Saturday, 27 May 2017

Weekend Update 27/05/2017 Malta, The EUSSR’s Panama.

We don’t pay taxes. Only the little people pay taxes.

 Leona Helmsley.

This long weekend of the Monaco Grand Prix, and the Indianapolis 500 motor races, some very interesting reading, as Der Spiegel takes on Malta, the EUSSR’s Mediterranean version of Panama. The voters of Germany and Greece should be interested. But then so should the voters in all of the rump-EU.  Brexit now!

But first this on Turkey from the New York Times.

Did the Turkish President’s Security Detail Attack Protesters in Washington? What the Video Shows

By , , and MAY 26, 2017
The New York Times reviewed videos and photos to track the actions of 24 men, including armed members of President Recep Tayyip Erdogan’s security detail, who attacked protesters in Washington last week. Many of the protesters were American citizens.

The men kicked people lying on the ground and put a woman in a chokehold just a mile from the White House. They outnumbered the protesters nearly two to one.

The State Department has condemned the episode, and some American lawmakers have called for the men to be prosecuted. But none have been charged with a crime. Here’s what video of the main actors shows about the identities of the men and the roles they played in the clash.

Now back to Malta, the EUSSR’s very own Panama.

“The world is a place that’s gone from being flat to round to crooked.”

Mad Magazine.

Playing the Shell Game in the Mediterranean

Malta poses as a model member of the European Union, but it makes its living off of large European companies seeking to avoid higher tax rates back home. DER SPIEGEL went to the island nation to investigate, and found a lot of empty offices and empty words.

May 24, 2017  06:51 PM
As night falls over St. Julian's, the wind soft and warm after a summer-like day in May, it slowly begins to become clear, while standing on a balcony overlooking the harbor, why Malta does what Malta does. Why this small island has become a tax haven that sucks up the revenues from other countries, even though that money comes from partner nations in the European Union.

---- The idea that Malta, poor in natural resources but rich in shrewd, hardworking people, somehow has a moral right to try to lure companies from the north to their country -- and to benefit from a small portion of the vast tax revenues that would otherwise remain in places like France, Britain and Germany. In the middle of the night, all of that seems to make some sense.

But it remains unclear why the best-known German industrial giants and the most successful of Germany's mid-sized firms take part. It isn't obvious what their moral justification might be -- why huge companies like BASF, BMW, K+S and Sixt, why smaller firms like Würth and Tchibo, or a well-known German television personality like Johannes B. Kerner, why a few thousand other companies on the Malta list assembled by the European Investigative Collaborations (EIC), are all apparently seeking to wring every last cent out of their revenues.

Why would they go so far to risk their good reputations -- and, in some cases, much more than that? A SPIEGEL investigative project in Malta shows that even global corporations are happy to share a single buzzer with three other companies on the island even as they and their subsidiaries aren't listed in the phone book. They are "unfortunately" unreachable "at the moment," nor are they available a short time later either. With their presence on Malta, the companies may be seeking to reduce their German tax bills -- but to do so, they have to be able to prove that they are in fact doing business in Malta.

Appalling Chutzpah

To find answers to these questions, it is necessary to speak with those highly respected companies, the pillars of the German economy. It is, however, also helpful to talk with lesser known people, the men and women who create such shell companies in Malta. And, particularly since Malta holds the rotating European Council presidency until the end of June, it is important to speak with Maltese officials and their opponents in the European Parliament, who are appalled by the chutzpah Malta displays in defending its tax model even as it leads one of the EU's key institutions.

And there is plenty to talk about: About the tricks used by German companies; about billionaires who scrimped on nothing when it came to their superyachts, except on sales tax, which is so much lower for ships registered in Malta; and about Maltese politicians, who are apparently used to thinking of themselves first when it comes to money.

---- The words "Finance" and "Holding" are also popular elements in the names of Maltese subsidiaries of international corporations. After all, the focus is squarely on money -- money that is pushed back and forth between the parent company and its subsidiaries, often for one reason only: to reduce the amount subject to taxation back home, in Germany for example. One simple way of doing so is to show high costs back home while booking profits in Malta. The Mediterranean country may have a relatively high rate of taxation, at 35 percent, but foreign owners of Maltese-based companies, such as German parent companies, are refunded up to 30 percent by the Maltese tax authorities. Which leaves a tax rate of just over 5 percent.

That is enough to make the business model attractive to Malta -- better 5 percent than nothing at all. And it is fantastic for the companies -- 5 percent instead of closer to 30 percent in Germany. But it isn't such a good deal for the German tax office. According to calculations undertaken by the newspaper Malta Today, 2015 company profits worth around 4 billion euros flowed through Malta that would otherwise have been taxed in other countries, a sum 10 times higher than in 2006. Malta held on to just 250 million euros of that, with the companies in question holding on to the rest.

Selfish Rather than Smart

How, though, is it possible to divert profits to Malta? One vehicle involves companies transferring proprietary patents and licenses to their subsidiary on the island. Other branches of the company located in countries with higher tax rates must then pay significant amounts of money to the Malta-based subsidiary to use those patents and licenses. Another model envisions Germany-based branches borrowing money from the Malta subsidiary at high rates of interest.

---- The route to the next address of interest leads past an historical arch bearing the inscription "Deus nobis haec otia fecit," "God has granted us this peace." Then, we are standing in front of Lufthansa, which isn't happy about the peace being disturbed. Lufthansa has 17 subsidiaries in the Aragon office building, including Lufthansa Malta Pension Holding, LSI Malta Pension and DLH Malta Pension. All of them, of course, have the Ltd. suffix.

Unfortunately, Malta-based manager Markus Pawlik doesn't have any time for journalists at the moment because he has to prepare for a meeting. He can only spare five minutes to tell us that Lufthansa employs more than 500 technicians who conduct maintenance on the company's planes in Malta. But why is the entire company's retirement fund and its leasing company based in Malta and not in Germany, where the company employs 67,000 more people than it does in the Mediterranean island nation?

A Bit Confused

Pawlik says he isn't authorized to discuss the issue and suggests calling the press office in Germany. There, one learns that the location of a subsidiary depends on many factors, including taxes. The company owes it to its shareholders, after all. And one is told that it is all legal and that German tax officials are aware of it.

---- There are four companies registered to the floor just below him, all of them well-known in Germany. BASF Finance Malta is one of them. There are also two Limited firms belonging to the farm of poultry baron Erich Wesjohann, whose brother Paul-Heinz is the head of the poultry giant Wiesenhof. Sixt is also there, with a company called Sixt Financial Services GmbH, though the word "Financial" was exchanged for "International" in March. They all share a single buzzer, which is rather odd for three companies of that size. Searching the internet for an email address or telephone number for the companies is a fruitless endeavor. And a phone call to Deutsche Telekom in the search for a phone number doesn't help either: "Unfortunately, they aren't listed," we are told.

A man emerges in a denim shirt and casualwear and claims to be from BASF. But he says he has nothing to tell us, suggesting instead that we call the press office in Germany.
More. Much, much more.

Elsewhere, a rising tide of worry.

Why one hedge-fund titan is bracing for ‘all hell to break lose’ on Wall Street

Published: May 26, 2017 11:37 p.m. ET
Billionaire investor Paul Singer has a bleak outlook for Wall Street, and he has built a $5 billion rainy-day fund in preparation for what he describes as “all hell” to break out.

Singer, who runs $33 billion hedge fund Elliot Management, wrote in a recent letter to investors that a bout of protracted low volatility and a tendency of stocks to levitate higher is likely to lead to near-term carnage in financial markets:

Here’s how Singer puts it:
Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like …), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.

The hedge-fund manager has raised some $5 billion in recent weeks, according to Reuters, that he says will be put to work when investor confidence finally gets brought to its knees. He raised the sum in about 24 hours, the report indicated.

Lately, the stock market has been stubbornly buoyant.

After buckling under mounting worries about President Donald Trump’s White House and alarming allegations about Russia’s connection to members of the president’s administration, resulting in the worst single-session drop in 2017, equity-index gauges have rebounded higher.

On Friday, the S&P 500 index SPX, +0.03% and the Nasdaq Composite Index COMP, +0.08% registered records on the same day for the second consecutive session, while the Dow Jones Industrial Average DJIA, -0.01%  closed out the week just 35 points short of its own all-time high. This equity action came as the CBOE Volatility Index VIX, -1.80% otherwise known as Wall Street’s “fear gauge,” finished in single-digit territory for only the 13th time in its history, booking its fifth lowest close ever. That is way below the VIX’s long-term average of 20 and comes after the index—used to bet on market swings a month in the future—closed at 15.59 on May 17, the same day appetite for risk went on hiatus.

Skeptics of Wall Street’s recent rally, which has been borne on the hope of pro-growth promises from Trump coming to into full view sooner than later, predict that an inevitable failure of the president to make good on his policy promises could jolt markets violently lower.

BMW, Mercedes Become Latest Carmakers Caught in Trump Crossfire

by Dalia Fahmy
BMW, Mercedes-Benz and VW are getting their turn in the crosshairs of U.S. President Donald Trump, who’s making a habit out of attacking the visible -- and free trade-dependent -- auto industry.

“The Germans are bad, very bad,” Der Spiegel cited Trump as saying to unidentified participants at a closed-door meeting Thursday with European Union officials in Brussels. “Look at the millions of cars that they sell in the U.S. Terrible. We’re going to stop that.”

Trump’s singling out of German carmakers for contributing to the nation’s lopsided trade surplus follows rebukes of Japan’s Toyota Motor Corp. and attacks on America’s own automakers for shipping cars from Mexico. The rhetoric overlooks that BMW AG, Daimler AG and Volkswagen AG operate some of their biggest factories in the world in southern U.S. states, and the impact that putting a stop to imports would have on the thousands of dealers who sell German vehicles.

-----Gary Cohn, director of the National Economic Council, acknowledged that the president said Germany is “very bad” when it comes to flooding the U.S. with cars, but insisted it wasn’t a dig at one of the U.S.’s most important allies.

Trump has complained repeatedly that Germany’s high trade surplus with the U.S. is hurting the American economy. In a Bild newspaper interview in January, Trump singled out luxury-car maker BMW and threatened it with a 35 percent import duty for foreign-built vehicles sold in the country.

“If you go down Fifth Avenue everyone has a Mercedes Benz in front of his house,” he told Bild, while lamenting the lack of Chevrolets in Germany. General Motors Co. has largely withdrawn the brand from Europe.

BMW, Daimler and Volkswagen declined to comment on Trump’s remarks. Combined, deliveries by the companies reached 1.33 million vehicles last year, according to data provided by Wards Automotive Group.

While the U.S. is the second-largest export market for German automakers and the manufacturers are adding or expanding Mexican production facilities, the U.S. remains an important source of their global production. More than half of the vehicles the German companies make in America are exported.

-----The German trade surplus rose to a record 253 billion euros ($284 billion) last year, and the U.S. trade deficit widened in January to the most since March 2012. In addition to drawing Trump’s ire, the German imbalance has sparked criticism by European Union leaders including French President Emmanuel Macron.
European Commission President Jean-Claude Juncker, asked about the matter at the G-7 gathering in Italy on Friday, confirmed the gist of Trump’s comments but indicated they’d been exaggerated due to a translation error.

Brazil’s Car Wash Scandal Reveals a Country Soaked in Corruption

What may be the largest corruption case in modern history runs deep in Latin America’s largest country.
by Tim Padgett 25 May 2017, 13:00 GMT+1
In U.S. history, entire cities and states have been branded corrupt: Think Richard J. Daley’s Chicago or Huey Long’s Louisiana. But amid even the worst federal scandals, Watergate included, the country has never been nationally profiled as crooked—a venal society from coast to coast, from dogcatcher to commander-in-chief.

Brazil feels that way right now, largely the result of a bribery scandal of Amazonian proportions known in Portuguese as Lava Jato, or Operation Car Wash, believed to be the largest corruption case in modern history. The multibillion-dollar tsunami of sleaze barreling through Latin America’s largest country and economy is deeper and broader than any Trump-Russia allegations pouring out of Washington. And it could force the resignation of Brazilian President Michel Temer, who’s been fingered repeatedly in recent weeks for allegedly orchestrating and receiving millions of dollars in bribes.

The 76-year-old conservative denies the accusations—his lawyer, laughably, says Temer is too old to have to answer them—but he’s not the only Brazilian president under the interrogation lamp. His predecessor, Dilma Rousseff, who was impeached and removed from office last year, and her predecessor and mentor, Luiz Inácio “Lula” da Silva, are also alleged to have received tens of millions of dollars in graft.

They, too, deny it—but it hardly stops with them. Eight of Temer’s cabinet ministers are under investigation. So are powerful senators such as Aécio Neves, who narrowly lost the 2014 presidential election. The head of Brazil’s Chamber of Deputies, Eduardo da Cunha—who was shameless enough to hide some of the $40 million in bribes he pocketed in a religious shell company called—was convicted in March and sentenced to 15 years in prison. He has appealed the verdict.

Why did I take up stealing? To live better, to own things I couldn't afford, to acquire this good taste that you now enjoy and which I should be very reluctant to give up.

Cary Grant. To Catch A Thief.

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