Financial Transaction Tax/Corporate Tax Inversions

May 10, 2014

Part 1

Senator Finance Committee chairman Ron Wyden, a Democrat, said he wants to make it harder for U.S. companies to move their headquarters abroad to lower their taxes for inversion deals that take place on or after May 8, 2014.”

“A recent bid from drug-maker Pfizer Inc to acquire AstraZeneca Plc, renewed attention on corporate inversions. The potential deal would allow U.S.-based Pfizer to re-domicile in Britain to take advantage of a significantly lower corporate tax rate there.Crash_Zeppelin_LZ18_(LII)

In April, days after the potential Pfizer deal was made public, the Obama administration said it was seeking ways to curb inversions.”

Its becoming more difficult to provide welcoming tax haven arms to lure MNC’s and others to our shores with financial services provided by the IFSC. Greater regulation of the tax avoidance shenanigans of corporates is on the cards.

Financial Transaction Tax

Concerns about jobs at the IFSC and concern MNC’s may wish to relocate to other jurisdictions are behind Ireland’s opposition to FTT. It’s also likely the question of FTT has not been sufficiently grasped by the Department of Finance. Much as Department of Justice ignored alarms from whistleblowers through reliance on advice from Callaghan, Department of Finance relies on advice from stakeholders in the banks both political and otherwise.

In its opposition to FTT Department of Finance is in need of some serious overhaul. It will be a matter of some unsurprise (my word) if deficiencies in the Department of Finance are found by the oncoming banking inquiry to be of such gravitas to have led us to such debacles such as the ill-fated ‘Guarantee’. We shall see.

On Europe’s side FTT is seen as a way to dismantle Ireland’s status as a tax haven, a financial weapon of mass destruction, a tax haven luring companies to Ireland with low tax rates and low corporation tax. It’s not so much the MNC’s that are of concern here but the vast array of shelf companies many no more than a post box that avail of IFSC services. Regulation of financial trading abuses could spell the end of financial services reliant on global freedom from regulation.

In Ireland’s case this could see the departure of IFSC clients to London to avail of freedom from regulation.

It’s ironic our membership of the euro prevents us from going the way of sterling. London’s capacity to reject this tax and place London’s financial services on a better competitive edge  to Dublin behoves the question whether we should have joined the sterling area rather than the eurozone.

Such exodus could stir  opportunity to reject odious debt, leave eurozone, rejoin sterling as our difficulties deepen under our weight of indebtedness as we escape the toxic brand of the euro.

We need a worldwide financial transaction tax.

Rigging of the Global Financial system

The FDIC filed the lawsuit on behalf of 38 banks which went bankrupt at the peak of the downturn in 2008, as a considerable part of the losses for these banks were incurred on interest-rate derivative products sold to them by the bigger banks. As the bigger banks were in a position to influence the benchmark rates in a manner suitable to them when the crisis hit, the losses on these products were exaggerated for the failed banks, including Washington Mutual and IndyMac. The lawsuit names U.S.-based banks Bank of AmericaJPMorgan Chase and Citigroup, as well as other globally diversified banking groups as well as the British Bankers’ Association which oversaw the LIBOR fixing process at the time.”

Can real markets survive the  financialisation of the ‘real economy’  masquerading as the new real? The global financial system has many more balls to keep in the air and risk of slippage is increasing rather than falling. Quantitative Easing, subprime lending, rigging of the derivative market, skyrocketing stocks and shares as the real global market undergoes austerity, now has another market manipulation device in rigging of the price of gold:

Throw into the mix accusations of the fixing of global currency rates

One is reminded of the plot of Clash of The Titans(Simpsons)250px-Dump

 Mayor Quimby denounces him for spending the Sanitation Department’s yearly budget of $4.6 million in only a month. To solve the budget crisis and pay the workers for their services, Homer gets cities all over the United States to pay him to mash their excess garbage into the abandoned mine shaft on the outskirts of Springfield. The rest of the family warn Homer that this will be endangering the town, but he claims there is nothing to worry about. Eventually, despite the budget crisis having ended and the workers receiving their salaries as promised, the garbage builds up underground and begins to erupt, pouring trash all over the town. At a town hall meeting, Homer gets fired from his post and replaced with Ray Patterson, but Patterson declines reinstatement to the position, expressing his amusement at them “wallowing in the mess [they] made.” With no one else to fill for Sanitation Commissioner to clean up the trash, Quimby then takes extreme measures by moving the entire town five miles down the road from its current site, but Lisa points out that even though they are transplanting Springfield, they will just start littering again when they finish moving.”

Those Searching for Plan B

With a failed Department of Justice, proposals to seriously undermine education by doing away with the Junior Cert, proposals to fill GP waiting rooms with free health care for the under 6 yrs paid for by austerity for the majority, selling off resources such as water heading for an Enron Californian Energy nightmare; hapless failure to deal with odious debt foisted on us by the troika, will gravity bring about the inevitable? Ruinous plans of the previous administration have not only been compounded, but have been exponentially made worse by the present administration.They have no plans other than making hay (jobs) while the sun disappears behind the clouds of austerity.

Direct supervision and stress testing of banks in Germany has been watered down with the news it will be limited to banks with more than €30bn and the Sparkassan are happy.

Stress testing of banks in 2014 with growing austerity, low inflation could be a watershed. Its becoming more difficult to keep the financial Zeppelin balloon in the air. Not all is bad, fears of the consequences of financial Armageddon have seen the hawks depart from confrontation over Ukraine and efforts to find a solution have found renewed impetus.

The problem with the global financial system is a systemic one.

Tobin proposed:

The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations. The idea is very simple: at each exchange of a currency into another a small tax would be levied – let’s say, 0.5% of the volume of the transaction. This dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties’ crises in Mexico, Southeast Asia and Russia have proven. My tax would return some margin of manoeuvre to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets.[3][4][5][6][7]

Given 10 EU member states already have a form of a financial transaction tax in place, the proposal would effectively introduce new minimum tax rates and harmonise different existing taxes on financial transactions in the EU. According to the European Commission this would also “help to reduce competitive distortions in the single market, discourage risky trading activities and complement regulatory measures aimed at avoiding future crises”.

It’s a useful device that would put a spanner in the works in many of the financial algorithms in software used by the TBTF banks to raid financial markets.

Overhaul of world financial markets is long overdue. Very little progress has been achieved though many support change:

“The Obama administration leans to the first view, saying the crisis showed the vulnerability of the financial system to activities beyond the scope of regulation. Part of its remedy is to standardize most derivatives, instead of relying on the arrangements many companies favor, which users negotiate privately with banks. The administration would force trading of those standardized derivatives more into the open, in some cases onto exchanges, with settlement handled by clearinghouses.

The administration isn’t alone. The Group of 20 major economies last year supported trading standardized derivatives on exchanges by the end of 2012.”

This is 2014 More of this in Part 11  ……..(next time)



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