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CEO Daily: Thursday 25th August

Good morning.


The Treasury Department went on the attack against the European Commission yesterday, trying to stop it hitting Apple Inc. and other U.S. companies with big back-tax claims. In a rare and strongly-worded warning, it said that the Commission’s antitrust department risked unraveling international agreements on taxation and becoming a “supranational tax authority.”


The roots of the problem lie in the EU’s failure, or rather its member states’ refusal, to centralise tax policy. That has encouraged states such as Luxembourg and Ireland to offer sweetheart deals on tax to companies on an ad hoc basis. In a never-ending power struggle between the federalists in Brussels and the governments across Europe, the Commission is now trying to stamp out such practices. U.S. companies such as Apple, Starbucks and Amazon, as the Treasury warned, are the collateral damage.


Yet neither Mr. Lew, nor Messrs. Cook, Bezos et al. should protest too much. When you claim that the ultimate value of your product is in your intellectual property rights, conveniently domiciled in an offshore tax jurisdiction, rather than in the actual capabilities of your hardware in the hands of a consumer onshore, or the actual taste of your coffee in the mouth of that consumer, you are being less than wholly truthful. Whatever the wrong-headedness of the Eurocrats, the companies concerned have brought at least some of their current troubles on themselves.


U.S. administrations throughout the years have urged the EU to become a more complete federation, and the chance of that happening may actually have improved now that the U.K.–always a brake on such designs–is leaving. The flip side of that is that such progress will always be piecemeal and uneven. Yes, the Treasury is right to fear complications in the short term from the Commission’s ruling. It may, however, still be a step towards a more sensible international tax structure in the future.


Geoffrey Smith


(Alan Murray is travelling.)



Top News

• “Thanks for Your Donation; The Secretary Will See you Now…”

The suspicion that Hillary Clinton is the biggest single asset to Donald Trump’s presidential campaign doesn’t go away. The former Secretary of State was again accused of selling influence to Clinton Foundation donors yesterday after freshly-released State Department calendars showed that of all the people outside of government who officially met with Clinton during the first years of her tenure there, more than half (at least 85 out of 154) donated to the family foundation. Contributions adding up to more than $150 million were made either from the individuals personally or through companies or groups. In addition, Clinton met with representatives of at least 16 foreign governments that donated as much as $170 million to the Clinton Foundation. Elsewhere, The Wall Street Journal reported that the Clintons are considering exceptions to its plan to stop accepting corporate and foreign donations, and said that their daughter Chelsea may after all remain at its helm even if Hillary is elected in November. Fortune


Italy’s Earthquake Toll Nears 250

The death toll in Italy’s earthquake rose to at least 247, with more fatalities expected to be confirmed as the grim task of searching for survivors continues. Many more are still thought to be trapped in the rubble of towns such as Amatrice, Pescara del Tronto and Accumoli, where the devastation was greatest. While the immediate focus remains on saving lives, the implications of the quake for Prime Minister Matteo Renzi’s political future are clear: the inadequate response of Silvio Berlusconi to the 2009 Aquila quake, hampered by corruption, contributed a lot to his ultimate fall from favor with voters. Renzi can’t afford any repeat, less than three months ahead of a referendum on electoral reform that he himself has made a vote on his own political future.  Time

Trump’s Immigration U-Turn

Donald Trump softened his stance on illegal immigration, appearing to embrace the kind of more orthodox Republican position that he criticized so bitterly, and to such devastating effect, in the primaries. “They’ll pay back taxes, they have to pay taxes, there’s no amnesty, as such, there’s no amnesty, but we work with them,” he told Fox News’s Sean Hannity. There was no more talk of ‘deportation forces’, but rather an admission that it would be a “very, very hard thing” to deport illegal immigrants who had been in the country for a long time. Some of Trump’s most vocal supporters such as commentator Anne Coulter were dumbfounded by the change of tack. Liberals struggled to contain their Schadenfreude. WSJ, subscription required

Markets Soften Ahead of Jackson Hole

Global stocks and the dollar are both in retreat Thursday morning in a fit of risk-aversion ahead of the Federal Reserve’s annual Jackson Hole symposium. The monetary wonkfest kicks off later Thursday, although markets will have to wait until Friday for Chairwoman Janet Yellen’s speech to see how much, or little, the Fed wants to raise interest rates next month. Blowout data for new home sales have added substance to warnings from New York Fed President Bill Dudley and others, while the low level of volatility in global markets also removes one of the most frequently-cited obstacles to action. As they wait, markets have also been able to brood on a sharp fall in German business confidence in July, apparently in response to the U.K.’s vote to leave the EU. The second reading of Germany’s 2Q GDP on Wednesday had once again shown how much Germany depends on exports for growth. Fortune


Around the Water Cooler

• The  Self-Driving Taxi Arrives…in Singapore

The self-driving taxi is a reality as of today. But it’s not being supplied by Uber, or Google, or Ford or GM, and it’s not in the U.S.. Singapore begins public trialing Thursday of a service provided by the start-up NuTonomy, using specially adapted Renault Zoe or Mitsubish i-MiEV electric vehicles. Passengers will be accompanied by one of the company’s engineers, who can take control of the car if necessary. Uber is expected to follow with a public test of autonomous Volvos in Pittsburgh within a few weeks. NuTonomy, which was spun out of MIT’s research labs in 2013, is backed by (among others) Singapore’s government, Highland Capital and Fontinalis, the venture capital firm of Ford Motor Chairman Bill Ford. Fortune

Mylan Shares Tumble

Shares in Mylan tumbled another 5.4% after Hillary Clinton waded into the brouhaha over its pricing strategy for the blockbuster drug EpiPen. Clinton said there was “no justification” for the fact that Mylan had raised its wholesale price for its anti-anaphylaxis treatment from less than $100 in 2007 to over $600 today (the sight of supportive tweeting from the infamous ‘pharma bro’ Martin Shkreli may also have added to investors’ unease in the circumstances). Mylan CEO Heather Bresch has been in no hurry to apologize: she blames the sticker shock in part on the side-effects of regulation under the Affordable Care Act that encourages the use of high-deductible plans by employers. EpiPen has a virtual monopoly on drugs to treat acute allergic reaction since Sanofi withdrew its competing product last year and the FDA refused to register a generic alternative from Teva. Fortune

HP Bumps Along the Bottom

HP Inc. continues to face challenges during its first year as an independent company. The printer and personal computer giant said Wednesday that its latest quarterly revenue dropped 4% year over year to $11.9 billion. This marks the third decline in quarterly sales since it separated in November from its data center hardware and software sibling, Hewlett Packard Enterprise. The shares fell 5%. Still, there were some positives in the results for the quarter ending July 31. For one, HP said its sales in its unit for laptops and desktop computers remained flat relative to the previous year at $7.5 billion. That HP’s personal computer business didn’t decline is noteworthy considering that the overall PC market continues to plummet. Strong demand for high-end computers from video game enthusiasts was the company’s saving grace, according to CEO Dion Weisler. Fortune

The Labeling is Fake but the Controversy is Real

Things probably haven’t been this exciting in the cotton industry since the Civil War. Monsanto has withdrawn its application for approval of a new genetically modified cotton seed in India, one of the world’s largest but least efficient producers, in protest at efforts to make it share its technology with local companies. Meanwhile on Main Street, the row over allegedly fake supplies of “Egyptian Cotton” from one of India’s biggest textile companies continues to spread: After Target said last week that it was cutting ties to Welspun, Wal-Mart, J.C. Penney and Bed Bath & Bayond have all opened internal investigations too, according to The Wall Street Journal. It all adds up to a big test of India’s reputation, both as a destination for investment, and as reliable supplier to demanding western consumers. Welspun, meanwhile, has lost half its market value since Friday. Fortune