The US Treasury appears to be moving ahead with significant rule changes which would limit US companies’ ability to profit from moving their tax domains overseas. The department is undertaking the changes in order to combat the practice which has come to be known as “inversion”. However, despite the efforts, even the Secretary of the Treasury, Jack Lew, acknowledged that he was not sure that his department had the legal right to make wholesale changes to the law. Analysts and lawyers are split over the whether the changes, which include limiting earnings stripping, reclassifying certain debt held by United States subsidiaries of foreign corporations as equity or restricting the repatriation of untaxed offshore cash from corporations that have gone through an inversion, would actually hold up in court. However, based on a wealth of legal research, and analysis of a major tax case in the year 2000, in which Chevron lost a tax appeal, it seems that any corporate challenge to the Treasury’s authority would face long odds. In fact, since 1986, only 13 out of 55 appeals have been successful, which means the Treasury’s changes might go unchallenged.
FINSUM: It looks like the Treasury will be able to push its changes through. However, what will be most important is that the new rules are written in such a way so as to not limit legitimate investment, as if they fail to do so, the new regulations could end up hurting the country more than helping it.
One thing is for certain—the West has so far failed to stop president Putin’s advances in Ukraine. Last week it was confirmed that Russian forces were openly fighting in Ukraine, ending the ambiguity that has surrounded the situation for months. Now, the west is weighing further actions against Russia, including sanctions which would further ban Russian industry from accessing western financing, but interestingly, leaders are also considering whether to ban Russia’s hosting of the World Cup in 2018. Analysts say that move could potentially threaten Russia more than the steps taken so far, as they would directly relieve Moscow of a large economic gain. The US pioneered using large international sporting events as a means to enact political goals when its team boycotted the 1980 Olympics in Moscow.
FINSUM: While this is an interesting story, analysts seemed to be overestimating the potential effect here. Putting has found a way to get around every line in the sand that the west has drawn—by stepping over it slowly and ambiguously. Will the west unite to stop Russia, or will it flounder under the weight of its own indecision?
Recep Erdogan’s smashing victory in this weekend’s election polls has created a power struggle in the ruling AK party, as outgoing president Abdullah Gul, a long-time challenger to Erdogan, is seeking to reenter the party. Under current Turkish law, a recently departed president, like Gul, is technically banned from joining a party, but Gul argues that he founded the AK party and it is only natural for him to be in it. He also made clear his disagreements with Erdogan, who he has criticised for being too authoritarian, and said his “political struggle was clear”. The issue is that Erdogan, who will become president soon, will not want to name such an independent and powerful figure as Prime Minster, but Erdogan’s less-than-expected margin of victory with 51.8% of the vote, is making his party nervous that they need Gul as a sidekick in order to secure victory in next year’s parliamentary elections. Markets rose on the news that Gul is seeking to stay in politics, as he is widely seen as a more agreeable and pro-EU figure than Erdogan.
FINSUM: Two thoughts on this situation: firstly, as far as democracy is concerned, it is certainly good news that Gul is seeking to stick around and fight; secondly, Gul’s choice to stay and his clear resolve to soldier on could set off another brutal power struggle within Turkey that could ultimately harm the country further.
In 2010, Britain signed what was then touted as a landmark agreement, a deal with Switzerland which would see the alpine country release the names of all British citizens who had secret Swiss bank accounts. The UK hoped they could collect up to several billion in taxes on the assets, which were being illegally stashed in private banks. However, since the investigation began in earnest, authorities have collected relatively little and have now revised their estimates of the total to be collected to just one-third of their initial forecast. There are two-parts of the issue: the first is that trying to catch tax evaders through individual sovereign agreements is like blocking one hole of a colander; the second is that Britain gave too much advanced warning, 16 months, meaning most everyone transferred their funds away before the tax man ever arrived. Tax havens like Dubai, Singapore, Hong Kong, and the Seychelles have supposedly benefitted from the capital flight.
FINSUM: It seems governments will find little success in collecting taxes on hidden assets until a comprehensive tax deal is sign with all important global asset hubs. Obviously, this will be hard to achieve, but it is already under way. The key will be compelling (strong-arming?) the small countries into agreement.
The UK’s famed 30% club, the group which pushes for 30% representation of women at the highest levels of the corporate world, has made a transatlantic journey and is now leading a major push in the US. The group has seen measurable success in the UK, where overall female representation on company boards increased from 12.5% in 2010 to 21.6% as of May 2014. The group seeks to partner with major business leaders to push for a cultural changes across industries would promote women into leadership positions. The group, which is supported by scores of major banks and companies, and the likes of Warren Buffett and Larry Fink, argues that having women in the boardroom “can help a company understand its customers and workforce, reduce the potential for groupthink, and increase share prices”. However, men and women alike have been apprehensive in supporting the movement—men for fear of losing out on promotions, and women because they are nervous about being seen to be promoted because of their gender rather than on merit.
FINSUM: This group has really made some sweeping changes in the UK, so once it grabs hold in the US, expect some serious changes to emerge, especially considering the US’ long-held cultural penchant for equality.
The battle for Scottish independence is heating up ahead of September’s referendum vote, and the movement’s benchmark poll has released new figures which show that undecided voters are increasingly moving to the pro-independence, or “Yes” camp. Both the No and Yes campaigns have battled fiercely for those still undecided, as the 11% of voters who say they still have not made up their minds is enough to sway the polls either way. Between March and June, 25% of those in the undecided pool switched to being Yes voters, while only 18% went to the No side. At present, 48% of voters said they would vote No, while 41% said they would vote yes, giving a solid but fragile edge to the Pro-UK campaign.
FINSUM: Something none of the articles covering this story discuss is the issue of voter turnout. It stands to reason that the fiery Yes campaign, who are pushing for radical change, will be more likely to turn out in force at polls than those in the No campaign, who merely want to continue with the status quo. Look out for potential shocks on September 18th.