Tom Bergin http://blogs.reuters.com/tom-bergin Tom Bergin's Profile Fri, 30 Oct 2015 07:30:05 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 Small EU team leads tax battle against corporate goliaths http://www.reuters.com/article/2015/10/30/europe-taxavoidance-idUSL8N12T64720151030?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/10/30/small-eu-team-leads-tax-battle-against-corporate-goliaths/#comments Fri, 30 Oct 2015 07:00:01 +0000 http://blogs.reuters.com/tom-bergin/?p=1204 LONDON/BRUSSELS, Oct 29 (Reuters) – A small team of European
Union officials is spearheading an investigation that could
force some of the world’s biggest companies to pay billions of
euros in avoided taxes.

In an office block in one of Brussels’ less fashionable
districts, the 10 Competition Directorate staff from across the
bloc have spent two years poring over hundreds of deals agreed
between companies and member-states’ tax authorities.

Their findings were the basis on which the European
Commission, the EU’s executive arm, last week ruled that
Starbucks Corp and Fiat Chrysler Automobiles NV
benefited from illegal tax deals with the Dutch and
Luxembourg authorities.

The EU said these deals represented unfair state aid that
gave the companies an unfair advantage and ordered the countries
to reclaim 20-30 million euros ($22-$33 million) from each.

The Commission continues to investigate other rulings
including one Luxembourg gave Amazon.com Inc and
rulings Ireland gave Apple Inc, that allowed those
companies to earn billions of dollars tax free.

If Commission rulings are executed, it could force a sea
change for hundreds of multinationals operating in Europe, whose
strategies to avoid tax have triggered public anger since the
global financial crisis of 2007-2009 left governments strapped
for cash.

Headed by Max Lienemeyer, who specialised in competition and
trade law before joining the Commission in 2003, the team of
Eurocrats has been initiating cases, scrutinising inter-company
transactions, and negotiating with companies and governments, to
decide whether so-called “transfer prices” allowed the companies
to unfairly reduce their tax bills.

Scrutinising corporate tax arrangements is a painstaking
task that is usually undertaken by experienced tax
investigators.

Yet Lienemeyer’s Task Force on Tax Planning Practices is
made up of mostly young officials with limited experience of
corporate taxation. Seven left university in the past decade,
and only two have experience of challenging big companies on
their income tax bills, their profiles on online site LinkedIn
show.

Lienemeyer did not respond to requests for comment. Task
force members contacted by Reuters declined to comment, and
referred queries to the European Commission.

The Commission declined to answer detailed questions about
the task force but said it was supported by additional staff
with tax and legal expertise and had all the resources it
needed.

Tax experts noted that the task force’s tax audits are
forging into difficult new territory for the Commission, taking
on companies that employ hundreds of tax professionals and pay
millions of dollars each year for external tax advice.

Lienemeyer is paid around 110,000 euros a year and his team
around 80,000, a fraction of what senior tax advisers can earn,
a senior EU source said.

The “small dynamic team”, as the EU describes it, also has
the task of trying to prove the tax structures companies have
created are a sham. Usually, when a tax agency seeks to
challenge corporate tax planning, it only attacks individual
transactions.

“Most transfer pricing cases that most tax authorities take
on are fairly limited in their scope,” said Ray McCann, a tax
adviser with New Quadrant Partners, who was previously a senior
inspector specialising in cross-border tax avoidance with the UK
tax authorities.

“It’s unusual to take on an entire structure because a
transfer pricing investigation is enormously resource
intensive…it’s a big deal,” he added.

Transfer pricing is setting prices for the transfer of goods
or services from one subsidiary to another, which critics say is
used to reduce tax liabilities in relatively high-tax countries.
The cost should be the same as that which would have been paid
had the transaction been with an unrelated company at market
rates.

LEGAL CHALLENGES

The countries and companies being investigated by the task
force deny agreeing sweetheart tax deals in return for
investment and jobs.

Natura Gracia, a competition partner at law firm Linklaters
said she expected the Fiat and Starbucks cases, and any decision
against Apple or Amazon, would end up in court.

She said it was difficult to predict how a case would play
out because this was the first time that the Commission had used
competition law to tackle alleged preferential application of
income tax rules.

“It is a bit of a backdoor they are using to focus on tax
avoidance,” Gracia said. “The question will be whether the
European courts will endorse what the Commission has done.”

Some tax advisers said the use of competition law might make
the Commission’s job easier, because it could mean the usually
high bar of evidence required to prove a tax structure was
unlawful may not have to be met.

However, the EU’s principal legal adviser on tax, Richard
Lyal, wrote in an essay published in the Fordham International
Law Journal in June that the basic principle that tax rules were
broken would still need to underpin any Commission case.

“It is likely to be only in extreme cases that one can with
confidence say that a particular decision reflects a
misapplication of the chosen method,” he wrote.

This means that the task force faces at least as hard a
challenge as inspectors like McCann faced.

However, the team has one advantage over a typical tax
authority challenging corporate tax planning: it is examining
cases where the companies and countries involved probably never
expected to face external scrutiny.

Until now, the Commission did not investigate the way
members calculated companies’ tax bills. Its move to do this is
a first and its investigative team’s task is assisted by
sweeping rights to force governments to hand over correspondence
and notes of meetings with companies.

Companies which expect to have their tax planning challenged
take great care to create a paper trail that will look good in
court. Tax advisers say that if national tax authorities had
expected their work to face EU scrutiny, they might have done
the same.

However, minutes published by the Commission of a meeting
between Apple’s tax advisor and Ireland’s Revenue Commissioners
to discuss how much taxable profit Apple should report, said
Apple’s advisor noted how many people Apple employed in Cork and
how the company was reviewing its worldwide operations.

The EC highlighted this as an example of how non-tax factors
may have played a role in deciding companies’ tax bills –
something prohibited by law.

Other documents show tax authorities rapidly approved
complex arrangements that eliminated tax bills, without
challenge.

McCann said this kind of evidence, uncovered by the task
force, was not usually available to inspectors investigating a
company’s tax structuring, and that it could be decisive in
court.

“If there are incriminating emails there which clearly show
that everybody knew what was going on, then that’s bad,” McCann
said. “If equally, there is no apparent investigation by the
jurisdiction offering the tax advantages, then that’s equally
bad.”

($1 = 0.9040 euros)

(Editing by Susan Thomas)

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Fear and respect: VW’s culture under Winterkorn http://www.reuters.com/article/2015/10/10/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/10/10/fear-and-respect-vws-culture-under-winterkorn/#comments Sat, 10 Oct 2015 14:25:38 +0000 http://blogs.reuters.com/tom-bergin/?p=1202 BERLIN/LONDON (Reuters) – Like many chief executives, Martin Winterkorn was a demanding boss who didn’t like failure. But critics say the pressure on managers at Volkswagen was unusual, which may go some way to explaining the carmaker’s crisis.

Three weeks after it admitted to cheating U.S. emissions tests, Europe’s largest carmaker is under pressure to identify who exactly was responsible.

Volkswagen (VOWG_p.DE: Quote, Profile, Research, Stock Buzz) has declined to comment on whether the firm’s culture or the management style of Winterkorn, who resigned last month, had been a factor in the cheating. Lawyers for Winterkorn did not respond to a request for comment.

But now that VW’s problems are coming out into the open and Winterkorn has gone, some executives are declaring that the company needs to change its approach.

“We have to streamline our processes,” Volkswagen Group of America CEO Michael Horn told a U.S. congressional hearing when asked about what the revelations said about VW’s integrity.

“This company has to bloody learn and use this opportunity in order to get their act together, and 600,000 people worldwide have to be managed in a different way,” he said. “This is very, very clear.”

Bernd Osterloh, a member of VW’s supervisory board, was even more precise in a letter to staff on Sept. 24, a week after U.S. regulators revealed the cheating.

“We need in future a climate in which problems aren’t hidden but can be openly communicated to superiors,” said Osterloh, who as chief of the VW works council represents employees on the board. “We need a culture in which it’s possible and permissible to argue with your superior about the best way to go.”

Five former VW executives interviewed by Reuters and industry observers describe a management style under Winterkorn that fostered a climate of fear, an authoritarianism that went unchecked partly due to a company structure unique in the German motor industry.

“The culture and organizational structure of Volkswagen are not comparable to Daimler or BMW, it is something specific,” said Professor Ferdinand Dudenhöffer, automotive expert at the University of Duisburg-Essen. “All you hear when you speak to people is that there is a special pressure at VW.”

Lawyers for Winterkorn, who said when he quit that he was unaware of any wrongdoing on his part, did not respond to a request for comment.

NO AUTHORITY

All German companies have two boards: the management board, led by the chief executive, runs the business day-to-day, and above it the supervisory board, to which the CEO reports. The supervisory board can hire and fire management board members and must sign off on major strategic decisions.

Dudenhöffer said this system did not work well at Volkswagen. “In Daimler and BMW, you have a supervisory board that is controlling the CEO. But at VW you have no such authority,” he told Reuters.

VW’s 20-seat supervisory board gives nine seats apiece to workforce and shareholder representatives, so meeting a legal requirement to have equal representation.

But VW differs from other German carmakers in one respect – the firm’s home state of Lower Saxony also gets two seats on the supervisory board. By contrast, Daimler, the maker of Mercedes-Benz cars, and BMW have no politicians on their boards.

Industry observers say the representatives from Lower Saxony and those of the workforce share a common goal: protecting jobs at one of Lower Saxony’s biggest employers. As a consequence they are willing to give the CEO a relatively free hand provided he delivers on jobs.

Henning Gebhardt of Deutsche Bank’s asset and wealth management unit, who manages VW shares, said corporate governance had not progressed at the company.

Labour officials and Lower Saxony representatives did not immediately respond to requests for comment.

HUMBLE BACKGROUND

Winterkorn has supporters. Marc Trahan, a retired executive vice president at Volkswagen Group of America, said he believed Winterkorn and some of his top engineers would never have countenanced the cheating.

“I know Dr Winterkorn personally. I know these guys personally. There is no way they would have allowed this to continue if they had known that U.S. laws were being broken,” Trahan told Reuters.

Winterkorn was born in 1947 into a humble background: his parents were ethnic German refugees who had recently fled Hungary after World War Two. After studying metallurgy, he rose through the ranks at engineering and electronics group Bosch before he joined Audi in 1981, later moving to the VW brand and then the group.

At that time VW was managed by Ferdinand Piech, the grandson of the man who invented the Beetle. Legendary as a hard taskmaster, Piech dominated the firm for more than two decades as chief executive and then chairman until April this year, when an attempt to oust Winterkorn backfired and he was forced to quit himself.

Soon after becoming CEO in 2007, Winterkorn decided to make VW the world’s biggest carmaker. That meant cracking what was then the world’s biggest car market, the United States, where VW has underperformed for years and where it has now come unstuck.

The group almost doubled global annual sales to 10 million cars and its revenue to 200 billion euros ($225 billion). In the first half of this year, VW finally sold marginally more vehicles than the world number one, Toyota of Japan.

One former sales executive said the pressure soared under the target. “If you didn’t like it, you moved of your own accord or you were performance-managed out of the business,” he said.

Another former VW executive spoke of an authoritarian style, describing how sometimes CEOs of brands could be treated “quite disrespectfully”. Such grillings were not typical of the industry, said the executive, who now works for another international manufacturer.

One high level casualty was a previous VW chief in the United States, Jonathan Browning, who left the company in 2013. At the time VW sources told Reuters that he had been fired for failing to meet aggressive sales targets.

Under Browning’s tenure, Winterkorn blamed U.S. management for a series of problems ranging from a failure to update the Passat model to seemingly prosaic matters such as paint.

On one U.S. test drive in July 2013, Winterkorn spotted a slight bump in the paintwork of a Beetle model. According to one VW source, who declined to be named, the paint thickness exceeded company standards by less than a millimeter, but Winterkorn still lectured engineers about the waste.

On the same trip, he told staff he was unhappy that VW was not offering a shade of red that was selling well on competitors’ models. Winterkorn mentioned the issue the following year after Browning had gone. “They should have come and said ‘Herr Winterkorn, we must update the Passat'; they should have jumped on my desk,” he told Der Spiegel magazine.

But several former managers in the VW group – whose brands also include Audi, Porsche, SEAT and Skoda – said few executives dared approach Winterkorn.

DISTANCE, FEAR, RESPECT “There was always a distance, a fear and a respect… If he would come and visit or you had to go to him, your pulse would go up,” the former VW executive told Reuters. “If you presented bad news, those were the moments that it could become quite unpleasant and loud and quite demeaning.” The executive did not provide specific examples.

Even in public Winterkorn ordered very senior staff around. A video shot at the Frankfurt motorshow four years ago gives a glimpse of the man’s style. The video, which is posted on YouTube, shows him inspecting a new model from South Korean rival Hyundai, surrounded by a posse of dark-suited managers.

He circles the car, inspecting the locking mechanism on its tailgate, and then climbs into the driver’s seat. First he strokes the interior trim, then he adjusts the steering wheel and discovers something that displeases him – it moves silently, unlike on VW or BMW models.

“Bischoff!” he barks in the footage – no first names or honorifics – summoning VW design chief Klaus Bischoff. “Nothing makes a clonking sound here,” he says grumpily, pointing to the wheel. Bischoff could not immediately be reached for comment about the episode.

(Additional reporting by Joe White, Paul Lienert and Tina Bellon; Writing by David Stamp; Editing by Sonya Hepinstall, Janet McBride)

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Companies prepare to meet new global tax rules: survey http://www.reuters.com/article/2015/10/06/us-taxation-companies-oecd-idUSKCN0S016320151006?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/10/06/companies-prepare-to-meet-new-global-tax-rules-survey/#comments Tue, 06 Oct 2015 10:39:53 +0000 http://blogs.reuters.com/tom-bergin/?p=1200 LONDON (Reuters) – Big companies are planning to overhaul their tax arrangements to comply with proposals for new global tax rules even before they become legally enforceable, according to a Thomson Reuters-Euromoney survey of 180 tax professionals across 35 countries.

The Organisation for Economic Co-operation and Development (OECD) was asked in 2012 by the Group of 20 nations with the world’s biggest economies to look into closing off the ways that multi-national corporations can avoid paying tax on their profits and published its proposals on Monday.

Tax advisers expect the proposals, which had been flagged in earlier discussion documents, to take a number of years yet to become enshrined in law.

But the Thomson Reuters survey showed many companies are already planning to make their tax affairs compliant.

In most cases companies move untaxed money to tax havens by inter-group transactions. Over 59 percent of companies surveyed said they were already implementing changes to their intercompany agreements ahead of the actual implementation of the new OECD rules.

Over 55 percent said they would change the way they price inter-group transactions and over 66 percent said they would review business structures they had in place.

Some non-governmental groups have questioned whether the new proposals will cut down on tax avoidance but the OECD highlighted changes already made at Amazon.com and coffee group Starbucks Corp which removed some of their tax advantages, as evidence the proposals will be effective.

(Editing by Greg Mahlich)

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New global tax proposals target corporate tax dodging http://www.reuters.com/article/2015/10/05/taxation-companies-g-idUSL5N12238H20151005?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/10/05/new-global-tax-proposals-target-corporate-tax-dodging/#comments Mon, 05 Oct 2015 12:00:01 +0000 http://blogs.reuters.com/tom-bergin/?p=1198 LONDON, Oct 5 (Reuters) – The body that advises industrial
nations on economic policy published proposals on Monday to
overhaul the way international companies are taxed in an effort
to tackle avoidance.

Tight government finances and media reports on the tax
structuring used by companies including Starbucks and Google
have spurred significant public anger in Europe and the United
States in recent years over tax avoidance.

The Group of 20 largest economies asked the Organisation for
Economic Co-operation and Development (OECD) in 2012 to look at
changing outdated tax rules that allow multinational companies
such as Apple and Vodafone to pay almost no tax on their profits
in many jurisdictions.

The companies say they follow the current rules.

Unveiling its recommendations on Monday, the OECD said they
represented a fundamental shift, though critics said they did
not go far enough.

“The tax world will not be the same before and after this,”
Pascal Saint-Amans, head of tax policy at the OECD, told
reporters.

“We are moving into this new era where massive tax planning,
massive tax avoidance is over. It will be much more difficult,
much more costly and it (profit shifting) will become evasion
and no more avoidance,” he added.

The OECD said a conservative estimate of the amount of
untaxed money moved by companies into tax havens was $100
billion to $240 billion annually, suggesting tens of billions of
dollars in lost tax revenue.

Tax advisers agreed that the measures – which had been
debated over the past year – could force many companies to
restructure their operations and rethink how they fund
themselves.

A spokesperson for the Confederation of British Industry
(CBI), the U.K.’s main business lobby group, said any changes
should be implemented at the same pace internationally to avoid
giving a competitive advantage to some companies.

However, some tax campaigners said the OECD could have gone
further and questioned whether countries would turn the
proposals into law.

“These proposals would not have prevented many of the major
tax avoidance scandals of the last few years, nor do they do
enough to help developing countries find a sustainable route out
of poverty,” Pamela Chisanga, Country Director for Zambia at
charity ActionAid, said in a statement.

TECH TITANS

The rules that govern taxation of profits from international
commerce date back almost a century.

However, globalisation and technology that allows products
and services to be delivered in non-traditional ways have
created opportunities for companies to shift profits out of the
countries where the money is earned and into jurisdictions such
as Luxembourg, Ireland or Bermuda which do not tax them.

The technology giants are seen as the most adept at
exploiting loopholes, but drug makers, medical device groups,
banks, fast food groups and retailers all commonly use contrived
arrangements to cut their tax bills.

Most corporate tax avoidance hinges on transactions between
affiliated companies, which reduce the taxable profit in a
country where customers or production facilities are based and
boost profits in low tax jurisdictions where the company has
little real presence.

The OECD plans to target the main ways this is believed to
be done.

One way companies shift profits is to have an onshore
company borrow from offshore affiliates at high interest rates.

The OECD recommends tackling this by limiting tax deductions
to at most 30 percent of profits. Some countries such as Britain
have no limits. Any change could have a big impact on highly
leveraged businesses such as private equity.

The OECD also recommends changes to rules that allow
companies to make sales worth billions of dollars in a country
without establishing a tax residence there simply by having a
tax haven entity rubber-stamp sales contracts.

A Reuters investigation in 2013 found that 74 percent of the
50 biggest U.S. technology groups used such mechanisms to cut
their tax bills.
here

Tax authorities should also be able to challenge the pricing
of inter-group transactions – known as transfer pricing – which
allow profits to leak out of the countries where they are
earned, the OECD said.

For example, a company should not be allowed to position a
subsidiary in a tax haven which then generates large profits by
buying goods or services it sells to onshore affiliates at
marked-up prices. The OECD said in future this profit should be
shared among the units where the end user sales are made.

That could hit UK telecom group Vodafone, which made more
than 540 million euros tax-free last year at a Luxembourg unit
which buys handsets and sells them to group companies. The
company said it followed all international tax rules.

Governments can introduce some measures unilaterally but the
most important actions would require changing the terms of tax
treaties between countries.

To avoid such complexity, the OECD will continue to work on
a mechanism to allow automatic updating of swathes of the
thousands of tax treaties but it will take until the end of 2016
to devise this.

It is likely to take years before all the measures become
effective even if governments remain committed. But Saint-Amans
said companies including Starbucks and Amazon were already
unwinding arrangements to comply with the OECD proposals.

(Reporting by Tom Bergin; Editing by Gareth Jones)

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Popular fears aside, businesses often eager for migrant workers http://www.reuters.com/article/2015/08/28/us-europe-migrants-economy-idUSKCN0QX1LQ20150828?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/08/28/popular-fears-aside-businesses-often-eager-for-migrant-workers/#comments Fri, 28 Aug 2015 13:44:15 +0000 http://blogs.reuters.com/tom-bergin/?p=1196 LONDON (Reuters) – Raghad al Sous braved bombings in Syria to keep studying at school before fleeing in 2013 to rejoin her mother, who had been granted refugee status in Britain.

She is now about to start studying at university with the hope of becoming a hospital pharmacist.

“I had to walk to school and take the risk of being kidnapped but I kept on going because I knew that I had to get a qualification,” al Sous said.

Two years after moving from Damascus to Huddersfield in northern England, the 19 year-old’s plans for a well-paid career contrast with concerns among some Britons that migrants are a drag on the country’s economy and public services.

“I feel like I have to pay back the favor that this country has given me,” she said. “They saved my life. I can’t thank the UK enough.”

Across Europe, employers have largely welcomed a stream of young and often well-educated foreign workers who are helping to offset the aging of the population.

Britain this week said net migration levels hit a record high of 330,000 in the year to March as workers from other EU countries and from outside the bloc flocked to take up jobs.

While media said the figures showed a failure of control by the government, the Institute of Directors, an employers group, said half its members companies employed immigrants because of their skills and said UK public services depended on them.

The situation is less clear for many of the hundreds of thousands of people from the Middle East, Africa and Asia who, unlike documented migrants, are trying to dodge border controls to enter Europe.

Non-governmental organizations in Germany say that many of those fleeing the war in Syria and from Iran and Iraq appear to be well educated, making them potentially attractive to employers in their host countries.

Germany’s government expects the number of refugees and asylum-seekers to quadruple this year to 800,000, part of the biggest refugee crisis seen in Europe since World War Two.

Berlin has responded by sending government officials to emergency shelters to speed up skills assessments and language training for those likely to be allowed to stay in the country.

“The hope is to open the labor market more for refugees,” Harald Loehlein, head of migration at Paritatische, an umbrella organization of German NGOs, said. “It is because of the demographic trends. Everybody knows we need more migrants.”

FEAR FACTOR

But the images of crowds pouring over borders in eastern Europe are likely to keep concerns about immigration high.

A survey by the European Commission published in July showed immigration jumped to the top of the list of worries for people across Europe, overtaking concerns about the economy.

In France, employers say they cannot match the enthusiasm in Germany for hiring foreign workers because France’s unemployment rate of more than 10 percent is double that of Germany.

“We don’t have enough jobs for the French people. It’s easier to give jobs to migrant people in Germany,” Pierre Gattaz, head of French employers group Medef, said.

Britain’s government also says it is sticking to its plan to bring net migration under 100,000 a year – less than a third of the current rate – and its foreign minister recently said African migrants posed a threat to Europe’s standard of living.

Yet academic research often points to a positive impact from immigration for developed economies.

The Organization for Economic Co-operation and Development estimates that migrants accounted for 70 percent of the increase in Europe’s workforce in the 10 years to 2014.

European employers say they need more foreign workers to fill a range of jobs from highly-skilled positions to lower-paid menial positions that native Europeans no longer want to take.

At the same time, researchers mostly say immigrants contribute more in taxes than they take in state benefits, a positive for governments many of which are still struggling to get their public finances in order after the financial crisis.

A study by University College London found immigrants to Britain, from within the EU and beyond, represented a net positive for the public accounts, and brought with them qualifications that would have cost nearly 7 billion pounds in education spending in Britain.

Furthermore, immigrants were less likely to claim benefits than native Britons, the study found.

Critics of the UCL research said it underestimated the cost of providing public services to migrants.

Aware of the public’s concerns about overloading schools and hospitals, campaigners say governments should invest the extra tax revenues generated by migrant workers in public services and infrastructure.

But Christian Dustmann, one of the researchers who wrote last year’s UCL report, said that while little information was available on the new arrivals, some early signs were positive.

“Many of the people who are seeking refugee status are very highly educated and would probably be very productive and they are young,” Dustmann said.

(Additional reporting by Tina Bellon in Berlin and Geert de Clerq and Jean-Baptiste Vey in Paris; editing by Jeremy Gaunt)

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European CEOs shrug off Greece, see recovery gaining pace http://www.reuters.com/article/2015/08/04/europe-companies-profits-idUSL5N10F1AB20150804?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/08/04/european-ceos-shrug-off-greece-see-recovery-gaining-pace/#comments Tue, 04 Aug 2015 10:06:47 +0000 http://blogs.reuters.com/tom-bergin/?p=1194 LONDON, Aug 4 (Reuters) – Businesses in Europe said a weak
euro, cheaper oil and the European Central Bank’s easy money
policies drove a continued improvement in profitability in the
second quarter, encouraging some companies to invest and hire
more.

Chief Executives of some of the biggest U.S. and European
companies told investors in recent weeks the region was
experiencing a sustained recovery, helped by a turnaround in
southern Europe, which had been a drag for years.

“Europe has come back to growth this year,” Ivan Menezes,
Chief Executive of drinks maker Diageo Plc told
investors last week.

With China’s economy weakening and a strong dollar making
U.S. exports less competitive, Europe has even become an
outperformer for some.

“It was the bright spot,” said Nick Fanandakis, Chief
Financial Officer at DuPont. “It was somewhat of a
surprise,” he added. In volume terms, Europe had been the
chemicals group’s best performing region in the quarter, CEO
Ellen Kullman said.

Truck maker Scania, a unit of Volkswagen AG, said its orders
rose 41 percent in the second quarter in Europe, compared to the
same period last year, while U.S. rival Paccar Inc said
orders at its European unit, DAF, were 60 percent higher in the
quarter, as growing freight traffic — a key economic indicator
— drove sales.

Strengthening customer demand allowed companies including
Swedish lock maker Assa Abloy, packaging maker
Smurfit and dairy group Danone to raise prices or
lift margins.

Even companies which have still not returned to their
pre-financial crisis health, like General Motors, whose European
operations are still loss making, said they were increasingly
confident the worst was past.

“For me it was very, very promising and very optimistic
based on the results in the second quarter,” said Chuck
Stevens, the U.S. carmaker’s CFO.

WEAKER EURO, LOWER INTEREST RATES

Dutch-headquartered staffing group Randstad said increased
business activity was feeding through to hiring. CFO Robert van
de Kraats told Reuters last week that current labour demand was
“consistent with the early phase of a cyclical recovery”.

Jonas Prising, CEO of Milwaukee-based rival Manpower
, echoed other companies in highlighting “very strong
performance” in southern European.

Prising said the situation in Europe’s economy — which grew
at a little over half the rate of the United States last year —
now was “not unlike the recovery we saw in the U.S. following
the great recession”.

Europe is benefiting from a range of factors.

The euro has fallen sharply this year, as Greece’s future in
the single currency became increasingly uncertain. Down to the
wire bailout negotiations, which led to a run on Greek banks and
the imposition of capital controls in the country, saw the euro
hover near 12-year lows against the dollar in the quarter.

The euro’s weakness has made Eurozone manufacturers and
services providers more competitive outside the bloc and better
able to compete against imports internally.

Analysts at UBS predicted last week that the currency boost
to earnings in the quarter would be the biggest in close to 20
years and industrial groups Daimler AG, Siemens AG and Peugeot
SA all highlighted the boost from a weak euro in calls with
investors.

The increased exports have also supported logistics firms
including UPS and Kuehne & Nagel International AG, which
said they had added new services that were capitalising on
strong demand.

Lower oil prices represented another boost, cutting costs
for companies such as Peugeot or allowing others, such as
Thomas Cook, to pass on lower prices to customers.

Companies including HeidelbergCement, Daimler,
and Siemens also credited the ECB’s decision to
inject masses of liquidity into the economy, which led to low
interest rates and customers’ easy access to credit, with
driving demand.

GREECE SHRUGGED OFF

Carlos Tavares, CEO of Peugeot, said the
“tailwinds” of currency, credit and lower energy costs had left
his company struggling to meet consumer demand in the past few
months.

“We started the year with a very low expectation in terms of
volumes and we didn’t produce enough cars. In the Q2 we really
pushed the accelerator to the highest possible level,” he added.

Few CEOs reported concerns about the crisis in Greece.

The country is a small market for international companies
but some economists predicted fears of economic contagion from a
possible Greek economic collapse could weigh on big companies by
making consumers and businesses elsewhere in Europe reluctant to
spend and invest.

But executives reported few if any signs that customers were
spooked into postponing buying decisions.

Jamie Dimon, Chief Executive at JPMorgan Chase & Co.
, said CEOs had also not been deterred from pressing
ahead with big strategic decisions.

“We don’t think Greece has affected the M&A (mergers and
acquisitions) dialogue very much,” he said last month.

“European companies coming to America and American companies
going to Europe … those conversations continue” he added.

(Additional reporting by Toby Sterling in Amsterdam, Martinne
Geller and Lionel Laurent in London, Georgina Prodhan in
Frankfurt, Padraic Halpin in Dublin and Andrew Callus in Paris;
Editing by Giles Elgood)

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Western companies look hard at China as growth slows http://www.reuters.com/article/2015/07/31/us-china-companies-idUSKCN0Q520R20150731?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/07/31/western-companies-look-hard-at-china-as-growth-slows/#comments Fri, 31 Jul 2015 16:11:46 +0000 http://blogs.reuters.com/tom-bergin/?p=1192 LONDON (Reuters) – The Chinese slowdown is forcing many Western companies to take a hard look at their businesses there, leading many to reduce investments, costs and product lines and to tackle increasing bad debts.

Double digit growth rates during the first decade of the millennium lured scores of Western companies to invest heavily in China. But in recent years growth has slowed sharply, hitting demand and raising doubts about the financial health of Chinese companies.

A recent equities market rout has dashed hopes China will, in the coming years, return to the robust growth it saw in the past.

“We had five fabulous years in China, of course, where we grew strong double-digit, and it has been gradually slowing down. Currently, in China we had negative order intake,” said Frans van Houten, chief executive of Dutch electronics group Philips NV (PHG.AS: Quote, Profile, Research, Stock Buzz), on a call with analysts on Monday.

“Going forward, we need to be much more modest on expectations with regard to China growth; that’s just being realistic,” he said.

The size of China’s economy means executives are not talking about withdrawing from the market but they say business cannot continue as normal.

“I’m optimistic long-term and medium-term that China will come back. Short-term, we need to manage through the drought that we see,” said Ulrich Spiesshofer, CEO of Swiss-based industrial conglomerate ABB (ABBN.VX: Quote, Profile, Research, Stock Buzz).

ABB is carefully managing costs and working hard to convince customers its products offer value despite premium prices. Stuart Rowley, vice president at Ford Motor Company (F.N: Quote, Profile, Research, Stock Buzz), said his company had responded to the softening market by cutting production.

Such actions have knock-on impacts on suppliers, which are also often Western. French auto components group Valeo (VLOF.PA: Quote, Profile, Research, Stock Buzz) said slackening demand from Chinese car factories was forcing it to review its growth plans.

“We see the growth rate slowing down. And in the summertime, some of our customers are extending their summer holidays … Of course, we adapt hiring and CapEx (capital expenditure) to current market conditions,” said CEO Jacques Aschenbroich.

CHANGE IN TACK

Will Hallyer, partner with Strategy Consultants OC&C, said the toughening conditions were prompting companies to shift their focus from boosting market share to ensuring their operations were profitable or at least reducing any losses.

“It had been more of a land grab mentality — buy a position, invest heavily in growth and have confidence that at some point you’ll be able to make money,” he said.

“As the market slows down, it accelerates the shift towards people thinking hard about making sure they have a business that makes money,” he added.

Strategies vary across companies and sectors.

Some have focused on cost reductions — General Motors (GM.N: Quote, Profile, Research, Stock Buzz) flagged “material cost performance” in China to investors. Acting CEO of Sweden’s Volvo AB (VOLVb.ST: Quote, Profile, Research, Stock Buzz) Jan Gurander said this was easier to achieve in China than in Europe, where workers enjoy more protections and factory shutdowns can be politically sensitive.

Others, including BMW (BMWG.DE: Quote, Profile, Research, Stock Buzz) and eyewear manufacturing Luxottica (LUX.MI: Quote, Profile, Research, Stock Buzz), are trying to attract increasingly cautious Chinese consumers with price cuts.

Some companies are rethinking their product lines. French dairy group Danone (DANO.PA: Quote, Profile, Research, Stock Buzz) told investors it was offloading its Chinese business, Dumex, which operates in a highly competitive, commoditised market, to a joint venture partner to allow it focus on marketing its international brands which offer the potential for higher margins.

CREDIT RISK

The deteriorating Chinese environment is also forcing companies to think harder about credit risks.

Swedish lockmaker Assa Abloy Ab’s (ASSAb.ST: Quote, Profile, Research, Stock Buzz) Chinese unit is heavily exposed to the hard-hit construction industry. Chief Financial Officer Carolina Happe said the time it took for Assa’s Chinese customers to pay had increased by a month in the past year, to 99 days. That compares to a group average of 55 days. The change could lead to increased bad debt provisions, she said.

Volvo issued a warning to investors last year that it would have to take a 650 million Swedish Crown ($75 million) charge for expected credit losses in China. Gurander told investors in mid July his company was having tough discussions with dealers about outstanding debts but it was hard to know if the situation was stabilizing or not.

Growing credit risks are also prompting some Western banks to rethink their exposure to China. Sergio Ermotti, CEO of Swiss-based UBS AG (UBSG.VX: Quote, Profile, Research, Stock Buzz), said it had stopped lending money to onshore clients in China.

But even as they moderate their ambitions in China, companies retain an eye for growth opportunities. Some are hoping the stock market drop could help them snap up local companies cheaply.

But with many Chinese companies still supported by government interventions like cheap credit, bargains are few, executives said.

“There are many, many companies for sale, and we are looking to many of those. Still they haven’t felt the heat of the downturn in full yet. That means that they (the owners) expect to get paid,” Assa Abloy CEO Johan Molin told investors.

(Additional reporting by Tom Pfeiffer and Ben Hirschler in London; Editing by Giles Elgood)

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Capital controls mean Greeks can click, but not buy http://www.reuters.com/article/2015/06/30/eurozone-greece-ecommerce-idUSL8N0ZG36520150630?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/06/30/capital-controls-mean-greeks-can-click-but-not-buy/#comments Tue, 30 Jun 2015 14:31:56 +0000 http://blogs.reuters.com/tom-bergin/?p=1190 LONDON, June 30 (Reuters) – Monday was the day the music
died for thousands of song downloaders and music streamers in
Greece.

The imposition of capital controls on Sunday evening means
Greeks are no longer able to purchase goods or services from
many big international online suppliers including Google
, Apple and Facebook.

Transfers of funds out of Greece were banned to prevent a
collapse of the banking system after Prime Minister Alexis
Tsipras rejected the terms of a bailout offer from international
lenders.

The controls mean payments via debit or credit cards to
accounts outside Greece are prohibited.

This is a problem for the big online retailers, music
download sellers and airlines, who sell to clients across Europe
from centralised transacting subsidiaries, often in Luxembourg
or Ireland, and often for tax reasons.

Since Monday, many Greeks have found they can no longer make
payments online to such companies.

“I tried to pay Facebook three euros for a small
advertisement but my card was rejected right away,” said Greek
e-commerce consultant Panayotis Gezerlis.

He added that he had also failed to purchase music from
Google and to make a payment from his bank card via eBay’s
payment unit, Paypal.

Google told Greek clients in a Facebook posting that it was
working to find a solution.

Google’s European customers contract with an Irish
subsidiary when buying advertisements. The system allows the
group to pay almost no tax on profits from these sales, but also
means almost every sale is a cross-border transaction.

A spokesman for the Irish airline Ryanair said it
was also having trouble processing payments from Greek
customers, and was working on a solution.

Even the Taxi hailing service Taxibeat, which was founded in
Greece but operates internationally, tweeted on Monday that it
was hoping to be able to offer a viable payment system soon.

Gezerlis said that, while many of the products and services
affected were not necessities, others, such as file storage and
advertising, could cause problems for businesses unable to pay.

“There are many businesses which rely on Google servers and
on Dropbox to share files,” he said.

Many big online providers including Amazon, Google,
Apple, Microsoft, Adobe and Expedia
did not reply to requests for comment.

(Additional reporting by Eric Auchard in Frankfurt and George
Georgiopoulos in Athens; Editing by Kevin Liffey)

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Exclusive: Citigroup to shift European retail banking base to Dublin http://www.reuters.com/article/2015/06/19/us-citigroup-europe-retail-idUSKBN0OZ12W20150619?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/tom-bergin/2015/06/19/exclusive-citigroup-to-shift-european-retail-banking-base-to-dublin/#comments Fri, 19 Jun 2015 13:27:29 +0000 http://blogs.reuters.com/tom-bergin/?p=1186 LONDON (Reuters) – Citigroup (C.N: Quote, Profile, Research, Stock Buzz) is planning to shift the head office of its European retail banking operation to Dublin from London to benefit from lower costs and capital requirements.

This week the bank wrote to clients to say the UK-based business, Citibank International Limited, which operates a small number of branches across some 20 European countries, would be taken over by Dublin-based Citibank Europe Plc.

“From a strategic perspective for Citi, moving to a single pan-European bank is expected to reduce operational and regulatory complexity, capital requirements and cost,” the company told clients.

Analysts said UK rules that require banks to hold a higher level of cash in reserve than other European countries do was likely to be a factor behind the move but that they did not expect to see a stream of other banks moving their headquarters from the UK.

A spokeswoman for the bank said the change in the retail bank’s legal domicile and principal regulatory base would not involve job cuts and that the leadership of the European retail operation would continue to be based in London.

“The primary reason (for the move) is simplification, mirroring Citi’s strategy of creating a simpler, safer, stronger institution,” she said.

Citigroup has been scaling back its retail operations in recent years and remains a small player in Europe.

Citibank International Ltd employed 4,600 people at the end of last year, filings show. Citibank Europe Plc employed 4,300 and currently focuses on providing transaction services to financial services and corporate clients.

The spokeswoman denied that the decision to rebase in Dublin was influenced by the possibility of the UK leaving the European Union following the referendum on EU membership which is due to be held in the next two years.

Also, although Ireland has become a magnet for international financial institutions thanks to its low tax rate, the spokeswoman said the restructuring was not tax driven.

REGULATORY CAPITAL

Since the financial crisis regulators have increased the amount of cash and government bonds banks must keep in reserve in case of financial storms.

Higher capital requirements mean less money to lend out or invest and consequently lower returns for a bank.

European Union countries apply the same international rules on capital requirements. However, on top of the basic reserve requirements, regulators require some banks to hold additional capital as a buffer. The amount depends on the regulator’s perception of the bank’s systemic or business risks.

The UK’s banking industry is much larger in terms of its assets as a percentage of national GDP than that of other countries in Europe, which means bank failures could cause bigger economic ripples than elsewhere.

This has led the UK regulator to require banks to set aside more money than other European countries demand, analysts said.

“The UK regulator has typically been at the conservative end in terms of capital requirements,” said Gary Greenwood, banks analyst at Shore Capital.

In future, Citigroup will have to set aside the same percentage of its UK assets as it currently does. However, it may no longer be required to set aside a similar percentage of total European assets if the Irish regulator takes a more lenient approach to its UK counterpart.

The Citigroup spokeswoman declined to say how much any reduction in capital requirements might save the bank.

Greenwood said that since most UK-headquartered retail banks are focused on the UK market, they would be unlikely to benefit much from shifting their principal regulatory base to Ireland.

(Additional reporting by Anjuli Davies and Huw Jones in London; Editing by Greg Mahlich)

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Citigroup to shift European retail banking base to Dublin http://uk.reuters.com/article/2015/06/19/citigroup-europe-retail-idUKL5N0Z51V020150619?feedType=RSS&feedName=everything&virtualBrandChannel=11708 http://blogs.reuters.com/tom-bergin/2015/06/19/citigroup-to-shift-european-retail-banking-base-to-dublin/#comments Fri, 19 Jun 2015 13:25:39 +0000 http://blogs.reuters.com/tom-bergin/?p=1188 LONDON, June 19 (Reuters) – Citigroup is planning to
shift the head office of its European retail banking operation
to Dublin from London to benefit from lower costs and capital
requirements.

This week the bank wrote to clients to say the UK-based
business, Citibank International Limited, which operates a small
number of branches across some 20 European countries, would be
taken over by Dublin-based Citibank Europe Plc.

“From a strategic perspective for Citi, moving to a single
pan-European bank is expected to reduce operational and
regulatory complexity, capital requirements and cost,” the
company told clients.

Analysts said UK rules that require banks to hold a higher
level of cash in reserve than other European countries do was
likely to be a factor behind the move but that they did not
expect to see a stream of other banks moving their headquarters
from the UK.

A spokeswoman for the bank said the change in the retail
bank’s legal domicile and principal regulatory base would not
involve job cuts and that the leadership of the European retail
operation would continue to be based in London.

“The primary reason (for the move) is simplification,
mirroring Citi’s strategy of creating a simpler, safer, stronger
institution,” she said.

Citigroup has been scaling back its retail operations in
recent years and remains a small player in Europe.

Citibank International Ltd employed 4,600 people at the end
of last year, filings show. Citibank Europe Plc employed 4,300
and currently focuses on providing transaction services to
financial services and corporate clients.

The spokeswoman denied that the decision to rebase in Dublin
was influenced by the possibility of the UK leaving the European
Union following the referendum on EU membership which is due to
be held in the next two years.

Also, although Ireland has become a magnet for international
financial institutions thanks to its low tax rate, the
spokeswoman said the restructuring was not tax driven.

REGULATORY CAPITAL

Since the financial crisis regulators have increased the
amount of cash and government bonds banks must keep in reserve
in case of financial storms.

Higher capital requirements mean less money to lend out or
invest and consequently lower returns for a bank.

European Union countries apply the same international rules
on capital requirements. However, on top of the basic reserve
requirements, regulators require some banks to hold additional
capital as a buffer. The amount depends on the regulator’s
perception of the bank’s systemic or business risks.

The UK’s banking industry is much larger in terms of its
assets as a percentage of national GDP than that of other
countries in Europe, which means bank failures could cause
bigger economic ripples than elsewhere.

This has led the UK regulator to require banks to set aside
more money than other European countries demand, analysts said.

“The UK regulator has typically been at the conservative end
in terms of capital requirements,” said Gary Greenwood, banks
analyst at Shore Capital.

In future, Citigroup will have to set aside the same
percentage of its UK assets as it currently does. However, it
may no longer be required to set aside a similar percentage of
total European assets if the Irish regulator takes a more
lenient approach to its UK counterpart.

The Citigroup spokeswoman declined to say how much any
reduction in capital requirements might save the bank.

Greenwood said that since most UK-headquartered retail banks
are focused on the UK market, they would be unlikely to benefit
much from shifting their principal regulatory base to Ireland.

(Additional reporting by Anjuli Davies and Huw Jones in London;
Editing by Greg Mahlich)

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