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CEO Daily: Thursday, 13th July

Good morning.

A French court handed Alphabet a big victory yesterday, saying it doesn’t have to pay a $1.27 billion tax bill from the French tax administration. The ruling comes after a six-year fight over the fact that Google runs its French ad service out of Ireland, where it can take advantage of favorable tax rates. But the French tax court says Google Ireland doesn’t have a permanent establishment in France, and therefore can’t be taxed there.

The tax maneuvering of U.S. tech companies has become a hot issue in Europe. France’s finance minister on Sunday urged his European counterparts to do more to chase down taxes from the European operations of U.S. tech giants. “I have just come back from the G20 meeting in Hamburg and I can tell you the present age is not one for the weak,” Bruno Le Maire said at a conference. “When you are opposite Putin, Trump or next to Erdogan, then it is time for Europe to get a grip and defend its interests, making Google, Amazon and Facebook pay the taxes they owe European taxpayers.” Apple has the most at stake in this showdown, fighting a $14.8 billion tax bill from the European Union.

Meanwhile President Trump is in France to celebrate Bastille Day with new French President Emmanuel Macron. It’s not clear whether the tax issue will be addressed. While Trump is extremely unpopular in France, Time’s Vivienne Walt says no big protests are planned, in part, because so many Parisians have already left the city for their long summer vacations.

More news below.

Alan Murray


Top News

Yellen Sends Stocks to New Highs

Federal Reserve Chairwoman Janet Yellen told Congress that the U.S. economy is in good enough shape to cope with higher interest rates but said the key Fed Funds rate “would not have to rise all that much further” to reach a neutral level that neither encourages nor discourages economic activity. The dollar hit a six-month low and stocks hit another all-time high on what was perceived as a generally dovish message. They got some further support overnight from Chinese data showing imports and exports running ahead of expectations, a closely-watched measure of the health of the world’s second-largest economy. Fortune

Wray Rebuts Talk of Witch Hunt

Christopher Wray, President Trump’s pick to replace James Comey as FBI Director, rejected Trump’s assertion that the investigation into possible collusion between his campaign and the Russian government last year is a “witch hunt. hunt.” In his confirmation hearing, Wray said: “Any threat or effort to interfere with our elections from any nation-state or any non-state actor is the kind of thing the FBI would want to know.” Elsewhere, it emerged that the Russian lawyer whom Donald Trump Jr. met in June last year, shortly before his father started attacking Hillary Clinton’s history of e-mail mismanagement, may have been in the U.S. illegally at the time. NYT

Lula Gets 9½ Years for Corruption

Brazil’s former President Luis Inacio Lula da Silva was convicted on corruption charges and sentenced to nearly 10 years in jail. The conviction completes a stunning fall from grace for the man who was Brazil’s first working-class president and who won international plaudits for reducing its acute inequality. Although he remains free on appeal, the conviction squashes the left-wing leader’s chances of a comeback in next year’s presidential elections. Fortune

Daimler Diesel Fraud Suspicions Grow

Daimler, the parent company of Mercedes-Benz, is under suspicion of knowingly selling dirty diesel vehicles in the U.S. and Europe for nearly a decade, according to the German Sueddeutsche Zeitung. The company has been on defense about its diesel sales in the U.S. ever since the Volkswagen scandal came to light. In May, it was reportedly looking for criminal defense lawyers in the U.S. after a series of raids at its corporate offices across Germany. SZ said German prosecutors, working together with their U.S. counterparts, suspect Daimler of hiding the use of illicit engine management software from Germany’s type approval body, the KBA. Its shares fell 2% on opening, but recovered most of the ground later.


Around the Water Cooler

Uber’s Retreat From Moscow

Uber agreed to merge its ride-hailing businesses in Russia and five other former Soviet states with those of Yandex, Russia’s local champion in search, mapping and browsers. Uber will get a 36.6% stake in the new venture after fronting up another $225 million. It represents a reining in of Uber’s company’s global ambitions as it grapples with paralyzing leadership and cultural problems at home. It emerged yesterday that head of engineering AG Gangadhar, who headed the department criticized in ex-employee Susan Fowler’s incendiary blog post in February, has left the company, expanding the vacuum in top management. Fortune

Visa Gets Sweet on Smaller Merchants

Visa announced a new initiative to steer Americans away from using cash. It will offer small merchants thousands of dollars to upgrade their payment technology—on the condition that they stop accepting cash. The move represents a shift in the dynamic between merchants and Visa. Smaller merchants have historically preferred cash, complaining that card companies charge too much for processing payments. Visa’s new strategy, however, can also be seen as a defensive move aimed at pre-empting a threat from newer payment technologies, such as those based on blockchain. WSJ, suscription required

Silicon Valley Mobilizes for Net Neutrality

Tech sector giants and a handful of members of Congress staged a “day of action” in defense of the principle of net neutrality, the doctrine that stops internet service providers from blocking or downgrading delivery qualify for content from individual sites. Federal Communications Commission Chairman Ajit Pai has said he intends to repeal the Obama-era rule, which would in theory allow ISPs the freedom to divide the Internet into fast and slow lanes. Among the companies backing Net Neutrality yesterday were Amazon, Netflix, Google, Facebook and Twitter, all of whom are leery of being exposed to higher network charges for their data-hungry services. Fortune

HP Is Back. And the PC Market May Be Soon

HP regained its position as the world’s biggest seller of PCs in the second quarter, according to separate reports from IDC and Gartner. It edged out Lenovo, whose mainly Asian customer base isn’t as quick to upgrade existing machines. The decline in the overall PC market, which has been shrinking at a rate of over 10% in recent years, appears to be flattening out. Sales fell only 3.3% or 4.3% on the year, depending on whether you think a Chromebook counts as a PC. HP bucked the trend with a 6.2% rise in shipments (3.3%, including Chromebooks). Fortune

Summaries by Geoffrey Smith;