Politics

From Marginal Seat 5 September 2016

I noticed today, Monday 5 September that there is a link in the bottom right-hand corner of the home page of Apple’s UK site.

It is entitled, ‘A Message to the Apple Community in Europe’. Because the page might be relegated elsewhere or taken down at some point in the future, I have copied the full text of Tim Cook’s message here. 

This is what he says:

August 30, 2016 A Message to the Apple Community in Europe 
Thirty-six years ago, long before introducing iPhone, iPod or even the Mac, Steve Jobs established Apple’s first operations in Europe. At the time, the company knew that in order to serve customers in Europe, it would need a base there. So, in October 1980, Apple opened a factory in Cork, Ireland with 60 employees.

At the time, Cork was suffering from high unemployment and extremely low economic investment. But Apple’s leaders saw a community rich with talent, and one they believed could accommodate growth if the company was fortunate enough to succeed.

We have operated continuously in Cork ever since, even through periods of uncertainty about our own business, and today we employ nearly 6,000 people across Ireland. The vast majority are still in Cork — including some of the very first employees — now performing a wide variety of functions as part of Apple’s global footprint. Countless multinational companies followed Apple by investing in Cork, and today the local economy is stronger than ever.

Steve Jobs visits Apple’s new facility in Cork, October 1980. The success which has propelled Apple’s growth in Cork comes from innovative products that delight our customers. It has helped create and sustain more than 1.5 million jobs across Europe — jobs at Apple, jobs for hundreds of thousands of creative app developers who thrive on the App Store, and jobs with manufacturers and other suppliers. Countless small and medium-size companies depend on Apple, and we are proud to support them.

As responsible corporate citizens, we are also proud of our contributions to local economies across Europe, and to communities everywhere. As our business has grown over the years, we have become the largest taxpayer in Ireland, the largest taxpayer in the United States, and the largest taxpayer in the world.

Over the years, we received guidance from Irish tax authorities on how to comply correctly with Irish tax law — the same kind of guidance available to any company doing business there. In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe.

The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.

The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same. We are confident that the Commission’s order will be reversed.

At its root, the Commission’s case is not about how much Apple pays in taxes. It is about which government collects the money.

Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company’s profits should be taxed in the country where the value is created. Apple, Ireland and the United States all agree on this principle.

In Apple’s case, nearly all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States. European companies doing business in the U.S. are taxed according to the same principle. But the Commission is now calling to retroactively change those rules.

Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.

Apple has long supported international tax reform with the objectives of simplicity and clarity. We believe these changes should come about through the proper legislative process, in which proposals are discussed among the leaders and citizens of the affected countries. And as with any new laws, they should be applied going forward — not retroactively.

We are committed to Ireland and we plan to continue investing there, growing and serving our customers with the same level of passion and commitment. We firmly believe that the facts and the established legal principles upon which the EU was founded will ultimately prevail.

Breaking that down:

• The message is addressed to the Apple Community, and by making a public statement it is telling the EC it is not going to back down and it is confident it is right.
• Apple has been in Ireland for a long time – thirty-six years, in fact.
• Apple is an important player in Ireland, with 6,000 employees.
• Apple is an important player in Europe, in the USA, in the world.
• The principle is that countries are taxed where they create value. Apple’s R&D is in the USA and that is where the value is created and that is where the tax should be paid.
• The EC wants to retroactively remake the tax laws for Ireland and internationally.
• This will adversely affect many companies, not just Apple.
• If the EU wants to change its tax laws, it should do so by legislative change and this should be applied going forward and not retroactively.
• A warning that if the EC does change the tax laws even going forward, remember what is set out in the preceding points and realise that Europe will be the loser.

From Marginal Seat 2 September 2016

Ireland has just confirmed that it will fight the EU tax bill imposed on Apple in Ireland.

The tax bill was imposed by Margarethe Vestager, the European Commissioner for Competition.

According to Reuter’s, Vestager said that

since being alerted to Apple’s methods and other cases by a U.S. Senate probe in 2013, the Commission has been looking through about 1,000 such instances in the EU

This row has been brewing for years.

In 2014, the Consortium of Investigative Journalists operating out of Washington DC disclosed leaked documents they said showed Luxembourg had become a centre of corporate tax avoidance for over three hundred major international companies.

And Jean-Claude Juncker, the current President of the European Commission, was prime minister of Luxembourg from 1995 to 2013, and is accused of being involved in the agreements.

As the Guardian revealed in 2014

The leaked papers show Luxembourg acting as a go-between, both enabling and masking tax avoidance, which always takes place beyond its borders. The documents are mainly Advance Tax Agreements – known as comfort letters. The leaked papers include 548 of these private tax rulings. These ATAs are typically schemes put to the Luxembourg tax authorities which, if implemented, reduce tax bills substantially. If the Luxembourg authorities approve the scheme they provide a comfort letter which is a binding agreement.

If the EU Commission wins on appeal, then a whole raft of tax matters will unravel and Luxembourg’s head will be on a plate.

It’s not just tax, though. As always, sweetheart deals are done for a reason. And if the deals are upset, there can be consequences.

In 2015, Vestager ordered Cyprus Airways to pay back millions in state aid it had received in a restructuring package.

Vestager said that under the EU rules, there must be ten years or more between state bailouts that companies receive, and Cyprus Airways had already been bailed out in 2007.

So another bailout was a disguised way for the state to subsidise the airline, which meant unfair competition with other airlines.

As a result, Cyprus Airways went out of business, jobs were lost and those ‘other’ airlines picked up the business.

So the result was that the office of the Commission for Competition in the EU reduced competition by driving one of the airlines out of business.

That may be necessary fallout of a decision to defeat tax avoidance in the EU.

But who know what the eventual consequences will be? 

And who knows what the politics within the EU will decide in the background to the forthcoming appeal, given the embarrassment to Juncker?

This could get messy.

A year and a half ago everyone knew that Iran was in breach of the nuclear deal. So why only now have the UK, France, and Germany triggered the Iran Nuclear deal dispute resolution process?

When President Trump gave his speech in Riyadh in March 2017, he made it clear that he had the agreement of the Middle East states to oppose Iran, a country that funds terror in the region. He mentioned Iran about a dozen times in his speech, far more than any other country.

A year later Germany, France, and the UK were hanging on, fighting to preserve the Iran deal.

But they had a lot invested in projects in Iran for the supply of major infrastructure.

Those European deals were all done when the Iran agreement was in place. But it raised the question over the motives of the Europeans who wanted to preserve the Iran agreement. They knew their financial stake was at risk.

Making Hay While The Sanctions Bite

One can be pretty sure that Trump knew of the consequences for European investment if the USA withdrew from the Iran agreement and imposed sanctions that the Europeans had to follow sooner or later. And that he knew that the US would benefit from the Europeans’ losses.

Of course, with Iran’s declared intentions in the region, it makes one wonder why the Europeans invested so much in what was probably going to turn out badly in the end?

And it also makes one wonder why the Europeans didn’t see the writing on the wall with the Riyadh speech, and make preparations to pull back from heavy investment in Iran.

Iran Nuclear deal dispute resolution process

The news yesterday was that Britain, France and Germany have triggered the Iran Nuclear deal dispute resolution process.

Depending on how that pans out, they could encourage the UN to impose sanctions on Iran again.

Triggering the process has been described as an action taken more in sorrow than anger but in recognition that Iran might be less than a year away from having the expertise to develop a nuclear bomb.

Maybe the decision was taken more in sorrow than in anger. But sorrow over what? Sorrow over a confrontation with Iran? That was always on the horizon. Maybe it is over the lost investments in Iran’s infrastructure?

On the bright side for Britain, France, and Germany, maybe they have wound down their deals and minimised their exposure and can afford to do what they should have done a year and a half ago.

The previous Administrations before President Obama’s Administration kicked the can down the road. The Obama Administration sealed the Iran nuclear deal.

The Trump Administration says it was a bad deal because the Iranians had acted and were continuing to act in bad faith. They say Iran has continued to enrich Uranium secretly and was playing the West for fools.

Netanyahu thinks similarly. Of course Israel has to deal with Hezbollah on its border with Syria, and Hezbollah is financed by Iran. The judgement of the Israelis is partially formed by that reality.

Protests Inside Iran

Iranians have been on the streets protesting for months. They complain that their living standards have worsened because of the actions of the regime. With the downing of the Ukrainian airliner the regime is on the defensive. That has given renewed energy to the protesters, and who knows what the tipping point is? We could read tomorrow about regime change or brutal repression. Either is possible.

So where is it all heading? Will sanctions make the Iranian regime fall? If they do, will it happen before Iran gets a bomb?

The Grand Ethiopian Renaissance Dam in Ethiopia is nearing completion. Egypt wants a say in how quickly the dam fills and how much is released and when.

It is easy to see why Egypt would want that control. Egypt has a dam of its own. The Aswan Dam in Egypt, completed in 1970, enables Egypt to even out the water that reaches the land in the Nile Delta. But the Nile in Egypt is downstream, so it doesn’t matter how efficiently the Aswan Dam is managed if not enough water reaches it.

In a word, if Ethiopia holds back on the water it allows down the Nile, It will damage Egypt’s fortunes.

Ethiopia has accused Egypt of hydrological colonialism for trying to control how Ethiopia manages the flow from its new dam.

Egypt says that water that flows through more than one country is an international resource. As such, it must be governed by all the concerned parties.

Electricity

As well as controlling water for agriculture, the turbines powered by the dam’s water outflow will provide electrical power for Ethiopia.

And Ethiopia plans to sell the excess electricity generated to neighbouring countries. The power lines are already going in.

But it is not just Ethiopia, Egypt and water. There may be another player in the game.

Who Financed The Grand Ethiopian Renaissance Dam

Ethiopia funded the dam by issuing bonds to nationals in Ethiopia and Ethiopians abroad. It said is was forced to take that route because Egypt pressured international funders to refuse to back the project.

What is not clear is who financed the turbines. The turbines are a big part of the project and the most technical. They are Chinese built, but who paid for them? China?

There’s a statement in Wikpedia, but no source given:

“the turbines and associated electrical equipment of the hydropower plants costing about US$1.8 billion are reportedly financed by Chinese banks“.

If that statement is true, then it’s perhaps another example of external finance leading to control when the debtor country cannot repay the debt.

China has been accused of it before. And it is, of course, not the only country accused of that.

So maybe it is a race that Ethiopia has to run. It has to increase agricultural production. It has to encourage new projects within the country that consume that electricity. And it has to make money from selling electricity to neighbouring countries.

And to do so while keeping up payments for the turbines.

Last week, Ethiopian Prime Minister Abiy Ahmed was awarded the Nobel Peace Prize.