Good morning. David Meyer here, filling in for Alan.
Yesterday marked yet another setback for European officials attempting to squeeze more taxes out of the big U.S. tech firms operating on their turf.
The European Commission had proposed hitting large digital services companies with a 3% tax on their revenues — not their profits. It was only supposed to be an interim measure, while the EU revamped corporate tax rules to allow profit taxation in the countries where the companies operate, rather than where they are headquartered.
But smaller, low-tax countries like Ireland, where so many tech headquarters are located because of those favorable rates, strongly opposed the Commission’s proposal. France and Germany made a last-minute attempt to rescue the plan by proposing a narrowing of the scope to focus only on digital advertising revenue—a more explicit targeting of Google and Facebook that would have let the low-tax-paying likes of Apple and Amazon off the hook—but finance ministers from around the EU still could not reach agreement on advancing the matter.
Over in the U.S., House Ways and Means Committee Chair Kevin Brady said the Europeans should abandon their plans and “continue working together through the OECD framework on the important global dialogue regarding the digital economy.” That said, the Franco-German proposal—which isn’t dead yet—would only come into force if there’s no international solution to the problem by the start of 2021 (it would expire in 2025.) Consider it a reason for the international community to get moving on the issue.
Ultimately, there is a real problem here that needs solving—borderless digital giants swallow up so much of the market that bordered economies have every reason to fear inadequate tax revenues. But it would be better for all concerned if a solution was reached at a truly international level. After all, Spain and the U.K. are already moving ahead with their own versions of the European plan, and things could quickly get very complicated for the multinationals.
Speaking of international solutions, there’s more good news regarding the U.S.-China trade truce. After instituting new deterrents to intellectual property theft, China is making more conciliatory moves: it’s confirmed the U.S.’s line on there being a 90-day negotiation period, and it’s apparently preparing to resume imports of American liquefied natural gas and soybeans. More goodwill there—how will Tariff Man respond?
More news below.
Yesterday on Wall Street was even tougher than expected—the Dow fell by almost 800 points, as people fretted not only about ambiguities in the U.S.-China trade truce, but also about an inverted yield curve between three- and five-year bonds. Yield curve inversions almost always presage a recession in the U.S. As for today, thus far Asian and European markets have slipped a little. Fortune
Takeda and Shire
Takeda’s shareholders have finally agreed to the issuance of new stock to finance the $58.3 billion takeover of Ireland’s Shire. The deal will make the Japanese drugmaker one of the top 10 globally, by revenue, and give it expertise in rare diseases such as hemophilia. Nikkei
Looks like former national security advisor Michael Flynn will be getting no jail time, or at most very little, for his cooperation with Special Counsel Robert Mueller and his team. Flynn helped out with the long-running Mueller probe into contacts between the Trump campaign team and the Russians, and with another, unspecified criminal investigation. CNBC
A report into the Les Moonves allegations, prepared for CBS by outside lawyers, showed the company’s former CEO tried to cover up allegations about his sexual harassment, and top executives and even board members did nothing to stop him. New York Times
Around the Water Cooler
The shipping giant Maersk intends to be carbon neutral by 2050, it said yesterday. This will rely on developing viable carbon-neutral vessels by 2030, with fuel sources such as biofuels. COO Soren Toft: “The only possible way to achieve the so-much-needed decarbonization in our industry is by fully transforming to new carbon neutral fuels and supply chains.” Reuters
Chanel is becoming the first luxury brand to drop the use of exotic skins such as crocodile and snake, because it’s becoming too difficult to source them ethically. Fur is also on the list, though Chanel is hardly the first brand to walk away from that. The fashion house will now focus on developing new materials from the “agri-food” industry. BBC
German workers are working longer hours but are becoming less efficient, per new figures from the IAB Institute for Employment Research. IAB analyst Enzo Weber: “What we urgently need is quality, not quantity.” Bloomberg
Germany’s human rights chief wanted to visit the Chinese region of Xinjiang, where there are reports of as many as a million Muslim Uygurs being interned, and often abused, in “re-education” camps. China said no. Germany, France and the U.S. have urged China to close the camps. South China Morning Post