Russia brings WTO complaint over ‘illegal’ US sanctions – Medvedev
RT | June 20, 2014
Moscow intends to present a complaint to the World Trade Organization (WTO) claiming ‘politically motivated’ US sanctions that target local companies are hurting Russian external trade and violate WTO rules, Prime Minister Dmitry Medvedev said on Friday.
“Unilateral politically motivated sanctions are illegal from the point of view of classic international legislation, they do not meet public order requirements as they ignore WTO’s statute mechanism of constraint,” the Prime Minister told an audience at the St. Petersburg International Legal Forum.
In their latest round of sanctions, the US has tried to target Russia’s economy by forbidding business with certain organisations, as well as asset freezes on individuals believed to be close to Russian President Vladimir Putin.
“Such sanctions violate WTO rules, including the most favored nation status, as they show discrimination to service providers and suppliers from another country and violate restrictions of the second article of the WTO’s General Agreement on Trade in Services,” Medvedev said.
Europe, though hesitantly, has followed the US sanction march and produced its own Russian business blacklist.
Bilateral net trade between the two former Cold War enemies is relatively small – at $38 billion in 2013, but Russia is more worried about continuing good trade relations with Europe, which amounted to $330 billion last year.
Medvedev said the US sanctions will affect Russia’s external trade, adding he understood that challenging the sanctions at the WTO “will be difficult because the US has both doctrinal and practical authority in the organization.”
Russia, the world’s sixth largest economy, became the 156th member of the WTO in August 2012, the last of the G20 nations to join.
The 159 member WTO group account for 97 percent of global trade.
Rough and Polished: South Africa Shortchanged on Diamond Trade
By Khadija Sharife | 100Reporters |May 16, 2014
JOHANNESBURG – At every step, from mine to ring finger, South Africa’s diamond industry is benefitting from royalty and export tax structures riddled with loopholes, shortchanging citizens of one of the world’s premier sources of diamonds of tens of millions of dollars a year in revenue.
In 2011, South Africa produced diamonds whose uncut, or rough, value was $1.73 billion, or 12 percent of global production, according to the most recent government data available. Yet from 2010 to 2011, diamond-producing companies paid South Africa’s government just $11 million in mining royalties, according to the latest Tax Statistics report, produced by the South African Treasury and the South African Revenue Service.
A 100Reporters investigation of the diamond trade in South Africa has found that companies here pay a royalty rate far lower than that of other African states. Companies can also reduce or cancel out export taxes if they offer locally-mined diamonds to the state for purchase—even if the South African government never buys the gems, often due to formidably high prices.
In an apparent conflict of interest, De Beers Consolidated Mines Ltd., the dominant player until 2010, ‘donates’ paid staff to the State Diamond Trader, charged with assessing diamonds offered by De Beers and other companies to the State for purchase. Provided 10 percent of domestic diamonds are offered, these companies may then receive export tax exemptions.
The main beneficiary of a system tilted in industry’s favor is De Beers, the sprawling multinational cartel that accounts for 35 percent of global rough diamond production, mainly from Africa. Until recently, De Beers dominated the South African diamond industry.
In 2011, De Beers accounted for $1.34 billion of South Africa’s production, and it remains the country’s primary diamond importer and exporter. The only other significant player, Petra Diamonds, with whom De Beers controls 97 percent of the local diamond industry, neither imports nor exports.
From 2005 to 2012, diamond exporters, primarily De Beers, appear to have downplayed the market value of their rough diamond exports by $3 billion, according to an analysis* of declarations in corporate filings under the Kimberley Process Certification Scheme, the rough diamond tracking system used to keep conflict gems off the world market. The same undervalued gems were then sold at market prices around the world.
Lynette Gould, head of media relations for De Beers, declined to comment on the findings, or to address questions about the valuation, sales and import and export volumes of diamonds from South Africa. In an email, Gould wrote that the “values and volumes of De Beers production is . . . proprietary.”
A Broken System
To ensure that the government gets its share of revenues from the extraction of the country’s diamonds, the South African government relies on a national agency, the Government Diamond Valuator (G.D.V.), charged with determining the quality, and thus worth, of diamonds. But highly-placed sources in the diamond industry said that the G.D.V. seldom issues independent assessments of the country’s diamonds, opting instead to echo the valuations that De Beers puts forth in the company’s price lists.
“The gap between the industry’s presence in South Africa and its contributions to the country’s coffers has its roots in how diamonds are valued in South Africa and who controls the process,” said Claude Nobels, a former government diamond valuator.
“We had a plan to create a system, under the Nelson Mandela government, that would generate fair revenues for all parties involved,” Nobels told 100Reporters. But to date, “the diamond mining and trading industry has not truly benefitted South Africans. The loss to the state is billions of dollars,” he said.
Calculating diamond revenue losses to the South African budget is complicated by a dearth of data, particularly concerning how diamonds are valued. Valuation, in turn, drives royalties and export taxes, as well various forms of tax exemptions. For example, companies can receive credits for importing diamonds to be cut and polished in South Africa, which in turn may reduce or even cancel export taxes.
Until 2012, government reports on diamonds generally showed blank spaces rather than reveal value and volume of local and export sales. Reports for other commodities such as gold and platinum, however, teemed with data. Martin Kohler, Deputy Director of Statistics for the Department of Mineral Resources (D.M.R.), said the government withholds diamond data to protect big producers, the largest among them De Beers, unless the companies authorize the release of the information.
“De Beers, who had a predominant share of the diamond market in the past, authorised us to publish the aggregated production data only (but not sales data),” Kohler said in an email. According to Kohler, the recent sale of De Beers’s mines to other owners meant that, “the predominant position of De Beers has been diluted, and we are able to publish sales data with effect from January 2013 (but not before that date).”
Kohler said such information was strictly confidential “where one company has more than 75 percent market share, or where there are less than three producers of a mineral, unless all such producers have granted permission to publish the data.”
In November 2013, the company moved its sorting, valuing, and selling center to Gaborone, Botswana from London. According to a knowledgeable source, the South African government pressured De Beers to shift sales activities to Africa, specifically South Africa. De Beers caved in to the pressure but preferred Botswana as a partner. The company signed a ten-year agreement relocating global production sales to Gabarone. South Africa, wary of being seen as a domineering neighbor, acquiesced, the source said.
“Bricks in the Wall”
To understand South Africa’s diamond industry and the system of taxation that now governs it, it helps to look to the industry’s origins, which are synonymous with De Beers. Historically, the apartheid regime cultivated close relations with South Africa’s diamond industry. John Vorster, an apartheid-era prime minister, once described corporate support from De Beers and other large companies as “bricks in the walls of the regime’s continued existence.”
De Beers was formed in 1888 by colonialist Cecil Rhodes and acquired by Ernest Oppenheimer’s Anglo-American in the 1920s. By 1987, Anglo-American PLC controlled over 60 percent of the wealth listed on the Johannesburg Stock Exchange, through an estimated 80 listed entities.
Despite its dominant role in the global diamond trade, De Beers has a history of running afoul of the law in important markets. In 2008, the European Union forced De Beers to end decades of price fixing with Russia’s Alrosa, another dominant diamond producer. At the time, De Beers controlled 50 percent of global rough diamond production.
Meanwhile, for more than 60 years, De Beers was banned from directly trading in the United States because of price fixing, despite the fact that the U.S. accounts for half the world’s diamond jewelry sales. In 2012, a settlement of $295 million was reached between the U.S. government and Anglo-American, which currently owns 85 percent of De Beers.
In South Africa, De Beers functioned in a protected niche even after the end of apartheid. For instance, it paid no export taxes on diamonds until 2007. According to Parliamentary documents, De Beers extracted the advantage in a twist worthy of a B-movie: for years, it held the government at bay by citing a smudged, unsigned document generated under the apartheid regime, just prior to the first democratic elections, that allegedly provided the company with an export tax exemption for 13 years.
Further, extractive industries in South Africa, including diamonds, did not pay royalties until 2010, with the adoption of the Mineral and Petroleum Resource Royalty Act.
Royalties
According to the African Development Bank, South Africa was the “only major mining country on the continent without a royalty on mining” until the act’s passage. To address the gaps in the system, the act mandated that companies pay royalties at rates ranging from 0.5 to 7 percent. Royalties, calculated against criteria such as gross sales and the company’s net operating mining profits, are compensation to the nation for the permanent loss of non-renewable resources.Yet in crafting and applying the royalty rate, the diamond industry, rather than the South African government, has had the upper hand.
Take the rate itself, for example. Botswana and Namibia, major diamond-producing states, have royalty rates fixed at 10 percent. Yet because of its sliding royalty scale, South Africa averages an annual royalty rate of about 2 percent, which netted the government a total of $57.5 million from 2010 to 2012.
“The revenues from diamond royalties are very low – just 1.1 percent of sales for 2011,” said Mark Curtis, a U.K.-based development finance consultant for global non-governmental organizations. “If diamond companies paid the mid-royalty range of 3.5 percent, royalties would have amounted to $24.8 million more than the state actually received,” he said.
The explanatory draft of the act originally pegged royalties at 10 percent of the value of diamonds at the ‘mine-gate’ and at 8 percent after processing. But the government reduced the rate following pressure from the diamond industry. Created around a complex profit-based system, royalties are considered a “cost” by business, and depend on the value of minerals sold.
Clarity Lacking
Though diamonds are valued by their clarity, the same cannot be said of South Africa’s diamond industry or its largest player, De Beers.
Unlike other South Africa diamond companies, De Beers does not allow the government to publish key information about the value of the diamonds it extracts. As a result, the state and the public cannot verify the fairness of the royalty De Beers ultimately pays.
In addition, to determine the value of a diamond, DeBeers and other companies use complex and closely-held pricing formulas, that they do not permit the government to review. De Beers’s pricing formula counts 12,000 categories.
According to one European valuator who worked closely with De Beers, the company’s price book was not a single listing, but rather an “elaborate system used to value diamonds for different purposes. By manipulating various categories with price points, they can increase or decrease the value of diamonds . . . These figures have nothing to do with fair market prices.”
Speaking on behalf of De Beers, Gould said, “I’m afraid the information on pricing is proprietary and therefore confidential.”
Other companies also maintain proprietary pricing systems. In an email, the Government Diamond Valuator confirmed that it did not “have access to the pricing policies of other diamond companies,” but asserted that the Government Diamond Valuator assessed “each parcel imported or exported to determine a value deemed to be fair market value.”
However, highly placed sources in the diamond industry, including a former government valuator, said the G.D.V.’s relies on random spot checks, and verifies only the size of diamonds, not their quality. One official close to the Department of Minerals and Resources confirmed that mispricing of diamonds was easily possible due to what was considered the “very subjective nature of pricing.”
Export Taxes
In 2007, the South African government established an export tax of 5 percent on diamonds. But from 2009 to 2013, according to the latest Tax Statistics report, it yielded only $21.9 million to the national purse.
The state has pulled in little revenue due to exemptions built into the 2007 Diamond Export Levy Act. The exemptions were created ostensibly to encourage mining companies to make quality diamonds available to domestic industry, before shipping abroad. Companies that offer rough diamonds to local buyers for cutting and polishing, or beneficiation, through a government mechanism called the State Diamond Trader system can obtain breaks on export taxes.
Large companies like De Beers can get the exemption if they sell 40 percent of their South African rough diamonds to buyers in South Africa, and offer 10 percent to the State Diamond Trader.
The State Diamond Trader, however, often cannot afford to purchase rough diamonds because the price is too high. The trader’s annual reports disclose that purchasing diamonds for the local beneficiation industry was difficult due to, “unsustainable rises in prices at producer level” and “limited rough supply.”
De Beers further provides fully-paid staff to the trader to conduct diamond valuation, according to reports of the State Diamond Trader, which describe the presence of De Beers staff at the government agency as a “donation.”
In an email, De Beers said, “the arrangement between De Beers and the S.D.T. is subject to confidentiality and information relating to this arrangement cannot be provided without the S.D.T.’s consent.”
Futhi Zikalala, C.E.O. of the State Diamond Trader, told 100Reporters that each parcel was individually valued. “The process is legislated. We do valuations for the 10 percent offered to the S.D.T. It takes four or five days at a time, with 10 cycles a year.”
Asked whether she would comment on the apparent conflict of interest in the State Diamond Trader’s long-standing use of De Beers’s donated staff, she responded, “Actually, no. I do not understand why you are asking that question.”
A source close to the Department of Mineral Resources said that use of De Beers’s staff was for practical reasons: the S.D.T. was under-resourced and in need of diamond experts.
In October 2013, the Minister of Minerals Resources, Susan Shabangu, said that the State Diamond Trader system had failed and would require an overhaul.
Transfer Pricing
Companies can also win export tax exemption if they import rough diamonds for local beneficiation. The higher the value of the imported gems, the greater the import credits a company can generate to ultimately offset their export taxes, creating a system vulnerable to price manipulation.
But the arrangement appears to have done little to nurture domestic cutting and polishing industry. According to figures cited in a South African parliamentary report (2013), South Africa currently hosts just 300 polishers, down from 3,000 in 2008, when 140,000 carats, maximum, were locally beneficiated (see sidebar).
The report cited diamond industry officials who stated that the local cutting and polishing industry was “in distress.” While the 2008 recession had impacted the global diamond industry everywhere, beneficiation industries elsewhere–including India, China and neighboring Botswana–bounced back, even expanding training facilities as well as cutting and polishing labor. In 2013, African Romance, a medium-sized state-backed beneficiation diamond company, was liquidated. Reasons cited included the absence of consistent quality diamond supplies.
Until 2013, De Beers exported gems from its mines in Namibia, Botswana and South Africa to London for valuation and then imported them into South Africa for sale to select buyers called sightholders. The sales values declared to sightholders are confidential, the company said.
South Africa boasts curiously high import prices for diamonds. While higher import values are said to correspond to the quality of select rough diamonds, South Africa’s import price appears significantly more than the price of diamonds imported to other countries such as Israel, arguably one of the world’s leading gem quality cutting and polishing centers.
For example, South Africa’s average import prices, at $544 in 2009 and $773 in 2010, were significantly higher than Israel’s at $165 and $156, respectively, according to certificates filed under the Kimberley Process.
In 2007, South Africa’s import price hit a staggering $1,706 per carat with a total import value of $2.1 billion. Yet only $670 million would be sold to De Beers’s pre-approved South Africa-based purchasers, known as Diamond Trading Company (D.T.C.) sightholders. Though these figures were published in a De Beers report, when asked for annual D.T.C. local sales, Gould responded that the information was proprietary.
According to a diamond specialist previously employed by the South African government, who spoke on condition of anonymity, import and exported diamonds were often “mispriced” by an average of 20 percent or more.
The other countries with similarly high import averages were those where De Beers also held a large presence, such as Namibia.
“South Africa’s import figures are improbable,” said a European Government Diamond Valuator. “These prices are exceptionally high as an average price.”
Most imported diamonds appear to be re-exported uncut and unpolished. While imports make up relatively small volume, or carats, they drastically increase the value of rough diamond exports. Subtracting the values and volume of imported diamonds shown on South Africa’s K.P. certificates from corresponding exports, the actual price per carat of rough diamonds being exported for the first time falls dramatically.
When asked about the anomalies in reported trade figures for diamonds under the Kimberley Process (K.P.) in South Africa, where De Beers is a dominant player, Gould responded, “The primary purpose of the K.P. process (or the issuing of the certificates at least) is for Governments to certify the origin of diamonds, not to keep track of the volume and value of diamonds imported or exported; that is the function of the relevant Regulator and G.D.V.”
The Government Diamond Valuator
While the Government Diamond Valuator is responsible for independently appraising gems and for monitoring the trade in diamonds, it remains questionable whether the South African valuator is able to provide an independent assessment. Such assessments are critical for the South African government, and public, to secure royalties and export taxes that reflect the true worth of the country’s diamond trade.
Former De Beers director Bertie Lincoln, in a rare quote under oath to a South African court 17 years ago, described the Government Diamond Valuator as “an auditor. The value is the price which is in the [De Beers] Price Book. So the government valuator has got no input into the value of a diamond.”
The Government Diamond Valuator did not respond to follow-up questions about the source of information informing the G.D.V.’s Price Book, the size of the agency or office, the amount of time available for valuation of imported and exported diamonds, and other questions.
“The significant differences between the dollar-per-carat for South African rough diamond imports and exports suggest possible price manipulation for the purposes of aggressive tax avoidance,” said public finance specialist, Len Verwey. Companies like De Beers, he stated, may indeed have a plausible explanation, in which case, “diamond companies as well as the Government Diamond Valuator should provide more transparent reporting to society on the factors that determine such valuations.”
Verwey stated that the Government Diamond Valuator’s credibility “in ensuring fair market value for diamond transactions is essential to its success.”
But critics of South Africa’s current royalty and taxation system are skeptical that the government will impose greater transparency on De Beers and other major producers.
“Inevitably,” stated one former De Beers employee, “the company will stonewall and the G.D.V. will run a mile” from transparency and accountability in the diamond valuation system.
He added, “No one will want this brought into the open.”
*The information on transfer pricing manipulation of diamonds comes from a report by Sharife and Sarah Bracking, published by the Leverhulme Center for the Study of Value, University of Manchester, and supported by a grant from Oxfam Great Britain.
Khadija Sharife is the lead Africa forensics researcher for Investigative Dashboard (ID) and a senior investigator for African Network of Centers for Investigative Reporting (ANCIR). She is the author of Tax Us If You Can: Africa.
French arms sales rise by 42%
MEMO | June 17, 2014
Defence Minister Jean-Yves Lodrian said on Monday that French arms sales increased by 42 per cent or €6.7 billion in 2013 compared to 2012 and are expected to exceed seven billion Euros this year. Lodrian was speaking during the opening of the Eurosatory 2014 arms fair in the Paris suburb of Villepinte.
France recorded a strong comeback in the Middle East market, said Lodrian. The region is responsible for generating 40 per cent of France’s total exports and it has also increased its presence in the Asia and Latin America markets.
In 2013, France’s biggest contract was an agreement to renew the Saudi Arabian navy’s fleet of ships, worth €500 million; a contract to sell a communication satellite to Brazil is worth €300 million.
The minister pointed out that French exports of munitions for use by armoured vehicles grew by 5 per cent in 2013. He noted that the Scorpion programme to update light weapons will soon be launched at the cost of five billion Euros over ten years.
“This means that future equipment will include more than 2,500 armoured vehicles connected to each other by sophisticated electronic systems,” said Lodrian. “The Scorpion programme will allow the Leclerc tank to be in use until 2040.”
Eurosatory 2014 will enable French industrialists “to improve their exports”, the minister added. Nearly 1,500 exhibitors from 58 countries are taking part in the arms fair, which lasts until Friday.
Violence in Iraq Means Profits for Beechcraft, Lockheed, Raytheon and other Weapons Makers
By Steve Straehley | AllGov | June 16, 2014
U.S. companies are reaping big benefits from the Iraqi government’s battle with ISIS militias. Three sales, including some big-ticket items, announced last month will put nearly $1 billion in the pockets of American defense contractors if Congress approves the sales.
- Beechcraft Defense Co. and eight other contractors are selling 24 AT-6C Texan II aircraft, plus spares and other equipment to Iraq. That deal is worth about $790 million. The plane is used for “light attack and intelligence, surveillance and reconnaissance.”
- AM General has a deal to send 200 of its venerable Humvees to help guard oil installations. The contract, which includes spares and equipment such as radios and machine gun mounts, is worth $101 million.
- Raytheon has a $90-million deal for seven aerostats along with 14 Rapid Aerostat Initial Deployment (RAID) Tower systems to be used for command and control by the Iraqi military.
These are just the latest in a string of sales of military equipment to the Iraqi government. Others have included Stinger missiles, C-130J cargo planes, drones and patrol boats.
Since 2005, the U.S. government has provided more than $14 billion in military hardware, services and training to Iraq, according to Global Post. The Iraqi government is now requesting more equipment to battle the Sunni militias, which have taken over large swaths of the country, and American contractors stand to make even more money as the fighting progresses.
To Learn More:
Pentagon Plans To Deliver $1B In Weapons Systems To Iraq. Even Blimps. (by Jill R. Aitoro, Washington Business Journal )
These Are The 9 Weapons The U.S. Is Selling Iraq (by Allison Jackson, Global Post )
Forgotten by Most Americans, Iraq is Still a Source of Profits for U.S. Weapons Makers (by Noel Brinkerhoff, AllGov )
China receives gas from Central Asia via new pipeline
The BRICS Post | June 16, 2014
China, the world’s largest energy consumer, has started receiving natural gas transported through the newly constructed Line C of the crucial China-Central Asia gas pipeline network on Sunday, state media reported.
Gas transported through Line C, which is now operational, successfully reached the Horgos Port in China’s Xinjiang province on Sunday.
Line C is over 1,800 kilometers long and runs parallel to lines A and B, with the pipeline network showing Beijing’s growing clout in Central Asia as it seeks resources for the Chinese economy.
China imports about 20 bcm of gas from Turkmenistan, about half of its total gas imports, and the two countries signed an agreement last year to ramp up gas exports to 65 bcm by 2020.
Central Asia is seeking new export routes for the fuel as transport routes to Europe via Russia are now in question following the EU sanctions on Moscow over Ukraine.
China’s first large international pipeline for imported natural gas, the China-Central Asia line starts at the Turkmenistan-Uzbekistan border before passing through central Uzbekistan and southern Kazakhstan before entering China.
From Horgos in Xinjiang, the pipeline then connects with China’s West-East pipelines, to deliver natural gas across the country.
Trade between China and Central Asia has increased from about $500 million in 1992 to $26 billion in 2009, according to official Chinese figures.
The Central Asia-China gas pipeline runs all the way from China’s east coast cities to Galkynysh field, a distance of 6000 miles as it sources energy from major energy producers Turkmenistan, Kazakhstan and Uzbekistan.
China’s energy giant CNPC also plans to integrate Afghanistan into this energy network.
TBP and Agencies
Egyptian security forces seize Brotherhood members’ assets
MEMO | June 16, 2014
Egyptian authorities yesterday seized two supermarket chains owned by two prominent Muslim Brotherhood members.
Judge Wadee Hanna, the secretary of a government committee charged with identifying and managing Brotherhood assets, said the committee had decided to seize the supermarket chain Zad, which is owned by the detained Deputy Supreme Guide of the Muslim Brotherhood, Khairat Al-Shater. The committee also seized Seoudi, another chain owned by businessman Abdulrahman El-Seoudi.
The government formed this committee after a decree declared the Muslim Brotherhood a terrorist organisation and ordered the confiscation of its assets.
“The decision to seize [the two chains] came after it was proven that the two businessmen who belong to the Muslim Brotherhood are involved in funding the group’s activities,” Hanna said.
“We received an order from the committee to seize the chains, Zad and Seoudi, and we just went and took them,” a security source said.
Al-Shater’s daughter Aisha said a large number of security forces stormed all the branches of the chain that her father owns as well as the chain owned by the Seoudi family yesterday.
“They confiscated all contents of some of the stores and emptied other stores of their goods,” Aisha told Anadolu Agency.
Anadolu could not obtain an immediate response to these accusations from the Egyptian Interior Ministry. Members of the Seoudi family could not be reached for comment.
Ali Kamal, a member of the legal committee of the Muslim Brotherhood movement, told Anadolu that “confiscation should be done at a legal level, not by damaging the contents inside the stores”.
Kamal noted that the stores are owned by individuals, not by the Muslim Brotherhood as an organisation.
Al-Shater has been in jail since July 6, 2013, on various charges, including inciting violence.
Before the January 25 revolution erupted in 2011, Al-Shater had been detained for six months for a total of 12 years.
In September, an Egyptian court banned the Muslim Brotherhood and all affiliates in Egypt and ordered the confiscation of all of its assets.
Corporate tax dodging another capitalist innovation
By Pete Dolack | Systemic Disorder | June 12, 2014
Competition takes many forms in capitalism. Financial engineering by corporations to avoid paying taxes is one aspect of this competition — under the rigors of market competition, evading responsibility is an innovation to be emulated.
The magnitude of tax evasion on the part of multi-national corporations through one channel — the shifting of profits to countries and territories with low or nonexistent taxes — was quantified earlier this month by the U.S. Public Interest Research Group Education Fund and Citizens for Tax Justice. Their study, “Offshore Shell Games 2014,” reports that the 500 largest U.S.-based multi-national corporations have squirreled away almost US$2 trillion in profits that lie untouched.
An estimated $90 billion a year in federal income taxes are not paid through the creative use of subsidiaries set up in offshore tax havens.
The Cayman Islands and Bermuda are favored locations, although other tax havens such as Hong Kong, Ireland and Switzerland are frequently used. The report illustrated the preposterous number of corporations with sham “offices” in the Cayman Islands:
“Ugland House is a modest five-story office building in the Cayman Islands, yet it is the registered address for 18,857 companies. … Simply by registering subsidiaries in the Cayman Islands, U.S. companies can use legal accounting gimmicks to make much of their U.S.-earned profits appear to be earned in the Caymans and pay no taxes on them. The vast majority of subsidiaries registered at Ugland House have no physical presence in the Caymans other than a post office box. About half of these companies have their billing address in the U.S., even while they are officially registered in the Caymans.” [page 4]
The Cayman Islands has a corporate tax rate of zero. Not a cent. The government there raises revenue through taxes on imports (thus a consumption tax for the people who live there as virtually everything must be imported), but, as an added bonus should any corporate executive stop by to visit the company post office box, luxury goods such as diamonds are exempted. Bermuda also has no corporate tax.
U.S. tax laws allow profits earned abroad to remain untouched until the money is brought into the country. Profits booked in other countries are instead subject to the local tax rate, even if zero. Accounting, rather than geography, often controls what constitutes “offshore” profits, however. The “Offshore Shell Games 2014” study reports that:
“Many of the profits kept ‘offshore’ are actually housed in U.S. banks or invested in American assets, but registered in the name of foreign subsidiaries. A Senate investigation of 27 large multinationals with substantial amounts of cash supposedly ‘trapped’ offshore found that more than half of the offshore funds were invested in U.S. banks, bonds, and other assets.” [page 5]
Corporate money is “off shore” if the corporation says it is
A 2013 report in The Wall Street Journal revealed that many corporations, including Microsoft Corp. and Google Inc., “keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities.” Under federal tax law, those funds are “offshore” and thus exempt from taxation.
Microsoft, in its fiscal year 2013 filing with the U.S. Securities and Exchange Commission, said its funds held by its foreign subsidiaries are “deemed to be permanently reinvested in foreign jurisdictions.” It said, “We currently do not intend nor foresee a need to repatriate these funds.” It pays to be a monopoly in more ways than one.
A sampling of corporate highlights, according to “Offshore Shell Games 2014”:
- Bank of America reports 264 subsidiaries in offshore tax havens, more than any other company. The bank would otherwise owe $4.3 billion in U.S. taxes on the $17 billion it keeps offshore.
- Nike officially holds $6.7 billion offshore for tax purposes, on which it would otherwise owe $2.2 billion in U.S. taxes. Nike is believed to pay a 2.2 percent tax rate to foreign governments on those offshore profits.
- Apple holds more money offshore than any other company — $111.3 billion. It would owe $36.4 billion in U.S. taxes if these profits were they not offshore for tax purposes. Two of Apple’s Irish subsidiaries are structured to be tax residents of neither the U.S. (where they are managed and controlled) nor Ireland (where they are incorporated), ensuring no taxes are paid to any government.
- Google increased the amount of cash it reported offshore from $7.7 billion in 2009 to $38.9 billion. An analysis found that, as of 2012, the company has 23 tax-haven subsidiaries that it no longer discloses but continues to operate.
- Microsoft increased the amount of money it held offshore from $6.1 billion to $76.4 billion from 2007 to 2013, on which it would otherwise owe $19.4 billion in U.S. taxes. The company is believed to pay a tax rate of three percent to foreign governments on those profits.
You pay when corporations don’t
These arrangements don’t benefit working people in the tax havens. After Ireland’s then prime minister, Brian Cowen, announced that the government would assume all the debts of Ireland’s three biggest banks, he negotiated for what became an €85 billion bailout. In doing so, he demanded, and received, only one concession: There would be no increase in corporate tax rates, which are less than half the level of Ireland’s sales taxes. Taxes on incomes, cars, homes and fuel, however, did rise to pay for the bailout.
Critics, the authors of the “Offshore Shell Games 2014” study not excepted, propose various reforms and tend to discuss this issue in terms of morality. That massive corporate tax dodging is odious from any reasonable ethical standard is indisputable, but reducing it to immorality completely obscures the larger structural problems.
In the relentless competition fostered by capitalism, any successful innovation must be matched by competitors. Such an innovation could be a new production technique but also includes measures to lower costs. If production is moved to a location with low wages and little or no safety and environmental regulations, the boost to profits for the company that does this has to be matched by competitors that otherwise would become uncompetitive and/or fall into disfavor with financiers.
Financial engineering to avoid paying taxes is another boost to profits, and thus a competitive advantage. Other corporations, under the rigors of competition and the ceaseless necessity of expansion and pressure to increase profits, are compelled to copy these innovations.
However much we might wish to morally condemn such behavior, the personality of corporate executives is irrelevant. Expand or die is the remorseless logic of capitalism, and the executive who doesn’t do everything possible to maximize profits will soon be replaced by someone who will.
Nike, to provide an example, proudly announced that, in the past 10 years, it had “returned over $15 billion to shareholders through dividend payments and share repurchases” and assured it would provide more in the future. Nike’s shareholders’ report made no mention of what the company does to extract that money — through brutally exploitative sweatshop labor, paying workers less than a minimum wage set well below subsistence level in places where complaining leads to beatings or firings and striking lands you in prison. And by not paying taxes.
As a second example, Bank of America reported that it paid $3.2 billion to buy back its stock in 2013, money spent to boost its stock price and give extra profits to speculators. (Stock bought for this purpose is paid for at a price higher than the current stock-market value.) That money was available thanks to the billions of dollars it didn’t pay in taxes.
Reforms are good, but reforms can and are taken back when the pressure for them relents, and ultimately leaves the system that rewards such behavior untouched.
Ukraine to halt gas imports from Russia
The BRICS Post | June 14, 2014
Ukrainian Prime Minister Arseny Yatsenyuk has ordered a halt to natural gas imports from Russia from June 16 after the two countries failed to resolve their gas price dispute, the Ukrainian government said Friday.
“By its deliberate unilateral refusal to settle the conflict, Russia has been undermining the energy security of Ukraine and the European Union,” Yatsenyuk was quoted by the government press agency.
Yatsenyuk had also instructed the country’s Justice Ministry and state-run energy company Naftogaz to complete preparations to file a lawsuit with the Stockholm arbitration court over the dispute, the press service said in a statement.
Moreover, he asked the National Regulatory Commission to set “economically justified” tariffs for the transit of Russian gas through Ukrainian territory, it said.
Earlier in the day, Naftogaz Chairman Andrey Kobolev said Kiev was ready to compromise with Russia on gas issues, offering to pay a “compromise temporary price” of $326 per 1,000 cubic meters for Russian gas deliveries for the next 18 months.
Moscow currently charges Ukraine $485, but Kiev claims a fair price would be $268.
The two sides have been locked in dispute for three years over a 2009 contract, under which they agreed to tie the price of gas to the international spot price for oil.
Maenwhile, the Russian Foreign Ministry sent a note of protest to Ukraine over alleged border violation by Ukrainian soldiers, an official statement said Friday.
“The state border was violated by armed units, as infantry fighting vehicles crossed the border. An attempt was made to defy Russian border guards’ orders,” Kremlin spokesman Dmitry Peskov said on Friday.
An infantry fighting vehicle of Ukrainian armed forces crossed the Russian state border in the Rostov region of southwestern Russia earlier in the day, according to the Itar-Tass news agency. Russian border guards detained the vehicle and its crewmen retreated. No arms was used and no casualties reported.
An investigation is underway although Kiev is yet to respond to the Russian reports.
The Assault on Teachers Unions
By David Macaray | CounterPunch | June 13, 2014
Although I can understand the relentless anti-union crusade being waged by free market fundamentalists who wish to: (1) weaken the American labor movement, and (2) do away with the public school system (because there are hundreds of millions of dollars to be made by “privatizing” education), I am stunned by the public’s willingness to accept what is, on its face, a monumentally stupid argument.
While no one ever hears of American colleges and universities being accused of producing consistently “bad” accountants or bad pharmacists or bad historians or bad computer programmers or bad anthropologists, apparently, those same colleges and universities have turned out a disproportionately high number of “bad” teachers.
Even though these idealistic men and women busted their humps earning their college degrees and teaching credentials (which, by law, are required to teach in a public school, but are not required by private schools), once they entered the classroom and began plying their trade, they turned out to be a bunch of incompetents and slackers.
Of course, the explanation given by the anti-labor, privatization propagandists is that these teachers came out of their colleges and universities in satisfactory shape, but turned “bad” as soon as they became union members, because the teachers’ union, as we all know, was put on earth to protect bad teachers. Yep, as a former union president myself, I can attest that there’s nothing we union honchos admire more than a shitty worker.
Here’s something to think about: Airline pilots, flight attendants, mechanics, firefighters, nurses, actors, writers, directors, coal miners, and that woman who plays oboe in the symphony orchestra are union members. They are good at their jobs. Being represented by a union didn’t turn them into bad workers.
Southwest Airlines is the most unionized carrier in the industry and, last time I checked, it was among the most profitable. If you want to accept the outrageous falsehood—the outright lie—that union members are bad workers, that’s your privilege, but unless you have a death wish, I suggest you stay off airplanes.
Here’s something else: Some of the best school districts in the country are heavily unionized. Something else: Demonstrating that the whole thing is mainly socio-economic, schools in stable areas perform better than schools in poor, distressed areas, and unions have nothing to do with it. And something else: Non-union teachers across the country get fired at about the same rate as union teachers. It’s true. Why don’t more non-union teachers get fired? Because they don’t deserve be fired.
Has anyone who did poorly in school ever blamed the teacher for their lack of success? Has anyone ever said, “Man, I would’ve been a kick-ass student if only my teachers had been capable of teaching me”? I’ve never heard one person say that. Instead, they either blame their parents for not having assisted or “pushed” them enough, or blame themselves for simply not having put in the necessary work.
Again, this whole assault on the teaching profession is a hoax. It’s designed to beat down the unions and convince people that “private education” is the way to go. And in order to win, they need to convince a critical mass of parents that the only reason their little Johnny or Judy isn’t performing like a budding genius is because of “bad” teachers. That people believe it is a shame.
David Macaray is a labor columnist and author (“It’s Never Been Easy: Essays on Modern Labor, 2nd Edition). Dmacaray@earthlink.net
GAO Audit Accuses Obama Administration of Lowballing Cost of Maintaining Nuclear Arsenal
By Noel Brinkerhoff | AllGov | June 13, 2014
For the second time this year, government auditors have issued a report critical of the Obama administration’s projections for preserving the nation’s stockpile of nuclear weapons.
In both instances, the cost estimates put forth by the departments of Defense and Energy have been described as far too low, in part because key expenses were not budgeted. The latest audit, performed by the Government Accountability Office (GAO), supported some of the findings of the Congressional Budget Office (CBO), which concluded six months ago that the administration was off—by hundreds of billions of dollars—in estimating the future needs of maintaining the arsenal.
The Pentagon has claimed outlays will be about $264 billion. But the CBO put the figure closer to $570 billion and perhaps as much as $1 trillion over the next 30 years.
The GAO did not offer its own estimate for maintaining the weapons. But it did question the Defense Department’s claim that modernizing all ballistic missiles and bombers would require only $64 billion over the next 10 years.
In the case of the Minuteman III missile, which has served as the backbone of the nation’s land-based nuclear deterrent since the 1970s, GAO auditors found the administration left out all future funding for replacing these weapons, saying the program was “not yet defined.” As for a new bomber, the Air Force said those costs were “too sensitive” to include in the report.
At the Energy Department (DOE), which oversees all nuclear weapons research, the GAO found that officials had low-balled the cost of modernizing certain warheads for ballistic and cruise missiles.
The agency also reported that DOE had assumed billions of dollars in cost savings from efficiency efforts without determining where the savings would come from, and that Energy officials had left out the cost of revamping or replacing several nuclear-weapons laboratories.
To Learn More:
Federal Auditors Say Obama Administration Underestimates Nuclear Weapons Costs (by R. Jeffrey Smith, Center for Public Integrity)
Ten-Year Budget Estimates for Modernization Omit Key Efforts, and Assumptions and Limitations Are Not Fully Transparent (Government Accountability Office)
Obama Administration Underestimated Cost of Maintaining Nuclear Weapons by $140 Billion (by Noel Brinkerhoff and Danny Biederman, AllGov)
China rejects latest US hacking accusation
China’s Foreign Ministry Spokeswoman Hua Chunying
China has dismissed the recent allegation by the US that the Chinese military has been involved in hacking a US security firm, describing Washington’s approach on the issue as unconstructive.
A private US cyber security firm accused a unit of China’s military on Monday of hacking attempts to access information on US satellite and aerospace programs, Xinhua reported.
China’s Foreign Ministry Spokeswoman Hua Chunying rejected the allegation at a press briefing on Tuesday.
“I have noticed the report you mentioned, its wording and style looks familiar, citing the names of the hackers and their claims of their military identity,” she said, responding to a question about US reports alleging Chinese hacking attempts. “Have you ever seen thieves bearing a name tag saying ‘thieves?’” she said.
Washington had issued an indictment against five Chinese military officers on charges of cyber theft earlier on May 19.
The Chinese Foreign Ministry spokeswoman further challenged the integrity of the US allegations against her country, referring to the massive American espionage efforts across the globe as part of its PRISM program under the US National Security Agency (NSA).
The program, which was revealed by former NSA contract employee Edward Snowden in 2013, showed that the US was spying on the phone and email communications of top world leaders, including those of Washington’s allied countries as well as China.
“The US is a hacking empire,” Hua said. “It is not constructive for the US to attack others instead of repenting and correcting its own mistakes.”
The Chinese official further pointed out that cyber attacks are a global challenge – transnational and anonymous in nature – requiring cooperation among all countries to be countered.
Featured Video
Trita Parsi: Iran War Ends Today? Threats of Deporting Trita Parsi
or go to
Aletho News Archives – Video-Images
From the Archives
Iran UN ambassador calls for destruction of all nuclear weapons
Iran’s ambassador to the UN Gholamali Khoshroo
Press TV – March 29, 2017
Iran’s ambassador to the UN Gholamali Khoshroo has called for the total eradication of nuclear weapons.
Khoshroo reiterated Iran’s call during a UN conference aimed at creating a nuclear weapons ban treaty in New York on Tuesday.
“Iran, as a victim of chemical weapons, strongly feels the danger posed by the existence of weapons of mass destruction and is determined to engage actively in international diplomatic efforts to save humanity from the menace of nuclear weapons,” he said.
Khoshroo stressed that Iran is committed to its Non-Proliferation Treaty (NPT) obligations, which include negotiations based on effective nuclear disarmament measures.
He added that several countries continue to ignore international calls and treaties for nuclear disarmament and even continue to increase their nuclear stockpiles. “They do not have political determination to abandon doctrines of nuclear deterrence and nuclear terror,” he went on to say.
Iran’s UN ambassador noted that boycotting the talks by many countries, including the US, shows that the world’s nuclear powers are by no means committed to the eradication of nuclear arms. Britain and France were also among the some 40 countries that did not join the talks.
“We note that prohibition of nuclear weapons must be accompanied by the elimination of such weapons. There can be no doubt that without complete abolition of nuclear weapons, there will be no absolute guarantee against the danger of nuclear war and the use of such weapons,” Khoshroo added.
Blog Roll
Aletho News- Trita Parsi: Iran War Ends Today? Threats of Deporting Trita Parsi
- What Is SIDS?
- DHS docs: Govt bracing for nationwide anti-AI riots, preparing to crack down on dissent
- India signals rethink over West Asia
- Israeli Ex-Navy Chief admits massive damage from Iran missiles
- The strategic arsenal US lost in war against Iran – and why replenishment will take years
- Documents Suggest Fauci Knew COVID Was Created in Wuhan Lab, and mRNA Vaccines Wouldn’t Work
- No return to pre-war status for Strait of Hormuz – Iran’s top diplomat
- Ex-South Korean President sentenced for trying to provoke conflict with Pyongyang
- US publishes docs on ‘dangerous’ Ukrainian biolabs
- If Americans Knew
- Israeli Firm Accused of Launching Smear Campaigns During US, European Elections
- As World Cup kicks off, Gaza amputee girls chase football dreams
- Oxfam: More Palestinians killed by Israel across West Bank in last 3 years than previous 17 years combined
- US-Iran ceasefire may be imminent, but will Israel blow it up? – Daily Update
- The Issue of Israel Is Ending Democracy In Michigan
- Israel is stealing homes, livelihoods, and lives in West Bank
- Gaza is not an aberration – Israel planned this genocide decades ago
- Israel is changing the face of Lebanon, mainstream media is normalizing it – 3 articles
- Genocide lobby benefits from EU anti-racist fund
- Watching the World Cup from Gaza
- No Tricks Zone
- New Study: Significant CO2 Fluxes From Non-Volcanic Sources Are Largely Neglected In Carbon Budgets
- Women Climate Scientists Being Harassed, Insulted By Skeptics, Claims Berkeley Earth Researcher
- Germany’s Longterm Spring Climate Data Show “No Climate Trend”
- New Study: Solar Photovoltaic, Wind Power Fail To Meet Annual Energy Demands 62% Of The Time
- Germany’s Die Welt: “Too Much Is Too Much” … Green Energies Are Cannabalizing Each Other!
- Germany’s Ecological Holocaust… Once Fairy Tale Forests Getting Cleared For Wind Turbines
- A Grand Solar Minimum Has Arrived…Global Cooling Of At Least 1°C Is Expected By The 2030s, 2040s
- European “Expert Commission” Urges COVID-19-Like Global Climate State Of Energency!
- Real-World Observations Do Not Support The Position That Climate Change Is Human-Caused
- Germany’s AfD Party Calls Debunked Climate Scenarios “Greatest Fraud In Human History”
Aletho News 