The Rocky Road to Globalization:  Tax codes vary widely from country to country.  International businesses are faced with a conundrum: In order to compete they must level their tax burden across the globe.  This has led to the location of all American companies like Caterpillar and Starbucks in Switzerland.  Luxembourg has been an attractive host to international companies. McDonalds and Fiat are now getting the heat.
Luxembourg is appealing a European Union decision that it made illegal fiscal deals with a Fiat Chrysler Automobiles NV unit, vowing to show that the bloc’s antitrust regulator failed to establish any illegal state aid.

It’s the first challenge to reach the EU courts since the European Commission’s precedent-setting decisions in October that the Italian carmaker and Starbucks Corp. benefited from favorable tax deals by Luxembourg and the Netherlands. Each company was ordered to pay as much as 30 million euros ($32.8 million) in back taxes.

The European Commission “used unprecedented criteria” for its decision that a tax ruling for Fiat in Luxembourg violated state aid rules and put “into jeopardy the principle of legal certainty,” the nation’s finance ministry said in an e-mailed statement Friday. “The commission has not established in any way that Fiat received selective advantages.”

The Grand-Duchy’s decision to appeal comes a day after the Brussels-based watchdog opened a probe into whether McDonald’s Corp. unfairly exploited a fiscal deal with Luxembourg to avoid tax on hundreds of millions of euros in profits for more than half a decade. The McDonald’s case is the third to focus on Luxembourg, adding to the Fiat case and an ongoing probe into tax rulings obtained by Amazon.com Inc.

Luxembourg and the fiscal deals that international companies have received over the years there came out into the open last year, when hundreds of documents were leaked showing that more than 340 companies such as PepsiCo Inc., Ikea Group and FedEx Corp. transferred profits to the country through tax arrangements.

“The vast majority of EU member states use tax rulings to provide legal certainty for the taxpayer,” the finance ministry said, adding it “is strongly committed to tax transparency and the fight against harmful tax avoidance.”

Key points of note re intrinsic value estimates  Udanchoo is a Hindu phrase for flyaway or disappear

Venkat Subramaniam writes: I have calculated the intrinsic value of the operating assets using a DCF method, with source information from company financials (please see at appendix for the intrinsic value calculation for Alibaba, Yahoo Japan, and Yahoo’s Core Business).

The debt, cash, and non-operating assets have been taken from the most recent earnings reports available.

I have applied a 2% discount to Alibaba and Yahoo Japan’s intrinsic value to account for the fact Yahoo Inc’s stake is trapped inside a corporate structure and cannot easily be crystallised. In the Yahoo Inc Consolidated column, I have added up the net value of equity based on Yahoo Inc’s share of equity (15.4% for Alibaba, 35.5% for Yahoo Japan, and 100% for the Core Business).

The value of employee stock options has been calculated using information available from the company financials, and using Black Scholes method.

In conclusion – my value of intrinsic value for the Alibaba and Yahoo Japan business is comparable with the Market Cap for those business; and, after adding Yahoo’s Core Business value, it appears that the market is pricing a 32% discount to intrinsic value. This discount needs to be compared with the estimated tax liability in order to identify any mispricing in the Market.  Yahoo’s Value

The Rocky Road to Globalization

Can we make the same carbon emissions demands on developing countries that we make on mature economies?

Karl Ritter and Seth Borenstein write:  Attempts to inscribe a long-term goal to phase out carbon emissions in an envisioned global climate pact are facing pushback at U.N. talks from big developing countries including India and Brazil.

Negotiators from both countries said Wednesday they favor sticking to the already established goal of limiting global warming to 2 degrees C (3.6 degrees F) above pre-industrial times — a level that scientists say could avoid the worst impacts of climate change.

A joint Brazilian-German declaration in August that backed a “decarbonization of the global economy” while noting that some countries will need financial and technological help to make the transition to cleaner energy.

The long-term goal is one of the issues that split the larger group of developing countries in the climate talks. Oil-rich Saudi Arabia opposes wording calling for a phase-out of carbon emissions, while small island nations that face an existential risk from rising seas are among the strongest advocates. China has largely stayed silent..

Speaking at a NATO conference in Brussels, U.S. Secretary of State John Kerry said he thought the climate talks “got off to an encouraging start” with 150 world leaders — the biggest ever gathering of heads of state and government — attending the opening day. Kerry is expected to join the meeting next week.

However, the talks have made little progress after the leaders left.

Who is on the Oil Cliff?

The Saudi economy is short of cash, prompting both the public and the private sector to cut their expenditures; meanwhile, bank clients are withdrawing their deposits and taking new loans, meaning the economic outlook for the oil-reliant nation is rather gloomy.  Although the Saudi economy hasn’t been badly shaken yet by the decline in oil prices, it has by now lost its development momentum, meaning the nation’s capability to expand oil production is limited. As most Saudi energy projects are bound to falter amid the mounting disinvestment, crude prices will settle at a more stable foundation and the Kingdom will lose some of its historic pricing power.

For Russia, $30 is the number to watch.  Crude prices at that level will push the economy to depths that would threaten the nation’s financial system, according to 15 of 27 respondents in a Bloomberg survey. Lower prices for the fuel are next year’s biggest risk for Russia, which is unprepared to ride out another shock on the oil market, most economists said. Other dangers for 2016 include geopolitics, strains in the banking industry and the ruble, according to the poll of 27 analysts.

The Rocky Road to Globalization

The capitals of the world’s two most populous nations, China and India, were blanketed in hazardous, choking smog on Monday as climate change talks began in Paris, where leaders of both countries are among the participants.

China’s capital Beijing maintained an “orange” pollution alert, the second-highest level, on Monday, closing highways, halting or suspending construction and prompting a warning to residents to stay indoors.

The choking pollution was caused by the “unfavorable weather.”

In New Delhi, the U.S. embassy’s monitoring station recorded an air quality index of 372, which puts air pollution levels well into “hazardous” territory. A thick smog blanketed the city and visibility was down to about 200 yards (metres). Air quality in the city of 16 million is usually bad in winter, when coal fires are lit by the poor to ward off the cold. Traffic fumes, too, are trapped over the city by a temperature inversion and the lack of wind. However, the government has not raised any alarm over the current air quality and no advisories have been issued to the public. Thirty thousand runners took part in a half marathon at the weekend, when pollution levels were just as high.

In Beijing, a city of 22.5 million, the air quality index in some parts of the city soared to 500, its highest possible level. At levels higher than 300, residents are encouraged to remain indoors, according to government guidelines. The hazardous air underscores the challenge facing the government as it battles pollution caused by the coal­burning power industry and will raise questions about its ability to clean up its economy at the talks in Paris. Chinese President Xi Jinping and Indian Prime Minister Narendra Modi are both in Paris and both were scheduled to meet U.S. President Barack Obama on Monday to give momentum to the two­week negotiations. ”

Modi sought to highlight India’s green credentials writing: “The instinct of our culture is to take a sustainable path to development. When a child is born, we plant a tree.” But at Connaught Place, a city centre landmark in New Delhi, people chided the government for failing to minimize the risks to their health from air pollution. “The pollution level is so high it’s just unbelievable,” said Aisha, a 19­year­old student. For Beijing’s residents, the poor air makes breathing hard. This sort of weather, you can see that all of Beijing has been completely enveloped in smog.

Image by Susan Rennie

During the Second World War,70 countries met in 1944 to work out an agreement about monetary policy which would ensure some stability about the War.  The agreement reached in Bretton Woods helped to achieve this goal, until the US stopped supporting the dollar with gold.

Roger Lowenstein writes:   The world’s monetary system moves from tumult to tumult. Europe’s economy is stagnant and menaced with deflation. Greece has flirted both with leaving the euro and with default. America’s economy has fallen into a discouraging pattern of hopeful growth spurts followed by dispiriting slowdowns. Such turmoil has played havoc with world currencies. Late last year, the value of the euro crashed. Earlier this year, the cautious Swiss stunned traders by freeing their currency, permitting it to soar against the euro and raising—sharply—the price of its chocolates and ski chalets for people from Lisbon to Rome. Such volatility has lately been increasing. If, as the Harvard political scientist Jeffry Frieden has asserted, “the exchange rate is the single most important price in any economy, for it affects all other prices,” then global economies have rarely looked so unstable.

Lately, the instability has spread to Asia. Since 2012, the Japanese yen has lost nearly a third of its value. This has enhanced the competitiveness of Japanese products, putting pressure on its Asian neighbors. China’s economy—in recent years the biggest contributor to the world’s growth—is rapidly decelerating. In August, China stunned markets by devaluing its currency. As for the US, the dollar has risen sharply against the euro and other currencies, but this rise has put America’s fragile recovery in jeopardy, by rendering its manufactured products less affordable overseas. And it has spelled bankruptcy for some of the foreign firms that borrowed in dollars (now too expensive for them to repay). A certain amount of gyration among currencies is normal, of course; that is what currencies do. But the instability has been alarming to traders, businesses, and statesmen.

Since the financial crisis, individual banks have been subject to a welter of new laws and regulations, but not so the international monetary system in which they operate. This system serves as a conducting rod for transmitting local disturbances around the globe. Even this metaphor presumes too much, for the international monetary “system” is, in fact, not a system at all. Its various pieces are simply too disjointed. America and most countries in the West permit capital to freely cross their borders. But China, the most important emerging power, tightly controls the movement of capital.

If, say, Coca-Cola wants to build a factory in China, it must apply to the government to exchange dollars for local renminbi. Many other emerging countries maintain weaker, or periodic, capital controls. Some allow their currencies to float; others “peg” them to the euro or the dollar. Switzerland maintained such a peg—until, in January, it didn’t. The dollar is the linchpin—the usual standard for other currencies and for international trade. However, no agreement or formal convention assures the dollar.  The New Financial Order