Corporate Taxes Poised to Rise After 136-Country Deal

 
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Nearly 140 countries agreed Friday to the most sweeping overhaul of global tax rules in a century, a move that aims to curtail tax avoidance by multinational corporations and raise additional tax revenue of as much as $150 billion annually.

But the accord, which is a decade in the making, now must be implemented by the signatories, a path that is likely to be far from smooth, including in a closely divided U.S. Congress.

The reform sets out a global minimum corporate tax of 15%, targeted at preventing companies from exploiting low-tax jurisdictions.

Treasury Secretary Janet Yellen said the floor set by the global minimum tax was a victory for the U.S. and its ability to raise money from companies. She urged Congress to move swiftly to enact the international tax proposals it has been debating, which would help pay for extending the expanded child tax credit and climate-change initiatives, among other policies.

“International tax policy making is a complex issue, but the arcane language of today’s agreement belies how simple and sweeping the stakes are: when this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living, or scale a business,” Ms. Yellen said.

The agreement among 136 countries also seeks to address the challenges posed by companies, particularly technology giants, that register the intellectual property that drives their profits anywhere in the world. As a result, many of those countries established operations in low-tax countries such as Ireland to reduce their tax bills.

The final deal gained the backing of Ireland, Estonia and Hungary, three members of the European Union that withheld their support for a preliminary agreement in July. But Nigeria, Kenya, Sri Lanka and Pakistan continued to reject the deal.

The new agreement, if implemented, would divide existing tax revenues in a way that favors countries where customers are based. The biggest countries, as well as the low-tax jurisdictions, must implement the agreement in order for it to meaningfully reduce tax avoidance.

Overall, the OECD estimates the new rules could give governments around the world additional revenue of $150 billion annually.

The final deal is expected to receive the backing of leaders from the Group of 20 leading economies when they meet in Rome at the end of this month. Thereafter, the signatories will have to change their national laws and amend international treaties to put the overhaul into practice.

The signatories set 2023 as a target for implementation, which tax experts said was an ambitious goal. And while the agreement would likely survive the failure of a small economy to pass new laws, it would be greatly weakened if a large economy—such as the U.S.—were to fail.

“We are all relying on all the bigger countries being able to move at roughly the same pace together,” said Irish Finance Minister Paschal Donohoe. “Were any big economy not to find itself in a position to implement the agreement,  that would matter for the other countries. But that might not become apparent for a while.”

 

Congress’ work on the deal will be divided into two phases. The first, this year, will be to change the minimum tax on U.S. companies’ foreign income that the U.S. approved in 2017. To comply with the agreement, Democrats intend to raise the rate—the House plan calls for 16.6%—and implement it on a country-by-country basis. Democrats can advance this on their own and they are trying to do so as part of President Biden’s broader policy agenda.

The second phase will be trickier, and the timing is less certain. That is where the U.S. would have to agree to the international deal changing the rules for where income is taxed. Many analysts say that would require a treaty, which would need a two-thirds vote in the Senate and thus some support from Republicans. Ms. Yellen has been more circumspect about the schedule and procedural details of the second phase.

Friction between European countries and the U.S. over the taxation of U.S. tech giants has threatened to trigger a trade war.

In long-running talks about new international tax rules, European officials have argued U.S. tech giants should pay more tax in Europe, and they fought for a system that would reallocate taxing rights on some digital products from countries where the product is produced to where it is consumed.

The U.S., however, resisted. A number of European governments introduced their own taxes on digital services. The U.S. then threatened to respond with new tariffs on imports from Europe.

The compromise was to reallocate taxing rights on all big companies that are above a certain profit threshold.

Under the agreement reached Friday, governments pledged not to introduce any new levies and said they would ultimately withdraw any that are in place. But the timetable for doing that has yet to be settled through bilateral discussions between the U.S. and those countries that have introduced the new levies.

Even though they will likely have to pay more tax after the overhaul, technology companies have long backed efforts to secure an international agreement, which they see as a way to avoid a chaotic network of national levies that threatened to tax the same profit multiple times.

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The Organization for Economic Cooperation and Development, which has been guiding the tax talks, estimates that some $125 billion in existing tax revenues would be divided among countries in a new way.

Those new rules would be applied to companies with global turnover of €20 billion (about $23 billion) or more, and with a profit margin of 10% or more. That group is likely to include around 100 companies. Governments have agreed to reallocate the taxing rights to a quarter of the profits of each of those companies above 10%.

The agreement announced Friday specifies that its revenue and profitability thresholds for reallocating taxing rights could also apply to a part of a larger company if that segment is reported in its financial accounts. Such a provision would apply to Amazon.com Inc.’s cloud division, Amazon Web Services, even though Amazon as a whole isn’t profitable enough to qualify because of its low-margin e-commerce business.

The other part of the agreement sets a minimum tax rate of 15% on the profits made by large companies. Smaller companies, with revenues of less than $750 million, are exempted because they don’t typically have international operations and can’t therefore take advantage of the loopholes that big multinational companies have benefited from.

Low-tax countries such as Ireland will see an overall decline in revenues. Developing countries are least happy with the final deal, having pushed for both a higher minimum tax rate and the reallocation of a greater share of the profits of the largest companies.

 
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SoftBank Makes First Saudi Deal Together With Wealth Fund’s Unit

SoftBank Group Corp. has made its first investment in a company based in Saudi Arabia, partnering with a unit of the kingdom’s sovereign wealth fund to lead a $125 million financing for customer communication platform Unifonic.

Proceeds will be used to fund growth in the Middle East and expansion into Asia and Africa, Unifonic co-founder and Chief Executive Officer Ahmed Hamdan said in an interview. The company will also look at acquisitions in those regions to help it expand faster, he said.

The Unifonic deal is funded through SoftBank’s Vision Fund 2, and follows on from July’s $415 million fundraising by Dubai-based cloud kitchen startup Kitopi, which was SoftBank’s first in a business based in the United Arab Emirates and took that company’s valuation past $1 billion. Last month, it also co-led a financing round for Turkish e-commerce company Trendyol.

SoftBank’s foray in the Middle East comes with a growing number of so-called unicorn businesses worth at least $1 billion. More investors from outside are looking to bet on a shift to online services that has lagged other regions.

Read more on SoftBank’s deals in Middle East and Africa:

Swvl, a Dubai-based provider of mass transit solutions, said in July it expects to list on Nasdaq in a combination with special-purpose acquisition company Queen’s Gambit Growth Capital, with an implied equity value of about $1.5 billion.

Unifonic provides cloud-based software to send automated messages. As the pandemic spread, businesses turned to these services to send one-time passwords or shipping updates to customers. The company processed 10 billion transactions last year, charging a small fee for every message it sends to customers.

Hamdan declined to comment on the latest valuation, but said the company is forecasting sales for the year of more than $100 million and will start planning a listing on a global exchange in the next three years.

“Being able to attract one of the top international funds to invest in Saudi Arabia is a big milestone that will encourage more foreign direct investment to come into the digital and technology space,” Hamdan said. “We will optimize to list on a global market that can provide the best valuation.”

STV, Sanabil

Founded by Ahmed and his brother Hassan Hamdan in 2006, Unifonic was largely self-funded for the first decade. It raised $21 million in 2018 led by STV, a $500 million venture fund established by Saudi Telecom Co.

Sanabil, a unit of Saudi Arabia’s Public Investment Fund, was also an investor in the company. The PIF, as the wealth fund is known, put $45 billion into the first Vision Fund, which backed many of the largest technology startups including Uber Technologies Inc., Opendoor Technologies Inc. and DoorDash Inc.

“Over the next five years, we see the business growing by 10 times,” Hamdan said. “So we could process 100 billion transactions, impact 400 million people, and potentially be working with 50,000 companies.”

The valuation of Twilio Inc., which operates a similar business and is listed on the New York Stock Exchange, has more than tripled to almost $60 billion since the pandemic forced more transactions to move online.

By:

Source: http://bloomberg.com

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Here’s Why A Standoff Between Oil Producers Is Fueling Surging Gas Prices

Oil Prices Hit Historic High On Weak Dollar

As oil prices spike to a nearly three-year high, a bitter disagreement between international oil producers has shattered hopes for a deal to increase oil production this year—thereby threatening to further hike up rising oil and gas prices as a broad economic reopening looks to ramp up travel demand.

Key Facts

Following two days of fraught discussions last week, the group of oil producers known as OPEC+ called off an afternoon meeting Monday and set no date to meet again, effectively suspending a planned agreement to raise output by 2 million barrels per day from August to December

Two unnamed sources told Reuters the failed negotiations mean the expected production hikes this year will no longer occur.

The price of U.S. oil benchmark West Texas Intermediate—at about $75.31 a barrel—jumped 1.3% Monday after the news and has climbed 5% over the past week’s disagreement, while the price of the United Kingdom’s Brent Crude ticked up 1.1% and 4%, respectively.

The United Arab Emirates, which has invested heavily in its oil production capacity, refused to move forward with the deal because it would also extend oil production cuts through late 2022.

Though the UAE wants to raise its output unconditionally, Saudi Arabian oil producers, who supported the agreement, argued the extended output cuts are necessary to prevent excess oil supply that could tank prices.

The production increase was meant to help curb rising oil prices and buy producers time while they assess the risk of rapidly spreading variants in countries like India once again hurting demand and shuttering economies.

Big Number

60%. That’s how much the price of WTI oil has surged this year alone, while the price of Brent Crude has climbed about 50%.

Tangent

Oil prices crashed last year but recouped all their pandemic losses by March, and they’ve surged roughly 20% higher since. After cutting production by about 10 million barrels per day last year, oil producers are still supplying about 5.8 million fewer barrels per day than before the pandemic. Most recently, OPEC+ in early June agreed to increase oil output by 450,000 barrels per day starting this month.

Key Background

Despite the easing of lockdowns and an accelerating vaccine rollout, producers have been careful to ramp up supply after excess inventories drove prices down to negative territory for the first time in history last spring. That happened after an all-out price war erupted between oil-producing giants Russia and Saudi Arabia in March 2020—just as travel demand began to plummet during the coronavirus outbreak.

Costly-to-maintain storage tanks soon filled up with no buyers, and the price of one American oil futures contract plunged below zero in April 2020. OPEC and its allies agreed to cut production in order to stabilize prices amid the turmoil, but according to the International Energy Agency, those inventories are still being worked off to this day.

Further Reading

OPEC+ resumes oil policy talks amid Saudi-UAE standoff (Reuters)

Oil Producers Agree To Boost Production By 450,000 Barrels Per Day As Travel Picks Up (Forbes)

OPEC Plus Agrees To Ramp Up Production By 500,000 Barrels Per Day Starting January, Ending Bitter Standoff In Bid To Save Oil Prices (Forbes)

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I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at jponciano@forbes.com. And follow me on Twitter @Jon_Ponciano

Source: Here’s Why A Standoff Between Oil Producers Is Fueling Surging Gas Prices

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References

Brent Oil Extends Gain as OPEC+ Talks End Without Supply Deal

Brent oil extended gains after OPEC+ ended days of talks without a deal to bring back more halted output next month, depriving the market of vital barrels as the global economic recovery gathers pace.

Futures in London traded above $77 a barrel after rising 1.3% on Monday. The failure to reach an agreement means current production limits will remain in place for August unless talks are revived. A disagreement over how to measure output cuts upended a tentative proposal to boost supply and devolved into a public spat between allies Saudi Arabia and the United Arab Emirates.

The situation is fluid and negotiations may be reactivated in time to add more output in August. However, the breakdown has damaged the group’s image as a responsible steward of the market and raised the specter of a repeat of last year’s destructive price war that sent oil crashing.

“In theory, if the group keeps output unchanged in August that should be bullish for the market,” said Warren Patterson, the head of commodities strategy at ING Group NV. “However, in reality, what is the likelihood that members actually keep output unchanged? I don’t think it’s very high.”

The global market has tightened significantly over the past few months amid a robust rebound in fuel demand in the U.S., China and parts of Europe, draining stockpiles built up during the pandemic. The International Energy Agency last month urged the OPEC+ alliance to keep markets balanced as worldwide demand accelerated toward pre-virus levels.

The market has moved further into a bullish structure after the breakdown of talks. The prompt timespread for Brent was 99 cents a barrel in backwardation — where near-dated contracts are more expensive than later-dated ones — compared with 87 cents on Friday.

OPEC+ had restored about 2 million barrels a day halted during the pandemic from May to July. The alliance was close to a deal to raise daily output by a further 400,000 barrels in each month from August through December, as well as extend the supply pact beyond April 2022. The UAE, however, said it would only accept the proposal if it was given better terms for calculating its quota.

The UAE said throughout that it would accept the output increase without the deal extension, but the Saudis argued that the two elements must go together.

Related news
Prices
  • Brent for September settlement rose 0.4% to $77.48 a barrel on the ICE Futures Europe exchange at 12:02 p.m. in Singapore.
  • West Texas Intermediate for August delivery gained 2% from Friday’s close to $76.69 on the New York Mercantile Exchange.
    • There was no settlement Monday due to a U.S. holiday.

With no imminent boost to OPEC+ supply, the market is likely to tighten further and could result in Brent climbing to $80 a barrel by September, according to UBS Group AG. It’s unclear if the no deal will translate into lower compliance rates next month, although the the release of Saudi Aramco’s official selling prices for August should provide more clarity, the bank said.

— With assistance by Keith Gosman

 

LVMH Says It’s Not Seeking To Buy Tiffany & Co Shares On The Market As Doubts Are Cast On The Deal

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French luxury conglomerate LVMH said it will not buy up shares of Tiffany & Co on the market in a bid to get a lower price for the American jeweler, as the company is seeking to renegotiate its $16.2 billion deal for the retailer hard hit by the coronavirus crisis.

KEY FACTS

The world’s most valuable luxury brand secured a deal to acquire Tiffany & Co in a deal that valued the company at $16.2 billion in November 2019.

But the biggest ever luxury deal now looks to be on the rocks as LVMH is reportedly seeking to lower the agreed price.

Sources close to negotiations told Reuters that LVMH CEO Bernard Arnault is now looking to convince Tiffany & Co to lower the price of $135 per share agreed in the deal.

LVMH discussed the takeover in a board meeting this week, with management said to be concerned about the coronavirus crisis, the economic fallout and unrest in the U.S. weighing on consumer demand for luxury goods.

LVMH is reportedly concerned about Tiffany’s ability to repay its debt obligations.

The luxury conglomerate, owned by billionaire Arnault, said in a statement on Thursday: “Considering the recent market rumours, LVMH confirms, on this occasion, that it is not considering buying Tiffany shares on the market.”

Key background

LVMH’s acquisition was seen as yet another bid for the conglomerate to strengthen its foothold in the U.S. But the deal, which was expected to close mid-2020, is likely to be reconsidered. Tiffany shares plunged 9% on Tuesday after a WWD report suggested the luxury conglomerate was considering backing out of the $16.2 billion deal in pursuit of a cheaper price. November’s deal followed weeks of negotiations between Arnault and Tiffany’s, after Arnault initially made a bid of $120 per share.

What to watch for

Tiffany’s Q1 results are out on Friday.

Tangent

Merger and acquisition deals have slowed dramatically amid the coronavirus crisis, which has forced businesses to close and focus on staying afloat.

Further reading

M&A Activity Plunges, It Could Get Much Worse As Coronavirus Hits Markets And Prevents Face-To-Face Meetings (Forbes)

Louis Vuitton Owner LVMH Buys Tiffany For $16.2 Billion (Forbes)

Full coverage and live updates on the Coronavirus

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I am a breaking news reporter for Forbes in London, covering Europe and the U.S. Previously I was a news reporter for HuffPost UK, the Press Association and a night reporter at the Guardian. I studied Social Anthropology at the London School of Economics, where I was a writer and editor for one of the university’s global affairs magazines, the London Globalist. That led me to Goldsmiths, University of London, where I completed my M.A. in Journalism. Got a story? Get in touch at isabel.togoh@forbes.com, or follow me on Twitter @bissieness. I look forward to hearing from you.

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CNBC’s Robert Frank joins “Squawk on the Street” to discuss French luxury group LVMH’s offer to buy Tiffany at $120 per share.

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