Category Archives: Economic

Britain, Business, Economic, Finance, Government, Legal, Politics, Society, Taxation

Amazon’s tax advantage is economically unfair. Time to put a halt to it…

 

TAX LOOPHOLES

The age of the internet has brought colossal benefits to many large, multinational companies. No more so than for Amazon, a distribution giant. The company has earned very lucrative revenue streams, but has managed to deftly reduce its corporation tax bill through skilful use of tax loopholes. Last year, Amazon paid just £4.2 million in UK corporation tax, despite generating UK sales of £4.3 billion. The firm has been heavily criticised because it has now emerged that it avoided paying billions of pounds in tax last year by funnelling revenue of £11 billion through an overseas company based in Luxembourg. Amazon is also reported to have received a financial inducement and rebate amounting to £4m from the authorities in Luxembourg as part of the controversial arrangements.

This is all the more startling considering Amazon has received more than £10m in financial assistance from the Scottish Government, with the company opening a logistical distribution hub in Dunfermline, alongside its customer call centre in Edinburgh.

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Striking the right balance between competitive rates of Corporation Tax to attract foreign direct investment such as this while ensuring companies pay their rightful share is a difficult and complex area for politicians of all parties. Whilst Amazon’s avoidance causes public anger, governments have to take into account the investment the company has made in a country and the employment which that investment has created. Amazon may well argue that it would not have invested if it had been discouraged from exploiting this position.

A low rate of Corporation Tax which the UK offers in comparison to other countries is generally attractive for foreign firms wishing to make direct investment. But such schemes should also encourage companies like Amazon to pay and reduce the incentive for elaborate avoidance schemes of this sort. The loopholes provide too much of an economic and financial advantage for many large multinational firms. These require to be reined in through tighter political scrutiny and more exacting and better enacting of legislation.

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China, Economic, Foreign Affairs, History, Politics, Russia, Society, United Nations, United States

The new and emerging Russia-China pact bodes ill for the United States…

GEOPOLITICAL STRATEGIC TRIANGLE

It was in 1972, at the height of the Cold War, when President Nixon made his impromptu (but famous) visit to China in an attempt to normalise relations with Beijing. His aim was for the United States to gain an advantage over its superpower rival, the Soviet Union. In recent days, Russia’s Vladimir Putin made his journey to China. The countries in this geopolitical strategic triangle may be the same, but their roles are far different from what they once were.

Transformation in Russia, the successor state of the former Soviet Union, has been huge. Moscow is a diminished power now and not the threat it once posed. The US, the only remaining superpower, is also in decline, at least in relative terms. But this trend in turn reflects the emergence of China, almost dormant 40 years ago, but now accepted as being a mighty global force on the world stage. China’s economy is soon expected to surpass that of the US, and many economists suggest that China’s currency poses a serious challenge to the US dollar, the world’s main currency reserve.

In the 1970s, the odd man out in the triangle was Moscow. Now, though, Presidents Putin and Xi Jinping are trying to forge an alliance that will cut the US down to size.

Symbols of intent are apparent in this new and emerging joint partnership. The launch of the current joint naval exercises, for example, was attended by both leaders. And, far more importantly, is the massive 30-year deal signed this week for the sale of Russian gas to China. This will start in 2018, but the deal also contains contractual terms which allows for substantial Chinese investment in Russia’s infrastructure. The agreement will provide a new outlet for the energy exports on which the Russian economy largely depends. More broadly, Moscow’s orientation is being seen as part of a ‘pivot to Asia’, with a focus on deepening ties with the East (rather than the West).

The driving force and logic behind this new alignment has been accentuated when we consider the sharply deteriorating relations between America and its emerging eastern superpower rivals. In the case of Moscow, the annexation of territory in Ukraine has raised tensions with the West to levels not seen since the Reagan era. Ongoing difficulties have generated a fear of a looming second Cold War, which are by no means fanciful. Mr Putin’s unconcealed ambition to restore a de facto Russian empire continues to fuel such suspicions.

China and the United States, economic and increasingly geopolitical rivals, could well be described as being at loggerheads. Notwithstanding Beijing’s perceived expansionism in South-east Asia, which has brought it into direct conflict with several close American allies in the region, this week’s announcements of unprecedented criminal indictments in the US against Chinese military officials for cyber spying has raised the political stakes even further. Not surprisingly, Beijing has referred to a major setback in relations with Washington, while simultaneously proclaiming that relations with Moscow have never been better.

In some respects, however, this Sino-Russian rapprochement may make little difference. Economically, Russia needs China far more than the other way round: not just as an export energy market, but also as a source of vital capital.

When Russia’s economy is slowing and tensions over Ukraine threaten future financing and investment by the West, having Beijing as a strategic partner could unsettle relations with the West much further. China is already increasingly supportive of Russia’s position on Ukraine and, with both countries being permanent members of the United Nations Security Council, with the right to exercise the power of veto, the prospects of resolving the crises in Syria and elsewhere seems remoter than ever. Between them, too, they could also make it even harder to secure a satisfactory nuclear deal with Iran. Whichever way we turn, the loser in this changing eternal triangle of geopolitics is the United States.

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Britain, Economic, Europe, European Union, Financial Markets, G7, Government, Politics, Russia, Society, Ukraine, United States

Ukraine: Imposing tougher sanctions on Russia is needed…

UKRAINE

Intro: Sanctions, if stringent enough, could bring pressure to bear on Vladimir Putin

A strongly worded statement by the heads of the G7 leading nations condemning Russia for provoking civil unrest in eastern Ukraine was met with pro-Russian militias kidnapping eight international observers. The statement given, largely as a result of diplomatic protocol, said the G7 leaders ‘have now agreed that we will move swiftly to impose additional sanctions on Russia’. But the response of the pro-Russian activists and gunmen seems to be illustrating the clear ineffectiveness of applying any kind of western sanctions policy on the ground.

Some may well argue that to be the case. We should, however, be clear. Sanctions, if stringent enough, could bring pressure to bear on Vladimir Putin. Pragmatically, there is a limit to what the United States and the European Union can actually achieve.  The guarantors of Ukrainian independence and territorial integrity are not only down to the wishes of the western axis and what they hope for, but also of Russia given its close historical connections in so many different ways that it has with the country.

Travel bans on Russian officials and other minor irritations imposed on Russia are so far much weaker than they could have been, and on this a dichotomy of reasons has been laid bare. On the positive side, a reason for the less than tenuous sanctions applied will be that much of the EU, including Germany, is wholly dependent on Russian gas. Though there has been talk of the US diverting some of its rich supplies of shale gas to Europe in reducing this dependence, to instigate such an operation has neither been practical nor affordable.

On the downside, the reasons are perhaps cowardly. Governments, for instance, including our own, have been sensitive to business lobbying, particularly from those Russian oligarchs who would be severely punished if sanctions were tightened. Last month, a government document was caught on camera by a photographer as an official of the British government was about to enter Downing Street. It suggested that the UK should ‘not support, for now, trade sanctions … or close London’s financial centre to Russians.’

The G7 statement was notable for its absence to specify in detail what ‘additional sanctions’ might or could be. Yet, whilst not mere cowardice that has prompted EU governments to hold back from tougher measures, there is a principled argument, albeit slightly cynical, that Mr Putin is doing so much damage to the Russian economy through his own actions that he needs no help from the West in making it any worse. Mr Putin’s nationalist adventurism has certainly seriously eroded his country’s economic interests. Indeed, if trade and other financial sanctions were imposed, it would allow the Russian president to blame ‘the West’ for Russia’s hardship rather than his own folly.

The problem for Mr Putin now is whether he realises that he is biting off more than he can chew. If he tries to assimilate populations into Russia who do not want to be assimilated he will only add to Moscow’s predicament and costs. Although the West should not have accepted Crimea’s annexation without a fight, its population is mostly Russian. Eastern Ukraine is entirely different; the region is quite against Russia’s interest to incite separatism there.

The historical cynic would no-doubt quote Napoleon and say that the West should not interrupt their enemy when he is making a mistake of this magnitude. Financial markets, for example, have already downgraded Russia’s credit rating to just above junk status. Mr Putin’s assertion of Russian power may have won him the support of his domestic audience at home meantime, but this could well change once the bills start arriving.

Given that Mr Putin’s rhetoric is already turned-up against the West, blaming the fall of Ukraine’s government on US and NATO-backed ‘fascist elements’, the notion that Britain, the EU and the US should hold back for fear that the Russian leader would blame us fails to persuade. Sanctions do not always work, that’s true. But they can work, and there is no other option open to those protagonists who support Ukraine’s independence and integrity. Now that Moscow’s proxies have started to abduct and hold hostage international observers, harsher economic pressure remains the best hope of bringing Vladimir Putin to his senses. There is no good reason for not upping the ante on Russia.

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