Politics

(Washington)

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.

(Brussels)

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?

(Istanbul)

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.

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