Blast at IMF Paris offices after envelope opened, one person hurt

PARIS - A letter exploded when it was opened at the offices in central Paris of the International Monetary Fund (IMF) on Thursday injuring one person.

The Paris police department said an operation was ongoing at the offices of the IMF and World Bank after the incident.

The blast was caused by a homemade device, said the head of the French capital's police force.

"It was something that was fairly homemade," police chief Michel Cadot told reporters.

Cadot said there had been some telephone threats made in recent days, but it was not clear if these were linked to the incident at the IMF's offices.

IMF chief Christine Lagarde condemned an explosion as "a cowardly act of violence."

"I condemn this cowardly act of violence and reaffirm the IMF's resolve to continue our work in line with our mandate. We are working closely with the French authorities to investigate this incident and ensure the safety of our staff," she said.

The incident, just six weeks before a presidential election, comes as a militant Greek group Conspiracy of Fire Cells claimed responsibility for a parcel bomb mailed to German Finance Minister Wolfgang Schaeuble on Wednesday.

French President Francois Hollande said French authorities would do all they could to find those responsible for the incident.

(Reporting by Bate Felix, Sudip Kar-Gupta and Sophie Louet; Writing and Editing by Richard Balmforth, John Irish and Adrian Croft)

source: news.abs-cbn.com

Greece faces last chance to stay in euro as cash runs out

BRUSSELS/ATHENS - Greek Prime Minister Alexis Tsipras is expected to present new proposals to an emergency euro zone summit on Tuesday, under pressure from European leaders to come up with credible ideas as his country's banks face potential meltdown.

With Greek lenders down to their last few days of cash and the European Central Bank tightening the noose on their funding, Tsipras must persuade the bloc's other 18 leaders, many of whom are exasperated with five years of crisis, to open negotiations fast on a new loan to rescue Greece.

The leaders of Germany and France, the currency area's two main powers, said after conferring on Monday that the door was still open to a deal to save Greece from plunging into economic turmoil and ditching the euro.

But Chancellor Angela Merkel, under pressure in Germany to cut Greece loose, made clear it was up to Tsipras to come up with convincing proposals after Athens spurned the tax rises, spending cuts and pension and labor reforms that were on the table before its 240 billion euro bailout expired last week.

European Commission President Jean-Claude Juncker, under suspicion from both sides for trying to broker a last-minute deal, told the European Parliament: "There are some in the European Union who openly or secretly are working to exclude Greece from the euro zone."

He did not name names but may have been referring to German Finance Minister Wolfgang Schaeuble, who has made no secret of his scepticism about Greece's fitness to stay in the euro.

From the Greek side, the key to making any deal politically acceptable will be to win a stronger commitment from Merkel and other lenders to reschedule Greece's giant debt burden, which the International Monetary Fund says is unsustainable.

Without some firmer pledge of debt relief, neither Greece nor the IMF is likely to accept a deal. But that may be more than Germany and its northern allies can swallow.

"The door is open to negotiations, but there isn't much time left and the situation is urgent both for Greece and for Europe," French President Francois Hollande said in a joint media appearance with Merkel in Paris.

At stake at the emergency summit beginning at 6 p.m. (2.00 p.m. EDT) in Brussels is more than just the future of Greece, a nation of 11 million that makes up just 2 percent of the euro zone's economic output and population.

If Greek banks run out of money and the country has to print its own currency, it could mean a state leaving the euro for the first time since it was launched in 1999, creating a precedent and fuelling doubts about the long-term viability of an incomplete European monetary union.

"Even if it did not trigger a short-term domino effect, the integrity of the euro zone would come under fresh threat with each episode of political uncertainty within member countries," said Thibault Mercier, an analyst at BNP Paribas.

CONCESSIONS UNCLEAR
Strengthened by the overwhelming 61.3 percent 'No' vote in Sunday's referendum, the leftist Tsipras won the unprecedented support of all other Greek party leaders on Monday and replaced his abrasive Finance Minister Yanis Varoufakis with the soft-spoken negotiator Euclid Tsakalotos.

"They (creditors) wanted a 'Yes' to prevail so they could humiliate the Greek prime minister, to go weakened, under these conditions of funding asphyxiation, and be a pushover. That didn't happen," Labour Minister Panos Skourletis told Antenna TV.

In an intensive round of telephone diplomacy, Tsipras spoke to the heads of the ECB, the IMF and the European Commission, as well as Merkel, Russian President Vladimir Putin and U.S. Treasury Secretary Jack Lew.

But he gave little clue of what reform concessions he would make to try to convince deeply sceptical European leaders to lend Athens more money after five months of acrimonious and fruitless negotiations with his leftist administration.

His proposals were not expected to go much beyond a letter he sent to euro zone partners last week, accepting most of the terms of a creditors' offer that was no longer on the table, but still seeking some loopholes for social or coalition reasons.

The United States, China and Japan all called for a solution in which Greece stays in the euro zone.

Juncker told EU lawmakers in Strasbourg he was working night and day to get negotiations reopened but he chided the Greeks for their confrontational approach, saying it was unacceptable to accuse the EU of behaving like "terrorists", as Varoufakis did last week.

"Throwing Greece out of the monetary union or indeed the European Union is not something we want or indeed should want," said the EU's chief executive, who was heckled by leftists and Eurosceptics when he said Greeks hadn't been properly informed about what they were voting on.

European Central Bank policymaker Ewald Nowotny suggested the bank might be able to provide some sort of bridge funding while Greece negotiated a longer-term conditional loan to see it over a crucial July 20 bond redemption to the ECB.

Greek newspapers dramatized the make-or-break nature of the Brussels showdown.

Centrist daily Ethnos headlined: "Time has run out for a solution before catastrophe," while the center-right Eleftheros Typos said: "Tsipras’ games finish at today's council: Time of crisis: deal or Grexit."

Greek newspapers said the proposals would be based on ideas that Juncker put forward at the end of June with a few tweaks and would not differ much from the last plans presented by Athens itself last week.

Euro zone national officials were irritated that Juncker had gone beyond the agreed negotiating mandate of the three creditor institutions in his last-ditch diplomacy, and it is not clear that they will be more receptive to his ideas now.

A clear majority of Greece's 18 partners favor a hard line at the summit, arguing that they too are democracies and that Greeks should not get easier money because they had rejected the austerity terms, casting further doubt on whether they would implement any reforms agreed now.

The ECB left unchanged its emergency liquidity lifeline for Greek banks but raised the discount it charges on collateral they have to present for funds - a measure banking sources said was largely symbolic since the total they could borrow was capped.

A bank closure in force since the talks collapsed was prolonged until Thursday at least, and cash withdrawals remain limited to 60 euros a day, with 20 euro notes running out.

The Athens stock exchange was also ordered closed for two days in Tuesday and Wednesday to throttle speculation.

Even with the country on the brink of economic collapse, Greek newspapers reported the government was still seeking exceptions from its reform pledges for special interests.

Athens wants to keep a 30 percent discount on value added tax on Greek islands and protect defense spending from cuts, which rightist junior coalition partners the Independent Greeks have called "red lines".

source: www.abs-cbnnews.com

In blow to Greece, ECB restricts banks' access to cash

FRANKFURT - The European Central Bank on Wednesday cut off Greek banks' access to a key source of much-needed cash, piling fresh pressure on the country's new government to reach a deal with international creditors.

In a decision that rattled financial markets, the ECB said it would no longer allow Greek banks to use government debt, which has a junk rating, as collateral for loans.

The announcement came just hours after new Greek Finance Minister Yanis Varoufakis held his first talks with ECB chief Mario Draghi as part of the country's push to renegotiate Athens' 240-billion-euro ($270 billion) EU-IMF bailout.

Stock markets fell on the news, while the euro tumbled by more than one percent against the dollar.

The ECB move will likely feature heavily in Varoufakis's keenly-awaited first talks with German Finance Minister Wolfgang Schaeuble on Thursday, whose country is seen as the strongest opponent of any easing in the terms of the massive debts Greece has built up.

Both Prime Minister Alexis Tsipras and Varoufakis -- whose far-left Syriza party stormed to victory in elections on January 25 -- have been touring Europe in recent days to build support for a new debt agreement with creditors.

Elected on a pledge to end austerity policies imposed on Greece as part of its bailout, Tsipras faces the delicate task of convincing his European partners to reverse course while ensuring Athens still gets the aid required to avoid a default.

In Brussels, Tsipras struck an upbeat note after talks with European Commission chief Jean-Claude Juncker and EU president Donald Tusk, saying he was optimistic of a "viable and mutually acceptable solution".

A Greek government source said Tsipras and Juncker discussed plans to "jointly" create a four-year reform plan for Greece, as well as a bridging deal to give Athens time to draw up plans for reforms including on corruption and tax evasion.

But Tusk acknowledged that resolving the showdown over Greece's debt was likely to be "difficult" and needed "cooperation and dialogue as well as determined efforts by Greece."

'Fruitful' ECB talks

Ahead of the ECB talks in Frankfurt, Varoufakis told the German weekly Die Zeit that the ECB "should support our banks so that we can stay afloat", acknowledging that Greece was "a bankrupt country".

The former economics professor later described his talks with Draghi as "very fruitful".

But after a meeting of its policy-setting governing council late Wednesday, the ECB said it was taking the step to end the special waiver for Greece because "it is currently not possible to assume a successful conclusion of the programme review".

The waiver, which will end on February 11, had allowed banks to pledge their Greek bonds as collateral, even though the securities did not meet standards for a minimum credit rating.

Separately, a Financial Times report suggested that Draghi might block a key element of Athens' plan.

According to the FT, which cited officials involved in the deliberations, the ECB is refusing to raise an agreed cap on the amount of short-term treasury bills that Athens can issue from 15 billion euros to 25 billion euros.

Greece faces key payments on its debt at the end of February and again at the end of May.

Next stop: Berlin

The International Monetary Fund -- the third part of the so-called "troika" that oversees Greece's bailouts along with the European Commission and ECB -- said meanwhile it was not in debt talks with the Greek government.

The new Greek government has blamed its fiscal problems mainly on the austerity shackles fixed by German Chancellor Angela Merkel.

Athens says these restrictions have choked growth in an economy that has shrunk by a quarter, failed to cut unemployment that stands at over 25 percent, and made it impossible to service a mountain of debt worth 1.75 times its annual economic output.

But Merkel tried to squash the talk that Syriza could play on divisions within Europe, insisting that there were no substantial differences between major eurozone nations.

"I don't think that the positions of the member states of the eurozone with regard to Greece differ, at least in terms of substance," Merkel said.

In a bid to quell western worries over the new Greek government's closeness to Russia at a time of Cold War-style tensions, Varoufakis said meanwhile that Athens would "never" seek loans from Moscow.

Greece's defence minister Panos Kammenos also told AFP that Athens remained committed to its NATO role despite its relationship with Russia.

Greece's political turmoil continued at home in the meantime, as judges sent 72 members of neo-Nazi party Golden Dawn, including its leaders, for trial for crimes including murder.

source: www.abs-cbnnews.com

How this German tech giant trims its US tax bill

LONDON - In July 2012, then-U.S. Treasury Secretary Tim Geithner travelled to an island off the German coast to meet Wolfgang Schaeuble, Germany’s finance minister. Schaeuble was on vacation, but Geithner visited to discuss the euro zone crisis. Talk also turned to a long-running bugbear of Schaeuble’s: corporate tax avoidance.

According to a letter Schaeuble later wrote to Geithner, the Treasury Secretary had explained in their conversation that the most aggressive forms of avoidance often involved technology companies parking valuable know-how in low-tax countries and making other parts of the company pay high rates to use it.

In Schaeuble’s letter he sought Geithner’s support for international action against legal tax dodging. Profit shifting, the finance minister said, was largely a problem involving U.S. companies. Tax rules in Germany made it more difficult there. This “could explain why we do not know of German companies with comparable tax arrangements to the U.S. companies,” the letter, seen by Reuters, said.

But an examination of the accounts of one of Germany’s largest firms shows it uses similar techniques. Without them, it would pay more than 100 million euros ($133.53 million) in additional tax each year, some of it to the United States.

SAP AG provides software for businesses to process and analyse transactions, counts 80 percent of the Fortune 500 as customers and has a market capitalisation of $90 billion, making it the fourth biggest firm in Germany. Its accounts show that it – like U.S. tech firms such as Google and Microsoft - channels profit to subsidiaries in Ireland, where the corporate tax rate is 12.5 percent. The comparable rate in Germany is 30 percent and in the United States, SAP’s largest market, 39 percent, according to the Organisation for Economic Cooperation and Development (OECD), an international think tank.

SAP, which is headquartered in Walldorf, Germany, has paid a global annual tax rate in the last three years averaging 26 percent. That’s nearly 20 percentage points less than the company paid a decade earlier.

Like other German companies, SAP has benefited from significant German tax cuts over that time, but it is only taxed on part of its profits in Germany. The company is structured so that Ireland, which accounts for less than 1 percent of its sales and employees, is the home base for 20 percent of its profits. SAP uses Dublin as a base for know-how and other intellectual property generated by staff around the world, and has an Irish subsidiary lend billions of dollars to a U.S. affiliate for much higher interest rates than the group pays on the open market.

There is nothing illegal about this; the company said profits reported in Ireland reflect genuine economic activity and risks borne by Irish subsidiaries, and the structure was driven by operational rather than tax motives. “SAP didn’t come to Ireland for taxes,” Liam Ryan, who heads SAP’s Irish operation, told Reuters at the group’s campus in the leafy Citywest office park on the outskirts of Dublin. “The reason SAP invests here is because we deliver.”

Tax authorities in Germany and the United States declined comment, citing rules on taxpayer confidentiality. A spokesman for Finance Minister Schaeuble said he would not comment on specific companies.

Sven Giegold, a German member of the European Parliament and spokesman on economic affairs with the Green Party, said, “This shows U.S. companies are not alone in engaging in clever tax planning.” He said the arrangements were clearly “contrived... It is obvious that these arrangements are tax motivated. It is not convincing to say otherwise.”

Sahra Wagenknecht, a member of the German parliament and a spokeswoman on economic and tax matters for Die Linke, a left-wing party which calls for higher taxation, said SAP's case highlighted inadequacies in current tax rules that the government should address.

Corporate tax is an increasingly touchy topic as indebted governments cut budgets. Last year, Schaeuble worked with colleagues from France and Britain to launch a major review of international tax rules aimed at ensuring multinationals pay their fair share and at reducing what has become known as "base erosion and profit shifting" (BEPS). Governments aim to agree new rules in a couple of years.

Edward Kleinbard, Professor of Law at the University of Southern California, says U.S. business lobbyists have depicted these efforts at tax reform as anti-competitive, a bid to weaken U.S. firms by having them pay more tax to overseas governments.

“U.S. firms have designed a good deal of their domestic lobbying on BEPS along the lines that BEPS is all about bashing American success,” said Kleinbard, who was formerly Chief of Staff of the U.S. Congress’s Joint Committee on Taxation.

But he said the case of SAP shows the United States is also a victim of tax avoidance by foreign companies; the U.S. treasury, too, could benefit from tax reform.

Like all companies, SAP has a responsibility to investors to maximise returns by minimising costs, including taxes. “Clearly, if I was an investor looking at two identical companies, I would choose the one with the lower tax rate,” said Robert Jakobsen, senior equity analyst at Jyske Bank in Denmark, who covers SAP.

ACQUIRED TAX EFFICIENCY

In January 2012, a fund manager at a presentation for investors in Frankfurt asked SAP’s chief financial officer, Werner Brandt, how the company had managed to reduce its effective tax rate so much “in the last few years”, given “an environment where countries need more taxes and have stretched budgets.”

The question prompted laughter from the room and from Brandt himself, a video of the event on SAP’s website shows.

“I hope you understand that I do not want to go into too much detail here,” he responded. “But if you think of acquisitions and the way how you finance and structure acquisitions, this could help you, in order to reduce your tax rate.”

SAP spokesman Jim Dever said Brandt’s comment referred to U.S. acquisitions made by SAP in recent years. He declined to name the acquisitions, though he said Brandt’s answer did not refer to SAP’s biggest pre-2012 deal, the $7 billion takeover of French software company Business Objects in 2008.

Even so, SAP’s accounts show the Business Objects deal did contribute to a significant reduction in taxes by allowing it to report large profits in Ireland. In fact, Business Objects’ Irish operation gave SAP a low-tax home for its intellectual property which could then charge other parts of the group for the right to use the software, thereby shifting profits to Dublin.

Profitability at Business Objects’ Irish subsidiary, Business Objects Software Ltd., has risen tenfold since the deal. Last year, the Dublin-registered unit reported profits of 381 million euros, making it the second most profitable arm of the group after the main German operation.

SAP says this high profitability is due to the fact that Dublin owns the intellectual property underpinning Business Objects’ branded software. The firm charges affiliates royalties for licensing this, and the affiliates then sell the software to clients.

Dublin did not develop the original software and did not even have a research department before 2008, said Andrey Grigoriev, Senior Director at Business Objects. It accumulated the know-how by buying rights to software that had been developed by affiliates in the United States, the UK, Canada and France.

Since SAP took over, Business Objects has established a research unit in Dublin. The centre, known as “App Haus”, sits on the third floor of one of SAP’s glass-and-stone clad buildings at Citywest. Its look is deliberately unfinished: part-plastered walls, exposed wooden supports, uncarpeted steel floors, furniture on wheels and floor-to-ceiling whiteboards which hang from rails. Mark Brennan, Vice President Development, Ireland, said the “garage” look aims to foster the energy of a start-up.

In 2011, the last year for which full accounts for Business Objects Software are available, it spent 180 million euros on research. Less than 10 percent of that was spent in Ireland.

Business Objects Software is markedly more profitable than the company’s other units that develop or sell software. At the group’s main North American “development, research, and innovation” centre, SAP LABS, LLC, in Palo Alto, California, where more than 2,000 staff work, profit margins were 4 percent in 2011, accounts show. SAP (UK) Ltd., which sells a range of SAP software in Britain, had margins of just 7 percent, a similar level to other SAP distribution subsidiaries. Dublin’s profit margins were 37 percent in 2011. It made that by charging other group companies more than 700 million euros for its intellectual property, while paying less than 180 million euros to subsidiaries that develop the software.

SAP’s customers and programmers are largely based in the United States, Canada, France, Japan, the UK and Germany. If its profit were allocated more closely in line with sales and research this would boost its tax bill, potentially by more than 60 million euros based on headline tax rates. SAP said it follows international rules on transfer pricing – the common practice of pricing inter-company transactions. It said the high profits in Ireland were the unintentional result of its application of international tax rules.

Kleinbard, the California law professor, said the structure of the Irish unit was lawful but defied economic logic: “It’s just not credible to say that a company which has such a low percentage of sales in a country can generate so much profit there.”

LOAN TO SELF

Two floors beneath the “App Haus” sits the other key to SAP’s tax efficiency.

Visitors might easily miss the small plaque on the wall, and the slightly darker hue in the carpet tiles that designate the shift from the realm of Business Objects Software to that of its subsidiary, SAP Ireland US-Financial Services Ltd. But the three staff who work here are far and away the most productive in the group, SAP accounts show. On average, each one of them generated profits of 107 million euros in 2012.

The company said SAP Ireland US-Financial Services was established in 2010 to help manage foreign currency risk and finance U.S. acquisitions. The unit also helps reduce taxes by creating large interest costs in Germany and the United States and large interest income in Ireland.

How does it do this? Take an example from 2010. SAP AG – the German-registered group parent - raised 2.2 billion euros by issuing Eurobonds, and injected the money as equity into SAP Ireland US-Financial Services. The bonds generated annual interest payments of 57 million euros which were not offset by interest received from Ireland, so SAP’s taxable income was reduced by a similar amount, the accounts show.

The Irish financing unit then borrowed additional funds from U.S. lenders at an interest rate of less than 3 percent, which it lent on to SAP America Inc., to which it charged a higher interest rate. By the end of 2011, the Dublin subsidiary had extended loans of $4.25 billion to its U.S. affiliate, and generated interest income of $300 million that year – equivalent to an interest rate of 8 percent.

If SAP America had borrowed on the public markets at 3 percent, the lower interest charge would also have boosted its profit – and its taxes.

SAP’s Dever said the corporate structure was not motivated by tax. He said the financing arm was established in Ireland because not all countries allow firms to report their accounts in foreign currencies - SAP Ireland US-Financial Services uses dollars.

The interest rates charged to SAP America were reasonable, SAP said, because they reflect the rates that such a company would have to pay in the open market if it did not have a guarantee from a cash-rich parent.

Professor Michael Graetz, at the Columbia University law school, said the arrangement was a well established tax-reduction strategy.

“They’re stripping the income out of the U.S. into Ireland, using debt,” he said. “Income is flocking to a low-tax country and the deductions are flocking to high-tax countries.”

ACTION PLAN

Much of the debate around corporate tax over the past year has focused on U.S. companies. The SAP example shows firms from other countries use the same techniques.

Reimar Pinkernell, tax partner at law firm Flick Gocke Schaumburg in Bonn, said tough international competition in businesses like software meant Europeans had to take advantage of tax optimisation opportunities.

The OECD, which advises its mainly rich nation members on taxation, has recommended countries seek to end many contrived tax avoidance practices. In July it published an Action Plan that highlighted firms' use of inter-company debt and the way they locate intellectual property in low tax areas as problems to address.

The governments of all the Group of 20 leading nations, including Germany, have backed that plan.

Business groups on both sides of the Atlantic have pushed back, saying the drive fosters an anti-business environment that could hamper growth.

“U.S. companies are concerned about the impact of the Action Plan,” said Carol Doran Klein, International Tax Counsel with the United States Council for International Business (USCIB), which counts over 300 of the biggest U.S. multinationals among its members. “There is a sense that U.S. companies are targets.”

source: www.abs-cbnnews.com