Bringing back the Alternative Universe Newswire

It's been a very long time since the Alternative Universe Newswire (AUN) got an airing in this space, but the headlines around the Ireland/Apple/EU tax kerfuffle are so incredible that they almost literally strain credulity.   For a while, Macro Man was sure that he was reading an AUN story when he saw that Ireland was complaining about the EU ruling on Apple's Irish tax.  

The ruling that ordered Apple to pay 13 billion euros.

To the government of Ireland.

The same government that ran a budget deficit of 32% of GDP six years ago.

For sure, Macro Man understands what's going on here.  The Irish want to continue to attract plenty of FDI by offering a "competitive" tax regime.  Forcing one of its crown jewels to actually...er....pay tax is not part of the program.

Of course, the tricky issue is that Ireland allegedly reached a special deal with Apple and Apple alone that allowed them to allocate huge reams of profits to a mythical "head office" that didn't actually exist (and as such, had no tax domicile.)

And so we are left with a real world newsfeed (RWN) that says

"A damning verdict in Apple case leaves Government with little option but to appeal"

whereas the AUN headline says something like

"Gleeful Irish government to expand investment, reach surplus with Apple windfall."

Of course, the American government (no stranger to the arbitrary application of rules to pick winners and losers) has got on its high horse for a moan.   Apparently Jack Lew has conclusive evidence Apple's Irish "head office" can be found on Platform 9 3/4 of Heuston Station in Dublin.   You just have to take your tax invoice and run really hard at one of the walls between Platforms 9 and 10....

In seriousness, there is  a logical inconsistency with the US government's attitude towards taxation.  Recall that the Supreme Court has ruled that corporations are "people" for the purposes of buying government influence making campaign contributions.

So consider that

US corporations are people.

People from the US must pay US tax on their worldwide income, regardless of where they are living.   They are not allowed to use bank accounts in no- or low-tax domiciles to avoid this burden.  If people owe less tax to a foreign country than they owe to the US, even if the money was 100% earned and retained overseas, they must make up the difference to the US Treasury.  If they do not, the US government pitches a hissy fit.

US corporations, who are people for the purposes of giving money to the people who make the rules, can avail themselves of a panoply of rules and tricks to pay little or no US tax (or tax at all).   If they are forced to pay tax on money earned overseas to an overseas government, the US government pitches a hissy fit.

RWN: Europe's "unfair" tax ruling sparks US anger

AUN: Swiss banks' rejection of American citizens as clients sparks US anger

Of course, the AUN is not just applicable to international tax dust-ups...far from it.

RWN: Treasury yields log largest daily drop in nearly two months

AUN: Yields rise again as traders bet on rate hikes

Finally, it's worth noting that while thinking of alternative universe newswire headlines is fun, the exercise is only really worthwhile if there is some sort of ironic play on reality.  Phrases that represent nonsense, puerile fantasy or patent impossibilities are less amusing.  You know, something like

S&P 500 declines again.
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fool_marx
admin
August 31, 2016 at 7:43 AM ×

Well said!

Seeing "The U.S. Treasury Department..said the commission’s actions “could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU."(http://bloom.bg/2c7o6op), I'm struck by the similarity to the language of veiled threats issued by Beijing (a recent example being the Chinese Ambassador to Britain's FT article on the Hinkley Point review).

A letter in the FT (http://on.ft.com/2bAQ3Yq) a few days ago evoked similar sentiments to MM's. Edited highlights:

"One of the greatest sovereign risks facing any company anywhere in the world today is extraterritorial enforcement of US law and regulation, by any of a multitude of American enforcement bodies..

Many of the alleged breaches or offences were committed by non-US companies in faraway countries..

It is the new global taxation, levied on anyone who wishes to do business in the US or to use the US dollar, and it is huge.... In turning its regulators into profit centres, America has kicked off a global and escalating regulatory war that will damage its own companies, alienate its allies... "

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Anonymous
admin
August 31, 2016 at 8:39 AM ×

Ironicaly enought Juncker who's head of the EU, runs exactly the same type of scheme as PM of Luxembourg whose whole economy is based on tax evasion and special agreements with foreign companies.

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checkmate
admin
August 31, 2016 at 9:43 AM ×

And the list goes on ;
Holland do we love to inc in Brazil
Lichtenstein do we love to decline information requests
Swiss as above until more recently ,but not forgetting Various Canton emoluments for the privilege of Inc.
Cyprus, IOM ,Jersey, Virgin Isl , Carrib all squeezed until the pips popped out via various disclosure regs
London ,but your honour global investors just like to invest in property and who are we to deny them !
Mauritius still rollin along
Then we go micro fishing to look at the use of Trusts , fudgy areas of expenses and business/ personal costs and auditor conflict of interest in interpretation of tax law.
Colour me cynic that it's just a matter of opportunity that separates the good guys from the bad guys when it comes to footing the tax bill. I could have talked about political behaviour and tax ,but do we really have to discuss the most cynical behaviour of all?
Personally. I prefer not to take sides anymore when it comes to these types of issues because being accused of wrong doing seems to me to be more just a question of luck ,did you get caught or not. I'll leave the moralistic views to people with more of an idealistic outlook on the species.

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Booger
admin
August 31, 2016 at 12:40 PM ×

I wonder if it is time to short the dollar here.
Even if Dec is a lock in for rate hike, there is buckley's chances of Yellen hiking in Sept at the end of the day, because it is an election year. So the imputed probability of a sept hike will have to go from 30% to zero in the next few weeks.

Why would the Fed talk hawkish when everyone knows this. Because talking tough means they can take it back and that gets spoos most excited and juicing spoos before the election will at the margins help the incumbent party.

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washedup
admin
August 31, 2016 at 12:48 PM ×

I am reading the NY times editorial on the AAPL tax issue and LMAO (excerpt below):

Quite the ninja move by Europe, and in hindsight very rational - it would be truly funny if europe decides to build a number of refugee shelters using $400 BN of american corporate profits as US politicians sit on their a@#es and debate banning muslims. So much for 'slow bureaucrats in Brussels'.


"the Treasury assumes that deferred foreign profits will one day be taxed when it projects future revenues — an important measure of the nation’s fiscal health.

But the money won’t be repatriated and taxed under American law if Europeans, in the course of enforcing their own laws against tax havens, get their hands on it first. And that, in a nutshell, is why members of Congress and Treasury officials are so upset about the Apple ruling. They understand, correctly, that tax-law enforcement in Europe could reduce the sums they expect to collect taxes on someday. What they don’t understand, or aren’t saying, is that they brought the problem on themselves."

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Flowthrough
admin
August 31, 2016 at 2:27 PM ×

As tax lawyer I will make a few comments. US corporations, especially US tech and pharma, are very good at avoiding tax. The reason they can do it is they stuff valuable intellectual property in a low tax country and all the profits end up as royalty payments to low tax country. Starbucks does same things with trademark, act. Banks, oil and other last century companies don't have the same opportunity. For US purposes, low tax royalty company must actually do something, hence the attraction of Ireland.
I do not want to get bogged down in details of rules, but comment re head office really not fair. Key is low tax company owned intellectual property. Now this company was not in Ireland, so did not really pay the low rate Irish tax. My guess is EU said Apple had to pay low rate Irish tax.
No question in my mind Apple followed all the rules and EU just changed the rules. Though that should be expected. European countries historically cared only about VAT revenues, and a bit of avoidance of income taxes by corporations or individuals was tolerated. That has changed.
No question in my mind US Treasury's negative reaction is about tech companies being all in for the dems. Had it been pharma or a GOP administration the US reaction would have been quite different.

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Nico G
admin
August 31, 2016 at 3:01 PM ×

i hate Apple - i'd like to know the % of people who would rather starve than miss the next iPhone - when you have so many incontournable cash cow products, record margins AND you still fight tooth and nail to pay close to zero tax to the USA

if you are so dominant in your industry and so reticent to 'give back' to your country you are just one swine realm of greedy fuckery - if you guys know any solid example of generous community efforts from Apple here and there i'll be happy to change my view

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washedup
admin
August 31, 2016 at 3:50 PM ×

@Nico - none - in fact, a baby once came to their developers conference and I heard Tim Cook slapped her.

Jokes aside, why should apple be a paragon of virtue or held up to a higher standard in any case? The real issue is that american and european corporations have grown too big for everyone's good, and in the name of enhanced productivity and shareholder value have been f@3ng society for two decades (albeit perhaps unintentionally). There is massive corporate inequality but no one really focuses on that as a problem, when its the root cause of the 'other' wealth inequality that people do care about. We can decide whether we want people to stay employed or s&p 500 earnings to grow forever (mind you, small businesses would still be subject to scrutiny, just wouldn't be able to play stupid buyback games because they would be too small to.

There should be a massive tax on all consolidation and M&A, so that firms stay small - 90% of all entrepreneurs, whether good or bad, spend way more time worrying about how the street would perceive them while the gold rush is on - I can guarantee if steve jobs had been told his fortune would be capped at $1 BN instead of infinity, he would still have been just as innovative. I can also vouch from personal experience I was much more productive and happy at small firms than dealing with politics at big banks.

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Corey
admin
August 31, 2016 at 4:54 PM ×

AUNs - "Brussels ruling spurs congress to overhaul corporate tax code."

US corps redirect their focus from tax avoidance to making money.

"Productivity booms in the US"

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Anonymous
admin
August 31, 2016 at 5:08 PM ×

Any thoughts on negative outcome for Merkel in her constituency regional elections? One poll has AfD at 23% v CDU @ 20%.

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Anonymous
admin
August 31, 2016 at 5:14 PM ×

Although I think the discussion on corporate tax is informative, it has little immediate impact on market so far, just look at AAPL price movement.

Now on EM credit markets, I wonder if the success of 4 hedge funds suing Argentina on its bonds has been a strong factor for many pouring money in that segment this year, beside the usual reasons such as currency and yield. For those hedge funds, 300-800% returns for 15 years, it seems to be a good bargain, compared to the yields elsewhere.

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Nico G
admin
August 31, 2016 at 6:39 PM ×

"whether we want people to stay employed or s&p 500 earnings to grow forever "

not mutually exclusive - Apple can still remain crazy profitable AND pay real tax in the US so that the pay off of Apple success goes beyond shareholders onto the society at large - is that so difficult? what is the margin on iphones and Macs again?

and yes wash i heard too that Tim Cook eats babies which is why he won't make any and happier to outsource

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Corey
admin
August 31, 2016 at 6:54 PM ×

Going w 140 for bingo. Emphasis on NFP will prove counterproductive and a low ball number will put us right back where we were. They'd be better served by switching back to calendar guidance and just saying "we'll go in Dec., unless something really bad happens."

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washedup
admin
August 31, 2016 at 6:59 PM ×

@Nico HAHA snap - clearly

If you focus on the big picture, aren't we witnessing a slow reversal of thatcher-onomics and reagan-onomics that was the backbone of fiscal policy for 3 decades - there was race to lower taxes everywhere - in micro-economics terms I feel the LM curve for tax revenue is slowly shifting upwards, so everyone will be at 60% eventually as populations age.

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Anonymous
admin
August 31, 2016 at 7:02 PM ×

I could have been brainwashed by the internet, but I believe that the US tax burden has shifted in greater and greater proportion towards individuals (as in people)vs. corporations. This is the reason I am proposing that all individuals shall be allowed to become corporations. Once every person (and corporation) pays nominal taxes, we'll experience the reality of unaffordable infrastructure upgrades and the lack of necessary government functions. It's a race to the bottom in terms of standard of living, for which we have corporate tax lawyers to thank for leading the way.

Final rant -- if corporations are individuals, let's start putting some of them in prison rather than fining them 0.5% of annual income.

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Up_side_Down
admin
August 31, 2016 at 10:55 PM ×

"fortunes were made at the expense of the working class, by chickanery and a betrayal of democracy." Sound familiar? not now but the late 1800s

Just been enjoying Michael Portillo's American Railway journeys look the the Robber Barons of the Gilded Age. Seems to me that this Apple story shows just the tip of a new "Gilded Age" that makes the first look like a Socialist Tea Party.

Look at the parallels, great disparity of wealth, Govts and Industry in cahoots for the benefits of few,etc... Sad reality is that the gains this time, smarter phones and the like may not deliver the benefits that flowed from the last

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Anonymous
admin
August 31, 2016 at 11:44 PM ×

Merkel's CDU taking a beating at weekend could be more significant than NFP on Friday.

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