FT : Big tax inverters ‘have $21bn offshore’

Big tax inverters ‘have $21bn offshore’

Three US companies seeking to use controversial takeovers to cut their US tax bills hold at least $21bn in "trapped" offshore cash that the deals could unlock. According to data compiled by Moody’s for the Financial Times, the biggest offshore cash piles held by companies pursuing so-called "tax inversions" belong to Medtronic, a medical devices group; AbbVie, a drugmaker; and Applied Materials, a technology group. The deals enable US companies to shift their tax domicile to a country with lower tax rates by acquiring a foreign rival. The tax benefits include lower-cost access to existing offshore cash and to future non-US earnings. Thirteen inversion deals worth $178bn have been announced since the start of 2013, according to Dealogic. Nine other companies doing inversions do not disclose their offshore cash while Mylan holds just $174m outside the US. The deals have sparked political outrage, with President Barack Obama describing the companies as "deserters" that are "renouncing their US citizenship". Medtronic has predicted that its inversion would cut its effective tax rate by 1 to 2 percentage points from the 18 per cent it paid last year. Applied Materials said its deal would cut its tax rate from 22 per cent to 17 per cent. AbbVie said the inversion would reduce its tax rate from about 22 per cent to 13 per cent. However, the three companies have said that tax benefits are not the primary motivations for their deals. Attacks on inversions will ramp up again this week as lawmakers return to Washington and the Democrats seek to make them a campaign issue ahead of midterm elections on November 4. Chuck Schumer, a senior Democratic senator who will this week introduce legislation to curb the deals, told the FT: "We need to move quickly and aggressively to curtail inversions and prevent companies from using shady accounting practices to avoid their US tax obligation." According to Richard Lane at the rating agency Moody’s, who compiled the figures, US non-financial companies hold a total of about $950bn in overseas cash and liquid investments. The obstacles to accessing it are not insurmountable, but companies are reluctant to do so while domiciled in the US because repatriating it would trigger a US tax liability. Inversions allow companies to move cash more freely between overseas subsidiaries and their new foreign parents while bypassing US tax collectors. They will also be able to lend future earnings from the foreign parent to their US businesses and deduct interest payments on the debt from US tax liabilities, a practice known as "earnings stripping" that Senator Schumer is seeking to stop. However, Bret Wells, a law professor at the University of Houston, said companies could not simply remit existing cash to their new foreign parents free of US tax, because their old foreign subsidiaries would remain owned by a US company, which would in turn be owned by the foreign parent. "The bigger tax benefits will come from creating new foreign subsidiaries and channelling their future overseas earnings into them. They will have never been under a US ownership structure and will be beyond the reach of the US taxman," he said. Medtronic, which has struck a $42.9bn deal to buy Ireland-based Covidien, has $13bn of cash outside the US. It has said it wants to use cash generated outside the US to "invest much more aggressively in the US". Applied Materials has agreed a $9.3bn merger with Japan’s Tokyo Electron and will be domiciled in the Netherlands. The US group has $2.4bn in offshore cash and has said the inversion will create "a very free flow of cash" that could be used to pay dividends and buy back stock. AbbVie has a cash pile of $10.2bn and says a "significant portion" is overseas. Moody’s estimates conservatively that at least half is outside the US. AbbVie, which has agreed to buy Ireland-domiciled Shire for £32bn, has said US taxes on repatriated cash put it at a disadvantage to non-US rivals in making investments. The US Treasury is exploring ways to use executive action to curb the deals in the absence of legislation from Congress.

FT : Telecoms groups reject sharing networks

Telecoms groups reject sharing networks

A government demand to improve mobile phone coverage in Britain’s rural areas by asking operators to share networks has been rejected by telecoms executives, forcing ministers to consider other options. Sajid Javid, the culture secretary, has made "national roaming" an important part of attempts to improve the UK’s much-criticised mobile services before next year’s general election. Mobile coverage in rural areas has been particularly criticised by customers, as well as by David Cameron after he struggled with reception on journeys around Britain. National roaming would allow customers to use the network of any operator for voice calls in "not spots" – areas where their carrier has no coverage. Overseas roaming is similar in concept, by allowing travelling mobile customers to use the network provided by a local operator, although national roaming has not been adopted elsewhere in the world. Ed Vaizey, the digital economy minister, wrote to mobile operators to seek agreement on national roaming plans by the start of next year. He has taken oversight of the project, although Mr Javid is still responsible for the delivery of the government’s broadband plans. However, mobile executives replied, rejecting the idea as unworkable in the time suggested, as well as undesirable in principle, according to two people with knowledge of the discussions. "It was rejected. There are reasons why it wouldn’t work from a technical and legal perspective," said one person close to the issue. "The letters outlined the complexity of it and pushed for alternatives." Mr Vaizey has since responded with requests for the companies to offer different ideas to meet a similar objective in extending voice services across the UK, the sources said. The Department for Culture, Media and Sport is also engaging in its own cost and benefit analysis of national roaming, which remains a key objective of Mr Javid’s. Industry executives insist they are ready to work with the government to reduce the number of mobile not-spots. One idea put forward would be to share the basic mast infrastructure used to transmit mobile signals across the big operators. Companies such as EE and Vodafone have already made improvements to rural mobile services. One executive pointed out that national roaming had not been adopted elsewhere which, he said, reflected the problems of ringfencing voice communications and individual parts of the network. The industry also argues that there would be less incentive to invest in networks to try to beat rivals on quality of service. Mr Vaizey said: "We are investing up to £150m to improve mobile coverage in areas where there is currently no coverage from any of the mobile network operators through the Mobile Infrastructure Project. "There are also areas of the UK that have coverage from some MNOs but not all of them. We’re looking closely at ways to improve mobile coverage in these areas, including national roaming."

Merkel Ally Seehofer Criticizes ECB’s ABS Plan, Bild Says

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Merkel Ally Seehofer Criticizes ECB’s ABS Plan, Bild Says 2014-09-07 18:10:03.547 GMT

By Claudia Rach Sept. 7 (Bloomberg) -- CSU head and Bavaria PM Horst Seehofer says CSU and Angela Merkel’s CDU shouldn’t leave certain topics to anti-euro Alternative for Germany, or AfD, Bild Zeitung reports in preview of tomorrow’s edition. * Seehofer cites as example ECB’s plans to start buying assets, saying it’s frightening many people that ECB may open bank’s money tap and buy junk paper at same time * NOTE: Sept. 4, Merkel lawmakers lash out at ECB urging long- term exit strategy * NOTE: Earlier, ECB stimulus steps announced Sept. 4 may total EU800b: Spiegel Link to Bild Zeitung story (in German): http://tinyurl.com/pernlsx

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Schumer Draft Tax Plan Against Inversions Could Reach to 1994

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BN 09/07 16:06 Schumer Draft Tax Plan Against Inversions Could Reach to 1994

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Schumer Draft Tax Plan Against Inversions Could Reach to 1994 2014-09-07 16:50:00.43 GMT

By Richard Rubin Sept. 7 (Bloomberg) -- The legislative proposal, which faces high hurdles in a deadlocked Congress, may be part of Democrats’ attempts to penalize cos. that cut their tax bills w/cross-border mergers known as inversions and get added to political strategy to blame Republicans. * Proposal isn’t final and subject to change, aide to Senator Charles Schumer says * Schumer hasn’t decided when he will introduce legislation * NOTE: Sept. 4, Treasury Secretary Lew Urges Closing of ‘Wasteful’ Corporate Tax Loopholes

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Israeli official: Hamas has begun repairing Gaza tunnels

Israeli official: Hamas has begun repairing Gaza tunnels
Official says Hamas already preparing for next confrontation with Israel, with resumption of arms smuggling and rocket production.


Israel has received intelligence indicating that Hamas has begun reconstructing the attack tunnels that were destroyed during Operation Protective Edge, a senior Israeli official said on Sunday.

Two weeks have passed since the cease-fire went into effect, the official said, and Hamas has already begun preparing for the next confrontation with Israel and is focused on replenishing its arsenals.

The senior official said that Hamas militants have returned to arms smuggling through several tunnels that remain intact under the Philadelphi Route in Rafah. He said that the smuggling continues despite the Egyptian security forces' more concentrated and effective efforts to stamp out the tunnels.

The official added that production of the M75 rockets – capable of reaching the Gush Dan region in central Israel – has resumed in factories inside the Gaza Strip. He said that even after Operation Protective Edge, 40 percent of Hamas' capability to produce rockets locally remain intact.

WSJ : Fed’s Plosser: Fed Should Raise Rates ‘Sooner Rather T

Fed’s Plosser: Fed Should Raise Rates ‘Sooner Rather Than Later’

NEW YORK–Federal Reserve Bank of Philadelphia leader Charles Plosser said Saturday the U.S. central bank will likely need to raise rates "sooner rather than later" to keep the economy running smoothly.

"I am not suggesting that rates should necessarily be increased now," Mr. Plosser said in the text of a speech to be given in Amelia Island, Fla.

That said, preparing to raise interest rates sooner than many now expect "may allow us to increase rates more gradually as the data improve, rather than face the prospect of a more abrupt increase in rates to catch up with market forces, which could be the outcome of a prolonged delay in our willingness to act," the official said.

Mr. Plosser is a voting member of the monetary policy setting Federal Open Market Committee. The official dissented at the central bank’s last gathering in late July, believing the institution needed to stop committing to keep rates very low for well into the future. He wanted the central bank to make the outlook for policy more contingent on incoming data. Mr. Plosser reiterated his case for this change in his speech.

"We have moved much closer to our goals since last December, and, as we do so, the stance of monetary policy should reflect such progress and begin to gradually adjust. That is the essence of being data dependent," Mr. Plosser said. "Our first task is to change the language in a way that allows for liftoff sooner than many now anticipate and sooner than suggested by our current guidance," Mr. Plosser said.

While Mr. Plosser hasn’t found many on the Fed to embrace his view that a rate increase from what are currently near-zero levels are getting closer, a number of central bankers are increasingly willing to consider changes in the guidance about future monetary policy.

On Friday, Boston Fed leader Eric Rosengren, who thinks monetary policy needs to stay very easy, agreed that it is time to change how the Fed describes the monetary policy outlook. In his speech, Mr. Plosser was upbeat about the state of the economy, and he brushed off the soft turn in August hiring, reported Friday.

"I believe consumer and business spending will help real GDP to grow at about 3% for the remainder of this year and next before reverting to trend, which I see as about 2.4%," he said. On hiring, the official said "despite the slowdown in August, job creation has improved markedly this year."

Mr. Plosser also said that price pressures are "drifting" up to the Fed’s 2% target.

 

Fiat CEO Says Can’t Accept Ferrari Formula One Performance

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BN 09/07 12:20 *FIAT CEO SAYS CAN'T ACCEPT FERRARI CURRENT F1 RESULTS BN 09/07 12:19 *FIAT CEO SAYS FERRARI SHOULD IMPROVE FORMULA 1 RESULTS BN 09/07 12:17 *FIAT CEO REITERATES PLAN FOR OCT. 13 NEW YORK LISTING BN 09/07 12:16 *FIAT CEO ON MONTEZEMOLO: EVERYBODY NEEDED, NO ONE INDISPENSABLE BN 09/07 12:13 *MARCHIONNE: DECISION ON TREASURY WITHDRAWAL SHRS SALE END OCT BN 09/07 12:10 *MARCHIONNE SAYS FCA BOARD TO REVIEW CAPITAL NEEDS END OF OCT BN 09/07 12:09 *MARCHIONNE: 'NOTHING ON THE TABLE' ON MONTEZEMOLO BN 09/07 12:09 *MARCHIONNE SAYS HE WOULDN'T HAVE MADE MONTEZEMOLO'S COMMENTS BN 09/07 12:07 *MONTEZEMOLO LEAVING FERRARI NOT ON AGENDA: MARCHIONNE BFW 09/07 12:01 *FIAT CEO MARCHIONNE SPEAKS TO REPORTERS IN CERNOBBIO, ITALY BN 09/07 12:00 *MARCHIONNE: DISCUSSION ON CAP NEEDS END OF OCTOBER

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Fiat CEO Says Can’t Accept Ferrari Formula One Performance 2014-09-07 12:56:43.556 GMT

By Tommaso Ebhardt Sept. 7 (Bloomberg) -- Fiat CEO Marchionne says change of Ferrari chairman “not on the agenda, nothing on the table.” * Marchionne says “everybody is needed, nobody is indispensable” on Ferrari Chairman Montezemolo * Marchionne says he wouldn’t have Montezemolo’s remarks yesterday * NOTE: Fiat controls Ferrari * NOTE: Montezemolo Says He Committed to Ferrari Job For Further 3 Yrs {NSN NBHAZ76JTSE8 <go>}

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To contact the editor responsible for this story: Chiara Vasarri at +39-06-4520-6325 or cvasarri@bloomberg.net

Vodafone to Begin Mobile Payment Service in U.K. Next Month: FT

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BN 09/07 13:42 *VODAFONE TO BEGIN MOBILE PAYMENT SERVICE IN U.K. NEXT MONTH: FT

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Vodafone to Begin Mobile Payment Service in U.K. Next Month: FT 2014-09-07 13:50:18.264 GMT

By Joe Sabo Sept. 7 (Bloomberg) --Co. has developed service with Visa that will work with special SIM card embedded with NFC (near field communication) technology to swipe for payments at contactless sites, FT says. * Similar services already in Italy, Germany, Spain, Netherlands * Application to be available only on Android smartphones Link to story: http://on.ft.com/1rUIknS

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NY Post : Two key Michael Kors investors hit checkout

A pair of fashion tycoons is cashing out its stake in Michael Kors — but it isn’t through minting money off the label’s rampant growth.
Shares of Michael Kors, which have quadrupled since the company went public in December 2011, lost 4.5 percent Friday to close at $76.39 after Silas Chou and Lawrence Stroll disclosed they were selling their 5.7-percent stake.
The investing duo’s private-equity firm, Sportswear Holdings, will reap $890 million from the sale of 11.6 million shares, a process that’s being handled by JPMorgan Chase.
The exit of Chou and Stroll, who scooped up Michael Kors in 2003 for about $100 million, stoked recent fears that the clothing and accessory brand’s business is slowing.
Last month, execs said they expect gross margins to fall this year amid rampant competition in the handbag market, a disclosure that sent Michael Kors shares tumbling.
Indeed, Chou and Stroll exited their stake in Tommy Hilfiger, which they built into a global powerhouse in the 1990s, before that brand began to see its sales and profitability deteriorate, Barclays analyst Joan Payson said.
But while Chou and Stroll are leaving the Michael Kors board, there’s a silver lining as well, according to some analysts.
That’s because the duo still owns Far East Limited, an affiliate company that owns the license to produce Michael Kors merchandise for China.
Despite the fact that China is the biggest growth market for the luxury industry, Michael Kors has barely begun to tap into it.
“At some point, it is likely that [Michael Kors] will buy back this license and operate directly owned stores in China,” notes Wells Fargo analyst Paul Lejuez.

(Barron's) When Will We Get Serious About Security on the Web?

When Will We Get Serious About Security on the Web?
Naked celebrity photos kicked up a storm about Web security. Will anything really change, or is it just too much trouble? Synaptics and NXP may have an answer.

"Nude pictures!" That was the big story in the headlines last week about Internet privacy and security. Celebrities, including actress Jennifer Lawrence, had uploaded photos of themselves in the buff to iCloud, the online service run by Apple that lets people store their music and photos and data and synchronize it between computers. The pictures were appropriated by persons unknown, who then spread them across the Internet.

Apple pointed out its service wasn't broken, that, instead, these celebs were the target of diligent efforts to steal passwords and reveal celebrity mischief.

The sensational nature of the discussion was telling: The Internet is more popular for the ways in which it enables activity -- rapid dissemination of presumably confidential material to the masses, in this case -- than for what it prohibits.

Over the years, efforts to increase security for consumers have consistently failed. Basically, there's no money to be made in consumer security technology, per se, though understanding why efforts have failed may suggest ways to profit from the mess.

Consider that there are simple routes to at least limit what transpired on iCloud, even if such events cannot be entirely prevented.

In my anecdotal observation, time and again, people use weak passwords for computers, don't keep track of passwords, and probably use the same ones for both the places online where they shop for trinkets and for the places where they have their prime brokerage accounts. The whole process of following even basic rules of thumb for security is either too time-consuming or too complicated for most Internet users.

There are today, and have been for many years, some simple ways to add even more security. The most prominent thing is what's known in tech circles as "two-factor authentication." It requires a person to supplement a password with something they have physically in their possession that an attacker can't possibly possess.

Two-factor is frequently used in corporations, which worry more about risk than individuals. Employees are issued what's called a secure "token," a little plastic device that generates random numbers. The server computer across the corporate intranet requires this random number to be typed into the computer, and verified, if an employee wants to connect to the corporate network.

A decade ago, after the first big outbreaks of identity theft happened on the Internet, PayPal said it would offer a "premium" service to some users that would include such secure tokens. As far as I can tell, secure tokens never took off in a big way with PayPal users.

Apple, too, has a version of two-factor: It can send a text message to your smartphone containing a random number each time you try to log into iCloud, which you must then enter along with your password. Only you, the possessor of your phone, in theory, can gain access with that code.

But Apple has done little to promote two-factor, another instance where prevention was more trouble than anyone, including Apple, wanted to be bothered with. Apple CEO Tim Cook last week told The Wall Street Journal his company will promote two-factor more in the future.

The whole mess of privacy and security, some will say, is because the Internet is a place where people are exhibitionists. They share themselves on Facebook and Twitter, in excruciating detail. Even private pictures backed up to iCloud are a form of such, since they probably exist to be shared with someone, if not the whole world.

But that's not quite right. The Internet isn't actually a place at all. If it was, just like with your home or your social club, you'd certainly have locks on it, and you'd check with the local police about the neighborhood.

In actuality, the Internet exists as a series of signals in communications equipment that most people can't fathom. To the average individual, it is a tool, an extension of the computing tool. And like a tool, what matters to most is not that it's secure but that it provides ever-greater utility, with ever greater ease of use.

If the Internet is a tool, the only successful consumer security is stuff that brings new utility, rather than blocking or preventing things. The most intriguing recent example of that is Snapchat, the messaging app for phones that lets you send pictures and then makes them disappear moments after they're viewed by the recipient.

The service was recently valued at $10 billion, based on an investment by the venture capital legends Kleiner Perkins. The value of Snapchat is not so much that it hides things you share by making them disappear, but that it turns every conversation into ephemera: the interaction exists for a moment, and then it's gone. Its utility is how it makes chat among people effortless. Keep it light, could be the Snapchat ethos.

Apple has some good prospects for its smartphone empire, having included fingerprint identification in the iPhone. If speculation proves accurate, this Tuesday the company will unveil a new version of the device that allows you to make payments with the iPhone in place of a debit card. It's possible the company will combine the payments service with the fingerprint identification method.

If so, it will be a triumph of utility, allowing you to use the same device you constantly gaze into as your debit or credit card, obviating the need to reach for your wallet. Hopefully, the fingerprint sensor means that such transactions will also be more secure than many existing ways we shop.

One beneficiary could be NXP Semiconductors (ticker: NXPI), the chip maker that is likely to provide some of the technology to Apple. As I mentioned last week in this space, its shares are not expensive.

My colleague Alex Eule last week wrote about another hopeful in security, fingerprint sensor maker Synaptics (SYNA). Its shares are also worth a look.

DROPBOX AND BOX, two startups that are considering IPOs, could eventually be plays on security. They both let you share files over the Internet rather than store them on your hard drive. They could be private, secure transmission lines for sensitive documents, to the extent they afford enough utility.

The bottom line is that no matter what they say, people don't want privacy or security on the Internet as much as they want utility.

The fault, in other words, lies in ourselves.