Dave Johnson: Repatriation Tax Mistakes

If you reward bad behavior you create an incentive for the bad behavior to continue. This is certainly the case with taxes on profits made outside the country. Rewarding multinational companies for keeping profits outside of the country has cost us jobs and tax revenue.

Today’s NY Times editorial Jobs and Taxes gets it right — and wrong. The editorial looks at President Obama’s proposal this week for “revenue-neutral” corporate tax “reform” with one-time “fees” to pay for a small bit of infrastructure repair. They correctly point out that this is a “dangerous” plan because “while the proposal would raise money for useful purposes in the short run, it would amount to an unjustified corporate giveaway in the longer term.”

Correct. But there is another danger in the idea, which the editorial gets right — and wrong. The editorial warns,

Similarly, the proposal calls for a minimum corporate tax on foreign earnings of American companies, which could be a step toward greater fairness but stops short of ending the damaging practice whereby companies defer tax on foreign profits until the cash is repatriated to the United States. The proposal does not say what the minimum tax would be. Any repatriation at less than the proposed top rate of 28 percent would encourage companies to keep stashing profits abroad.

Yes, any repatriation at less than the correct tax rate would certainly “encourage companies to keep stashing profits abroad.” The Times‘ mistake is that a 28 percent rate would create the same incentive to keep doing it because the current tax rate is 35 percent, not 28 percent. These companies are evading a 35 percent rate, and rewarding this tax evasion by letting them bring the profits back at 28 percent just sets us up for more of the same.

In 2004 Congress gave multinational corporations a “repatriation tax holiday,” letting them return profits at dramatically lower tax rates. This didn’t work out so well for the country, economy or shareholders. Of course this incentive caused companies to start keeping even more profits out of the country. Jobs, factories and profit centers were moved to tax-haven countries because the game was defined: Congress hands out tax-holiday gifts so just wait for the next repatriation tax holiday. It is estimated that $1.7 – 2 trillion is now parked outside the country, withheld from taxation — and shareholders.

If this scheme pays off yet again the problem can only get worse. The right answer is to just end the “deferral” that lets these companies pretending the profits are not “in” the country to evade their taxes. That money is supposed the be taxed at the current 35 percent tax rate, and there is no reason for it to be taxed at a lower rate. End this evasion game now and watch the jobs, factories and profit centers return. And then use a sales-based apportionment system to decide where profits are made.


This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary

Meet The Man Behind The World’s Biggest Advertising Merger

French advertising giant Publicis and its American rival Omnicom announced on Sunday that the two firms were merging to create the world’s biggest advertising company. News of the merger, which will produce a $35 billion advertising behemoth, has sent ripples throughout an industry facing increased competition from disruptive rivals like Google, Facebook and Twitter.

Some competitors see the merger as an opportunity to steal clients who want a more personal advertising approach, while others have voiced concerns that the merger will lead to unfair competition.

Maurice Levy, the CEO of Publicis, sat down with HuffPost France to answer questions about the deal. The interview covers a range of subjects: from the conflicts of interest that could arise from having both Coca-Cola and PepsiCo. as advertising clients to the management’s choice on where to headquarter the new company.

Here’s the translated interview:

The deal depends on authorizations by a number of governmental bodies that regulate competition. Could the merger break down?

No. Our lawyers are confident that all clearances will be obtained. I expect our competitors to put some obstructions in our way. Our competitors are energetically lobbying analysts, clients and journalists. But if you look at our stock market valuation, you can see it’s doing fine: The marketplace believes in us.

Will the deal be completed by the end of 2013?

More likely the beginning of next year.

Why will the new group be headquartered in the Netherlands?

We absolutely had to avoid giving clients and our teams the impression that one of our two groups was absorbing the other. So we decided to headquarter in a European country close to our common roots. A huge number of European companies have their headquarters in the Netherlands, while realizing their operations in their respective countries. EADS is headquartered there, as is STMicroelectronics and Renault-Nissan Alliance. Holland is a neutral country.

We will invoice and pay taxes in the countries where we operate. We will maintain our operational activities in France. There’s no need to fantasize or draw up comparisons.

French Finance Minister Pierre Moscovici has said he will be “vigilant” regarding the commitments you have made to the French.

What you read in the press is one thing, and the conversation that I had with Pierre Moscovici is another. He was very clear and supportive. Of course he asked me what kind of impact this would have on employment within our group. I reassured him and said we do not plan any restructuring. Neither do we plan to take operations out of French territory. On the contrary, operations that we have realized in the past have developed a number of jobs in France, and we hope that the merger with Omnicom — and our subsequent development of an even richer palette of services for our clients — will enable us to further expand our French operations.

We’re aware of the employment situation in France, and we love our country. Our commitment has been flawless to date. Moreover, the Publicis Omnicom board will be 50/50, and decisions will be taken by a two-thirds majority. There’s no need to start hypothesizing.

The CGT trade union has called it an unreasonable merger and has invoked future redundancies, abusive breaches of employment contracts and “externalizations.”

The CGT is not terribly representative at Publicis. It has attempted a few demonstrations, which have attracted about 25 people — in a group that has more than 5,000 team members in France. I’m sorry, but the proposals and remarks of the CGT are extremely approximate. I would prefer to be able to engage together in a realistic and constructive dialogue.

You have a contract with Coca-Cola; Omnicom works for Pepsi. According to the Bank of America, the merger may involve conflicts of interest between clients.

This question has been raised by our competitors. But at WPP, for example, their clients within the same group include Colgate-Palmolive, Unilever, Procter & Gamble, Kimberly-Clark and part of Estée Lauder [Editor’s note: all are multinational corporations that produce hygiene-related consumer products]. The fact that we serve clients who operate in the same market segment is part of normal life for our agencies. We do not plan to consolidate our networks. Clients will continue to have the same number of agencies to choose from and to be served by their current agencies. The potential for conflicts is hardly a revelation, and it’s up to us to find solutions. We’re working on it.

You led the internationalization of Publicis Groupe in the 1990s. What’s the significance of this new development?

Marcel Bleustein-Blanchet made the first European moves in the 1970s. I was named CEO and chairman of the Management Board in November 1987. At the time, we were making about 70 percent of our revenues in France and the remaining 30 percent in Europe. I committed myself to expanding Publicis in order to face the challenge of globalization and begin competing with the big global groups, most of whom were American.

Since then the development of emerging countries and their spectacular growth have radically transformed the market, which is far more global now and more complex. China has become the third largest marketplace worldwide, after the U.S. and Japan, although in the 1980s there was absolutely no advertising in China. The first time I went there, the only ads I could see were state propaganda. At that time, Brazil was the 20th largest marketplace worldwide; now it’s the sixth. Moreover, the development of Internet and digital communication has transformed people’s lives and changed all kinds of economic models — including for ad agencies and the media.

Our merger is motivated to serve our client better, with new capabilities. By uniting the operations of Omnicom and Publicis, we will also create a very rich group that is capable of investing in new technologies and their talents. It is absolutely not a move against the big Internet groups, but instead will provide opportunities to innovate on a collaborative and individual basis.

In September 2002, we made an acquisition that enabled us to almost double in size [Editor’s note: BCom3, a 3.42 billion euro operation, backed by a strategic agreement with Dentsu, Japan’s largest advertiser, which held 15 percent of the capital of the new group]. This was a difficult acquisition, but at the time we didn’t have the same kind of experience or the same means that we have today. And we integrated it remarkably well.

Publicis is a more centralized group than Omnicom. Are the two groups’ corporate cultures too different for this to work?

We need to look at two things here: company values and corporate culture. Our values are totally comparable. Both our groups are based on identical human principles. We share the same respect for individuals, for cultures, for diversity, as well as irreproachable ethics and similar emphasis on decent treatment for our team workers and suppliers.

There are some differences in terms of corporate culture. They are American, we are French. They’re attached to their roots, and so are we, but today, already, 48 percent of our revenue stems from the United States.

The Deutsche Bank estimates that it will take at least two or three years before the new entity will be fully integrated.

In my opinion it will be shorter. We’re only merging the holding company, not our respective networks.

Is the group planning acquisitions?

We have a few small acquisitions in the pipe, and we’ll complete them. We may have some medium-sized acquisitions for specific products or countries, but there are no major projects.

This article has been translated from French and originally appeared on HuffPost France.

Wall St. Week Ahead: Market to shift into lower gear as earnings, data fade

NEW YORK (Reuters) – With earnings season winding down and the employment report out of the way, the U.S. stock market is likely to shift into a lower gear next week.

EAT Club Suspends Food Bus Operations In SF After Getting A Cease And Desist From The City

eat club bus

Lunch goers in San Francisco startup neighborhoods like SOMA and the FiDi have lost one of their better food options today, as the EAT Club food bus has suspended operations after receiving a cease and desist from the city. The shutdown of its San Francisco service follows a disagreement over how to classify the EAT Club vehicle under city food codes.

EAT Club’s food bus launched in May, bringing a wide variety of quality meals to food deserts in San Francisco. The idea was to bring all of the awesome foods available from a wide variety of restaurants throughout the city, and make them available through a single mobile app. It did that by carting around food from three or four different restaurants every single day, in heaters or refrigerators designed to keep food at the perfect temperature when customers picked it up.

Since no food was actually prepared on the bus, folks at EAT Club argued that it didn’t fit under the usual codes for food trucks, and so hadn’t been licensed as such. The startup believes that it’s best classified as a “delivery vehicle” and therefore shouldn’t need a license to operate in the city.

There’s just one problem — while the EAT Club food bus carried food from a restaurant to areas where customers would purchase its goods, it didn’t rove the streets to do so. Instead, it just kind of sat in one place all day waiting for customers to place orders on its app, then come pick up food from a static location.

And, according to San Francisco’s Department of Public Works, it’s not allowed to do that.

The department issued a cease and desist to EAT Club, telling the startup that it needs a Mobile Food Facility Permit. Until EAT Club does so, the Public Works Department demands that it “cease operations in the public right-of-way.” In other words, don’t park in the street all day serving food, guys!

While EAT Club has stopped serving San Francisco from its food bus, the company will continue operating its legacy food delivery business in Silicon Valley. And it’s looking for ways to make the bus work in the city. That means continuing to meet with city officials to work out some sort of compromise, or finding other ways to actually use the bus for deliveries — like maybe taking it to various startup or corporate offices during lunchtime.

EAT Club has raised $6.5 million from investors that include August Capital, First Round Capital, Siemer Ventures, Great Oaks Venture Capital, Launch Capital, Tekton Ventures, Zulily and Blue Nile co-founder Mark Vadon, and other angel investors.

To see what the EAT Club bus was about in happier times, check out this video:

* The FiDi is my favorite acronym in the history of lame city acronyms.

Postal Service could start shipping alcohol under Senate proposal

WASHINGTON (Reuters) – The cash-strapped Postal Service could tap a rich new revenue stream if Congress adopts the idea of two senators who want to allow it to ship alcohol, a business reserved for more than a century for its private competitors.


DES MOINES, Iowa — This weekend’s Powerball jackpot will be worth at least $300 million, so the $2 tickets are likely to sell quickly.

Saturday’s jackpot is still well below the record Powerball jackpot of $590.5 million that an 84-year-old Florida widow won in May.

But it’s big enough to attract casual players who only buy tickets when they think the payoff is big enough to be life-changing.

The odds of matching all six numbers – five white balls plus the Powerball – are 1 in 175.2 million.

Lottery officials expect plenty of tickets will be sold in the 43 states that offer Powerball. Tickets are also sold in Washington D.C. and the U.S. Virgin Islands.



Time Warner Cable Drops CBS in NY, LA, Dallas

(LOS ANGELES) — Three million Time Warner Cable customers in New York, Los Angeles and Dallas are losing the CBS channel, as the cable provider says it is dropping the network in a dispute over fees. The nation’s second largest cable operator says that CBS refused to have productive discussions despite a monthlong extension of talks since a previous deal expired at the end of June. CBS says it regrets Time Warner Cable’s decision, which it calls “ill-advised.”

OSC commissioner recuses himself from First Leaside case

James Carnwath, a commissioner at the Ontario Securities Commission, has recused himself from a three-member panel overseeing a fraud case against the founder and senior salesman of First Leaside Group.

Mr. Carnwath was acting as chair of the panel adjudicating the case against David Phillips and John Wilson, whose lawyers sought to have the commissioner recuse himself because they were concerned he had “pre-judged” the case.

Staff of the OSC filed a document Wednesday that said the motion calling for Mr. Carnwath to recuse himself was “utterly groundless.”

However, late Thursday, the regulator said the commissioner had elected to recuse himself.

“Mr. Carnwath, while not accepting the submissions of the respondents in the recusal motion, has recused himself for the sole purpose of permitting the efficient and uninterrupted continuation of the proceeding,” the OSC said.

The case will continue, and will be adjudicated by the two remaining commissioners on the panel, Edward Kerwin and C. Wesley M. Scott.

The evidence portion of the First Leaside hearing wrapped up in late June. A decision is expected after closing arguments are heard on Sept. 9.

At the heart of the case are allegations by OSC staff that Mr. Phillips and Mr. Wilson committed fraud by selling or directing sales of about $18-million worth of securities in late 2011 without disclosing a comprehensive viability report on the real estate investment firm. The viability report was completed by an outside accounting firm in the midst of an OSC investigation.

A document filed on July 22 by lawyers for Mr. Phillips and Mr. Wilson suggested that questions from Mr. Carnwath during a pre-hearing conference and three-week hearing in June gave the impression that he had a “roadmap” by which he intended to make a finding of fraud against their clients Mr. Phillips and Mr. Wilson.

In particular, they noted Mr. Carnwath had asked in a pre-conference hearing in May whether there had been any settlement discussions, and directed the lawyers for Mr. Phillips and Mr. Wilson to a passage from a leading case on the test for fraud. The passage concerned whether a finding of fraud could be made even if the accused believed they were doing nothing wrong.

“It appeared that the chair was signalling that this passage could be an obstacle to the respondents successfully defending the allegation of fraud,” the submission on behalf of Mr. Phillips and Mr. Wilson said.

Staff of the OSC countered that Mr. Carnwath’s comments and questions “in no way indicate pre-judgment nor any inappropriate conduct on his part.”

Further, OSC staff argued that it is appropriate for  adjudicators in commission cases to alert lawyers to “governing jurisprudence” as they see fit, and “to ask relevant and probing questions of witnesses.”