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SECRETARIA DE ESTADO DE ECONOMIA Y APOYO A LA EMPRESA MINISTERIO DE ECONOMÍA Y DIRECCION GENERAL DE POLÍTICA ECONOMICA COMPETITIVIDAD '$' UNIDAD DE APOYO CUADERNO DE DOCUMENTACION Número 102.3 ANEXO IX Alvaro Espina 24 Noviembre de 2014 Entre 28 Septiembre y 7 de octubre ft.com Comment Opinion October 7, 2014 6:19 am Apple, the European Commission and Ireland By James Stewart A tax-based industrial policy will not produce an innovative economy, writes James Stewart ©Bloomberg Apple's campus in Cork, Ireland I rish tax policy has in recent years attracted considerable international criticism, but within Ireland it is seen as inviolable. Enda Kenny, the Irish prime minister, denies that the country has become a “brass plate location” where international corporations try to book their profits so as to benefit from low tax rates. He has described the country’s low tax rate as “a cornerstone of Irish industrial policy”. It is no doubt true that a sudden change of policy would hurt investment in the short term. What Ireland’s government seems not to be aware of, however, is the vast quantity of profits that are not subject to corporation tax anywhere in the world because of “double Irish” tax strategies. More ON THIS STORY// Apple braced for explosive Brussels probe/ Apple hit by Brussels tax finding/ Apple hits back over ‘bendgate’ furore/ Lex iPhone 6 – bent phone, firm margin/ New iPhones the verdict ON THIS TOPIC// Cork brushes off Apple tax claims/ Ireland under pressure over low tax rates/ Q&A Brussels tackles Ireland over Apple tax/ Watchdog warns Ireland over budget IN OPINION// Joe Studwell Focus on Hong Kong tycoons/ Amy Kazmin India’s clean-up drive/ Anjana Ahuja The fight against Ebola/ Dominique de Villepin Weapons of peace This ruse involves two Irish companies, one of which makes sales to customers and pays hefty royalties to the second, which is resident in a tax haven such as the Cayman Islands. The sliver of profit attributable to the first company is taxed at the Irish rate of 12.5 per cent. But the lion’s share, attributable to the second company, is barely tax ed at all. In May last year, finance minister Michael Noonan told parliament that it was impossible to know how many companies avoid paying tax in this way. In fact, we have some idea. In 2011, 19 subsidiaries registered in Ireland between them avoided paying tax on €33bn of profits in this way. (Apple’s was one of them.) That sum is equivalent to one- fifth of Ireland’s entire economic output for that year. Several more companies have similar arrangements, but their profits are excluded from the total because their legal structure means they do not have to file accounts. American companies can pay between 10 and 25 per cent tax on profits they make in the US, depending on what measure you use. But some pay almost nothing on profits they make outside the US, and Ireland has in some cases become central to these tax avoidance strategies. How did industrial policy in Ireland became so dependent on such a favourable corporate tax regime? Those with the best knowledge of the tax system will be the ones appointed to senior management jobs Tweet this quote Some clues can be found in the European Commission’s report on Apple and Ireland. The report says that at times there was extensive contact – which the commission describes as “negotiations” – between Apple’s tax advisers and the Irish tax authorities. There can be little doubt that other companies are engaging in similar talks. A tax-based industrial policy will not produce an innovative economy at the cutting edge of technology and research. Instead, it will lead to an emphasis on tax reduction. Those with the best knowledge of the tax system will be the ones appointed to senior management jobs. They lean in turn on tax advisers, whose prosperity brings them considerable influence in formulating tax policy and legislation. Meanwhile, those skilled in new product development, production expertise, logistics and marketing, are being sidelined. The tax regime for foreign direct investment in Ireland will probably have to change, not least because of the commission’s intervention. However, there is little reason to think that the underlying conduct will change much in the near future. The affected companies will seek other tax incentives to do business in Ireland. The prime minister has already spoken of the need to improve the competitiveness of the tax treatment available in the country for research and development expenses and intellectual property rights. It is time for countries to work together to fight abuses of the international tax system. An economy dominated by sliderules is scarcely better than one specialising in brass plates. The writer is an associate professor of finance at Trinity College, Dublin http://www.ft.com/intl/cms/s/0/bde702e4-4d5e-11e4-bf60- 00144feab7de.html#axzz3FMDPrdyo 2 ft.com Markets Capital Markets October 6, 2014 5:00 pm Eurozone inflation gauge hits record low By Ralph Atkins in London ©AP President of European Central Bank Mario Draghi walks in front of the ECB governing council prior to their meeting in Naples A closely watched gauge of inflation rates expected by financial markets has fallen to the lowest on record, dealing another blow to Mario Draghi, European Central Bank president. The eurozone inflation rate expected over five years starting in five years’ time fell to 1.88 per cent on Monday, according to Barclays data based on swaps prices. That was below the previous lowest close in October 2010 and the weakest since the euro inflation swaps market was developed a decade ago. More ON THIS TOPIC// The Short View Inflation outlook brings ECB QE into view/ Editorial Criticism of Draghi’s actions is misguided/ ECB to start asset purchases this month/ The World Mario Draghi’s press conference IN CAPITAL MARKETS// Investors weigh rising risks of EM assets/ Dollar rise gives Brevan Howard a boost/ Merck sale boosts Europe’s bond market/ First post-Argentina bond contracts Mr Draghi is battling to prevent low inflation rates tipping the eurozone into a damaging deflationary downswing. The “five year-five year” inflation measure gained attention after being cited by Mr Draghi in August at a gathering of central bankers in Jackson Hole, Wyoming. The sharp fall he noted then led to the ECB announcing in September an unexpected cut in interest rates and a private sector asset purchase programme. Mr Draghi’s focus on the measure has since backfired, however. Rather than rising on the ECB’s actions, it has continued to fall. September’s measures stopped short of full-blown “quantitative easing”, involving large scale purchases of government bonds, which many market strategists argue is needed in the eurozone, and Mr Draghi’s comments after last week’s ECB meeting suggested the central bank was no closer to taking such a step. 3 “It seems the bearish trend has continued,” said Khrishnamoorthy Sooben, Barclays analyst. “The reaction of the broader market to the ECB last week suggests there was some disappointment. Probably markets were expecting a bit more.” At last week’s press conference in Naples, Italy, Mr Draghi insisted the ECB monitored a broad range of information about inflation expectations. “We don’t use one single measure of inflationary expectations. We use a broad range of indicators,” he said. But the ECB president admitted that “our inflation expectations measures have gone down, especially on the short horizons” and that the falls were being watched, “definitely with great attention”. “Markets have been obsessed with these five year-five year rates since Draghi mentioned it at Jackson Hole. It is not as if [the inflation swaps market] is a perfect market to assess longer term inflation expectations,” said Peter Vanden Houte, chief eurozone economist at ING in Brussels. “It was probably a mistake for Draghi to mention it explicitly . Markets are now focused on this one indicator and when it moves it creates an anticipation of further easing.” By keeping inflation expectations in line with their targets, central banks aim to affect pricing behaviour and keep actual inflation rates under control. Although the eurozone inflation rates implied by swap markets appears in line with the ECB’s target of an annual rate “below but close” to 2 per cent, they have historically remained firmly above that level. Eurozone annual inflation fell in September to a five- year low of 0.3 per cent. In Naples, Mr Draghi warned of the danger of “a prolonged period of too low inflation” but argued steps taken by the ECB would “underpin the firm anchoring of medium- to long-term inflation expectations”. http://www.ft.com/intl/cms/s/0/57ec035e-4d63-11e4-8f75- 00144feab7de.html#axzz3FMDPrdyo ft.com comment Columnists October 6, 2014 2:12 pm Why public investment really is a free lunch By Lawrence Summers The IMF finds that a dollar of spending increases output by nearly $3 It has been joked that the letters IMF stand for “it’s mostly fiscal”. The International Monetary Fund has long been a stalwart advocate of austerity as the route out of financial crisis, and every year it chastises dozens of countries for their fiscal indiscipline. Fiscal consolidation – a euphemism for cuts to government spending – is a staple of the fund’s rescue programmes. A year ago the IMF was suggesting that the US had a fiscal gap of as much as 10 per cent of gross domestic product. 4 ©AFP All of this makes the IMF’s recently published World Economic Outlook a remarkable and important document.