enforcement than other jurisdictions, the Department of Justice, Federal Reserve and New York's financial regulator are still probing banks over foreign exchange trading. 
Regulators said the misconduct at the banks ran from 2008 until October 2013, more than a year after U.S. and British authorities started punishing banks for rigging the London interbank offered rate (Libor), an interest rate benchmark. 
The foreign exchange probe has wrapped up faster than that investigation did, and Wednesday's fines reflected cooperation from the banks. Britain's FCA said the five banks in its action received a 30 percent discount on the fines for settling early.
The U.S. Commodity Futures Trading Commission ordered the same five banks to pay an extra $1.48 billion. Swiss regulator FINMA also ordered UBS, the country's biggest bank, to pay 134 million francs ($139 million) and cap dealers' bonuses over misconduct in foreign exchange and precious metals trading.
The U.S. Office of the Comptroller of the Currency fined the U.S. lenders a total of $950 million. It was the only authority to penalize Bank of America.
Wednesday's settlement, said it had pulled out of talks with the FCA and the CFTC to try to seek "a more general co-ordinated settlement" with other regulators that are investigating its activities.
The FCA said its enforcement activities were focused on those five plus Barclays, signaling it would not fine Deutsche Bank AG. 
The CFTC declined to comment on whether it was looking at other banks.
Britain's Serious Fraud Office is conducting a criminal investigation, and disgruntled customers can still pursue civil litigation.
RBS, which is 80 percent owned by the British government, received client complaints about foreign exchange trading as far back as 2010. The bank said it regretted not responding more quickly. 
The other banks were similarly apologetic.
The currency inquiry struck at the heart of the British establishment and the City of London, the global hub for foreign exchange dealing.
The Bank of England said on Wednesday that its chief foreign exchange dealer, Martin Mallet, had not alerted his bosses that traders were sharing information.
The British central bank, whose governor, Mark Carney, is leading global regulatory efforts to reform financial benchmarks, has dismissed Mallet but said he had not done anything illegal or improper.
It also said it had scrapped regular meetings with London-based chief currency dealers, a sign the BOE wants to put a distance between it and the banks after the scandal.
Shares of banks involved in the settlement were down slightly Wednesday afternoon. Bank of America dipped 0.2 percent, JPMorgan fell 1.6 percent, and Citi was 0.6 percent lower.
RBS was down 1 percent, HSBC was down 0.3 percent, and UBS was down 0.1 percent in after-hours trading.
(1 US dollar = 0.9630 Swiss franc)
(Additional reporting by Steve Slater, Huw Jones, Jamie McGeever, Clare Hutchison and Matt Scuffham in London and Katharina Bart in Zurich; Writing by Carmel Crimmins and Emily Stephenson; Editing by Alexander Smith, Anna Willard, David Stamp and Lisa Von Ahn)