Morning business news - February 12Tuesday 12 February 2013 11.15
US TAX ARRANGEMENTS BECOMING A POLITICAL ISSUE - US companies including Apple, Google and Microsoft have an estimated $1.7 trillion in cash sitting outside the US due to profit generated in their overseas operations in places such as Ireland. For tax reasons that money has not been repatriated to the US but the treasure trove has become both a political issue in the US and a bone of contention for shareholders. The hedge fund manager David Einhorn, for example, has initiated legal action against Apple in an attempt to force it to distribute some of its $137 billion cash pile to its owners.
Brian Keegan, tax director with Chartered Accountants Ireland, says the nub of the issue is the way the US organises the way it taxes its companies. Companies in Ireland are used to paying out tax immediately and where it is earned, but the US operates a different system. A US company is taxed on its income whether that income is earned in Baltimore, Maryland or Baltimore in West Cork. If the income is earned in Baltimore in West Cork, Irish corporation tax is paid on it and then when the money is remitted back into the US it becomes subject to US corporation tax - this is known as a deferral. If a company, which is US based, is manufacturing or trading overseas it pays its corporation tax when the money is brought back into the US and not when it is earned overseas.
He stresses that the US arrangement is a US tax incentive aimed at helping US multinationals do well abroad. He says that some people confuse Ireland's low rate of corporation tax with some kind of tax avoidance or tax haven. ''That is not the case,'' he states. ''We are facilitating US arrangements so as US companies can do well,'' he adds.
MORNING BRIEFS- Scandal hit British bank Barclays said today that its pre-tax profits plunged to £246m sterling last year from £5.9 billion in 2011. The bank also said it will cut 3,700 jobs across the business. The bank is following the likes of UBS in cutting back positions in areas such as investment banking, where Barclays will axe 1,800 positions. The bank also says it will cut 1,900 in retail and business banking jobs. Barclays has investment banking, business banking and wealth management operations in Ireland, but there is no word from the company as to the geographical impact of those job losses.
*** It has been a while since we had anything positive to report from a credit ratings agency but Standard and Poor's has revised its outlook - not its actual rating - from negative on Ireland to stable. S&P said it believes the promissory note swap for long term government bonds makes Ireland's debt burden more sustainable and will help the medium term objective of closing the budget deficit. That in turn will pave a smoother path back to the markets and an exit from the Troika bailout, S&P said. However, the swap deal adds an amount equivalent to 10% of annual economic output onto our debt burden, according to the rating agency. It is including the NAMA bonds which will be used by the agency to acquire what is left of Anglo from the Central Bank as government debt. Official figures published by the European Statistics agency Eurostat do not include the NAMA bonds as government debt. S&P said its inclusion of the NAMA bonds in Ireland's general debt total reflects its view that any debt guaranteed by the Government is effectively sovereign debt.
*** United Drug, a pharmaceutical wholesaler and supplier of sales, marketing and other services to the drug industry, expects its 2012 earnings to come in between 5% and 8% ahead of last year. That is after adjusting for some one-off costs including five acquisitions it has made during the year according to an interim management statement released to the stock exchange this morning. United Drug said its operations outside of Ireland, thanks in part to those acquisitions during the year, are now contributing more than 70% of its profit.
*** Despite winning a BAFTA on Sunday for its special effects work on the movie Life of Pi, California based company Rhythm and Hues is to file for bankruptcy protection in the US. The filing will also mean 200 job losses. Rhythm and Hues had hoped to secure a $20m loan from an Indian studio to secure its future but the deal fell through. Besides Life of Pi, the company has also worked on Oscar-nominated Django Unchained and helped bring a certain pig named Babe to life on the silver screen.