Talking Points
- Heavy monsoonal floods killed 220 people in South Asia
- Tens of millions more were displaced in China
- An old conflict between Azerbaijan and Armenia flared up
- The right-wing Andrzej Duda narrowly won reelection in Poland
- The IOC said no Tokyo Games means no Beijing Games either
- The US shattered coronavirus records with 77,000 cases in a day
- A host of celebrities were caught in a bitcoin-fleecing hack on Twitter
- A tech entrepreneur was found decapitated in New York
- A German court said Tesla's self-driving claims are misleading
- OPEC and Russia announced they would start pumping more oil
Deep Dive
A handful of Silicon Valley companies have dispensed with the requirements placed upon them by states. Instead, they operate in a loftier corporate stratum, one that exists beyond the reach of regulators and tax collectors. But in recent years there has been an impetus to rein in such companies, especially in Europe, where antitrust regulators have grown fangs for the FAANGs. But this week a huge court decision left said regulators ashen-faced.
Another bite of the Apple
The image of tax havens that is woven over and over again is one of remote and sun-kissed Caribbean islands with dubious regulators, speedboats, and an embarrassment of linen suits. But reality can be somewhat less glamorous: dreary office blocks in the outer suburbs of Dublin. Most academics concur that Ireland is the biggest tax haven on the planet, at least when measured by the strategy of Base Erosion and Profit Sharing (BEPS) . This fun little acronym describes the now time-honoured practice of moving corporate profits from high-taxing jurisdictions to countries with more amenable arrangements.
The Irish have proven more than willing to host this distortion of the global economy and even had their own name for it, the 'Double Irish'. Without boring you with the details, it involves companies headquartering themselves in Ireland, then licensing their intellectual property to their own divisions in other countries, for the exact sums that their sale of goods in these countries garner. The net effect is to show no profits, and pay no taxes, in those countries.
Apple is arguably the most adept company in the world at using BEPS schemes to circumvent tax bills. It's one factor (among many) that helped create its market cap of $1.6 trillion? In the decade to 2014, Apple used Ireland to shield €110b in profits from tax authorities. But in 2015 it went a step further, and restructured its operation in Ireland (with the blessing of authorities there) to avail of a new cutting edge tax avoidance measure. This new (even more whimsically-named) approach, the 'Green Jersey', involved such a significant restatement of profits that the country's GDP growth had to be recalculated. In nominal terms, GDP rose by 26.3% (although this was later revised upward to over 34%). This was surely the ne plus ultra of tax avoidance. It earned the moniker "leprechaun economics" from the Nobel Prize winning economist, Paul Krugman.
A marathon on hilly ground
Enter Margrethe Vestager. The EU competition chief's investigation into this saccharine sweet-heart deal found that Irish tax authorities had granted exemptions to Apple that were not made available to other corporates, an advantage that ostensibly amounted to state aid. In 2016, Vestager ordered Apple to pay back €13b in taxes to the Irish government (closer to €20b with interest added); the largest corporate tax fine in history. Apple CEO Tim Cook described the decision as "total political crap" and immediately challenged it in court (along with Ireland itself). The sad reality is that Dublin benefits enormously from being the 'bag man' for US companies (they account for 80% of Ireland's corporate tax takings and employ a not-insignificant percentage of the Irish workforce).
This week the second-highest court in the bloc declared that the EU had not proven that the preferential arrangement amounted to state aid, and threw out the fine. Vestager responded to questions on Thursday, "The first thing you do when you get a court judgement is to read it very, very carefully. And we are still in the process of doing that. " Of course, it's a loss, because it was an annulment by the court." Vestager went on, "the fight against aggressive tax planning is a marathon. This is not a sprint. And this marathon, well, it does take place on very hilly ground."
It's a ringing blow for those who seek to close the loopholes that deprive the world of somewhere between $100b and $240b in corporate taxes every year. Furthermore, the ruling highlights the difficult terrain that regulators have to fight on when the very authorities of a tax haven like Ireland configure their own laws in ways that facilitate BEPS schemes. Hilly ground indeed.
Worldlywise
What comes after worse?
What a difference a week makes. Last week it was Washington toying with the notion of banning TikTok, this week it's the White House contemplating travel bans on nearly 100 million Chinese communist party members . Yes, the election year chest-thumping has been ratcheted up another notch . The move seems like throwing red meat before millions of freedom-loving American voters. And in all honestly, there isn't much point trying to discern intent in Donald Trump's actions, beyond winning an increasingly-difficult election . And so the world watches helplessly as one individual seeking reelection choses to do so by antagonising a rising superpower that also sees no benefit in backing down.
The new developments come hot on the heels of Washington passing a sanctions bill that stripped Hong Kong of its special trade status, and imposing travel bans on four Chinese officials over the persecution of Uighur muslims in Xinjiang. These moves were immediately reciprocated with sanctions on a handful of the most bellicose voices on Capitol Hill. US Secretary of State Mike Pompeo also chimed in with his own tidbit, announcing that China had no legal claim to the territories within its nine-dash line. He is correct in saying this. The map Beijing uses to justify historic ownership over, well, all of the South China Sea, holds about as much water as a colander. But apart from the vague allusion that the US will step in to reify its mutual defence pact with the Philippines if Manila ever decides to throw down with the Chinese Navy, the statement's major purpose was just to stir the pot.
Compounding matters even further, Britain formally banned Huawei from its 5G network after an excruciating and highly politicised debate.
Nourishing the Ethiopian renaissance
Everyone had hoped for a resolution to the Grand Ethiopian Renaissance Dam (GERD) dispute by this month. It was no arbitrary deadline: the Horn of Africa's wet season begins in earnest in July, though wet doesn't quite convey the truth of the matter. In the north-western Ethiopian Highlands, July marks the beginning of an intense deluge that swells Lake Tana and sends rainwater roaring down the Blue Nile. That rainwater will, in a non-drought year, make the 6,650km journey down through Sudan and Egypt before entering the Mediterranean. It will cause extensive flooding in both downstream countries – a phenomenon that Egyptians have marked for at least 7,000 years. In modern times it has also brough renewal and sustenance to a heavily over-extracted river that nourishes well over one hundred million people.
That wet season has now begun, but there is still no resolution at hand. Ethiopia has, after nine years, completed construction of its dam and attendant hydroelectric power-plant. The 6.45 gigawatt facility can power millions of homes, creating an energy self-sufficiency that might justify its name. Now, water is flowing , and the dam is filling – a milestone for Ethiopia and a potent symbol of the negotiators' failure . But there are still three issues that defy consensus. First is the speed at which Ethiopia will fill the dam. Addis Ababa's preference is to do it in five years while Cairo's insistence on minimum guaranteed water flows would see it filled over 15 years. The pace has major implications on how much water is released downstream from the GERD. The second pertains to a legally-binding agreement on volumes during multi-year droughts. Third, the strength and enforceability of a dispute mechanism. That an agreement on dispute resolution evades these three countries ought to tell you how likely a broader pact is.
South Africa's Cyril Ramaphosa has sent all three countries back to their respective drawing boards before another hastily-organised conference next week. We sincerely hope that Ethiopia (which, in fairness, holds all the chips) can come to an equitable resolution with its downstream neighbours. Such a framework could provide a blueprint for water disputes the world over. The opposite will tell upriver nations the world over that they can do as they please, and signal to downriver nations that a well-placed missile might be more effective than negotiations.
The Best of Times
Mark's ex, the spot
For a family that ruled Egypt for the better part of three centuries, the Ptolemaic dynasty sure did make themselves scarce afterwards. We haven't found any of the tombs of Ptolemaic pharaohs, which is perplexing considering they were as prone as any dynasty to monumentalising their power, cruelty, or godliness. But the discovery of an intact gold-lined tomb in Taposiris Magna offers 'sensational' new clues in the hunt for the resting place of the final Ptolemaic pharaoh and world's greatest femme fatale, Cleopatra VII. Keep digging!
The future of prosthetics has arrived
It's smart, cheap, bespoke, and 3D-printed .
The Worst of Times
Four Exxon Valdez disasters
A stricken tanker off the coast of Yemen threatens to rupture and spill over one million barrels of light crude – four times as much as the Exxon Valdez – into Red Sea. The FSO Safer , a floating oil storage vessel that in better years serviced the port of Al-Hodeidah, has been neglected since the outbreak of the civil war. Years of negotiations to unload its contents have been undone by intransigence by various belligerents, and more recently, a protracted campaign in the port city itself. Recently, a leak sprung in the engine room, leading to fears of structural failure. This requires immediate international action.
Shooting yourself in the football
This really could be a weekly column in and of itself. The Qatari media group beIN paid a king's ransom for the rights to broadcast the 2018 and 2022 FIFA World Cups in the Middle East North Africa region. Unfortunately for them, a pirate operation run out of Saudi Arabia called beoutQ popped up to stream the 2018 competition with no subscription fees and its own advertising, which cut deeply into beIN's projected revenue. Naturally, Riyadh said it had nothing to do with it, despite this brilliant example of corporate espionage occurring during the height of the Gulf v Qatar blockade . beoutQ, the Saudi outfit, disappeared over a year ago. But this week the Saudis once again jabbed their neighbour, by banning beIN from operating in the Kingdom. Unfortunately for them, this is a sword that cuts both ways. Since beIN also holds the broadcast rights for the English Premier League, the ban also denies Saudis a legal way to watch English soccer. It may even damage the Saudi sovereign wealth fund's bid for Newcastle F.C. Seems like an 'own goal'.
Weekend Reading
The image
The quote
"I alone arranged for my departure. My family had no role whatsoever."
– The infamous escapee Carlos Ghosn tried to shield his family from official scrutiny this week. Unfortunately, he cannot shield officials from the facts.
The numbers
6 tonnes
- The weight of a specific African elephant that was photographed standing next to a wildlife photographer's 4-year-old child. The image sparked an extremely funny and spirited debate about responsible parenting.
21%
- The percentage of Americans elected last year who identified as LGBT+ . That's what progress looks like.
The headline
"'No One Knows What Thailand Is Doing Right, but So Far, It's Working" – The New York Times
The special mention
The big bird that bit Bolsonaro. Brazil's president tried to stave off his coronavirus isolation boredom this week by feeding the rheas that live on the grounds of the Palácio da Alvorada . One of these startlingly-proportioned birds – relatives of the ostrich and emu – made good on that idiomatic rebellion and gave the presidente a bite. These unlikely birds should not be underestimated (Australia fought and lost a brief war against them in 1932).
A few choice long-reads
- Foreign Policy investigates the Seoul mayor's death
- Bloomberg Businessweek adjudicates the cookie fight
- The New York Times encourages you to stop Doomscrolling
EDITOR'S NOTE: We'd like to draw your attention to the fine work being done by David Callaway's team at Climate Insights . David is, as they say, a friend of the show, and we highly recommend subscribing to his climate-focused newsletter. And keep your eyes out for Climate Insights appearing on inkl soon!
Tom Wharton
