Amazon to be hit with €13bn EU back tax claim

The European Union is set to claim millions of Euros from Amazon in back taxes, according to the Financial Times.

The EU’s competition commissioner Margarethe Vestager has been leading an investigation into the online retail giant’s ‘sweetheart’ tax deal with Luxembourg. After three years of investigation, Vestager is expected to issue a recovery order for unpaid taxes.

A preliminary ruling from the EU said that the arrangement struck between Amazon and Luxembourg in 2003 constituted ‘state aid’.

A similar arrangement between Apple and Ireland was also declared to be state aid in 2016, leading to the EU claiming €13bn (£11.5bn) in back taxes from the technology brand. Apple is appealing against this ruling.

Amazon has previously said that it “has received no special tax treatment from Luxembourg.” Amazon claims it is subject to the same tax laws as other companies based in the country.

The European Commission has also announced plans to address VAT fraud, including changes to cross-border taxes. VAT fraud is believed to cost the EU €150bn each year.

City of London opposes tighter regulation of high-frequency trading

European politicians drafting tough new curbs on the controversial trading practice high frequency trading (HFT) have faced stiff resistance from the industry – especially the City of London.

The European Parliament plans to crack down on HFT through the revised Markets in Financial Instruments Directive (Mifid), which governs European financial markets. The first directive came into force in 2007, allowing financial exchanges to compete with one another. In the process it created new opportunities for HFT, then in its infancy.

There are some systemic risks that need to be addressed.’
– Kay Swinburne, economic affairs committee

The new draft legislation, Mifid 2, is based on proposals put forward by the European Commission last year. It tackles market issues ranging from regulating commodity markets to investor protection. But its most hotly debated proposals are its measures dealing with high frequency trading.

‘We’re still in a situation where HFT or algorithmic trading is one of the key disputes in parliament,’ said Philippe Lamberts, a Green MEP.

What’s on the table
The measures being debated by MEPs include: • Circuit breakers that halt trading when prices make large, sudden movements;
• Minimum holding periods designed to slow the pace of trading;
• Forcing traders to reveal the purpose of their algorithms to regulators;
• ‘Minimum tick sizes’ that specify the smallest fractions of a penny that can be traded;
• Enforcing a limit on the number of orders traders can place and then cancel;
• Ending the preferential ‘low-latency’ electronic connections to stock exchanges that allow high frequency traders to trade at faster speeds than their rivals.

MEPs have suggested over 2,000 amendments, and are now in compromise discussions. But there is political support from across the spectrum for stronger controls on HFT.

‘We are at the very early stages. What we have seen in the Commission’s proposals are unlikely to stay untouched,’ former investment banker and Conservative MEP Kay Swinburne said. She added: ‘There are some systemic risks that need to be addressed.’

Related story – Robot wars: How high frequency trading changed global markets

Some MEPs, including socialist and green party members, want to end HFT in Europe entirely; others told the Bureau they believed new curbs were needed.

‘My wish is that HFT would be completely prohibited. But it is only a wish,’ French socialist MEP Pervenche Beres told the Bureau.

Lamberts agreed: ‘It should be prohibited or hampered to become irrelevant.’ But this view is ‘not really shared’ among committee members, he said, and he expects to vote against the amended legislation.

Left-wing committee members are pushing to slow trading and reduce the microsecond advantages high frequency traders can gain over their market rivals. Measures include minimum latencies – the speeds at which information is passed between stock exchanges and traders – and enforcing minimum ‘resting periods’, defining how long traders need to hold onto stock before selling them.

We must be careful not to introduce measures based on the assumption that high frequency trading is, per se, harmful to markets,’

– FSA consultation response

Not all MEPs are convinced. ‘There’s no evidence that latency will benefit the market: the same players will line up their orders. I’m yet to be convinced it’s the best way to influence HFT. I would prefer to look at the strategies individual firms are using,’ Dr Swinburne told the Bureau.

There is broad support for obliging some HFT firms to act as ‘market makers’, obliging them to trade even in sour markets.

‘You’ve now got a problem that the top 25% most lucrative stocks have market makers, but below that there’s very little liquidity at the moment because there are no market makers – so for the overall liquidity and for those smaller names it would be beneficial to have traditional market makers return,’ Swinburne explained.

Yet a report by the UK government’s Foresight project, released just as MEPs returned from their summer break to begin negotiations, warned forcing companies to act as market makers ‘could force high frequency traders out of the business of liquidity provision’ altogether.

Related story – The A to Z of high frequency trading

The move to put the brakes on HFT across Europe has met stiff opposition from the City of London and the UK government.

‘We must be careful not to introduce measures based on the assumption that high frequency trading is, per se, harmful to markets,’ warned the Financial Services Authority (FSA), responding to the draft legislation on behalf of the government. It rejected several of the proposed measures. The British Bankers’ Association described the requirement for some traders to become market makers as ‘particularly onerous’. The Treasury supports HFT arguing it brings liquidity to markets and reduces costs.

Policy exchange
Exchanges and the HFT industry have campaigned against the measures in public and behind closed doors. Exchanges have been ‘very vocal’ about HFT, and a key priority has been to ‘preserve all HFT’, Kay Swinburne told the Bureau.

HFT has become a significant earner for exchanges: demand for servers located close to the exchanges and high-tech data feeds is highly lucrative.  Exchanges have slashed their trading fees to compete for their custom – and some even pay rebates on trading fees to entice the HFTs.

Leading the debate has been the London Stock Exchange (LSE), which runs a platform aimed at HF traders, Turquoise, and owns HFT technology that it has sold to stock exchanges from Johannesburg to Mongolia.

While HFT should be ‘subject to more supervision’, overall there was ‘no evidence of market failure’, the LSE said in its response to the consultation. It warned of grave consequences to pushing high frequency traders away from the market, including higher trading costs.

Since January 2010, the LSE and its lobbyists, City law firm Freshfields, have met MEPs from the three main British parties at least 15 times to discuss Mifid and similar legislation, lobbying registers show. Freshfields’ public affairs director Christiaan Smits met with the Conservatives’ lead on Mifid, Dr Kay Swinburne, eight times in two years on behalf of the LSE.

Other intense discussions have been going on behind the scenes. In total, exchanges including Nasdaq, Deutsche Borse, NYSE Euronext, Bats Europe and Chi-X, and public affairs firms hired by them, have met with British MEPs at least 49 times over the period to discuss Mifid 2.

Fleishman Hillard earned up to €50,000 (£40,000) each last year from representing exchange Chi-X and trading platform Equiduct, as well as up to €150,000 representing investment company Citadel, which has a substantial HFT arm.

Specialist HFT companies have banded together to form a campaign group, the FIA European Principal Traders’ Association (Epta), which has issued position papers and lobbied politicians in the UK and EU.

Related article – Opinion: WTF is HFT?

Epta’s chairman Remco Lenterman gave a presentation to the Foresight project’s senior panel at the Bank of England last October, Freedom of Information records show. The following month, Epta representatives attended a meeting at the FSA alongside Treasury officials.

Lenterman told the Bureau this was part of wider measures to improve understanding of HFT. ‘We’ve never really had to engage with the outside world. It’s about engaging and explaining what we do,’ he said.

Epta has paid Brussels-based lobbyist Hume Brophy at least €100,000 last year to make its case in Brussels, EU lobbying registers show.

The Futures and Options Association (FOA) has also taken a keen interest in HFT. It planned a series of meetings and events to lobby MEPs on issues surrounding HFT, with its head of regulation Kathleen Traynor telling the press: ‘The FOA is dedicating a lot of its resource to ensuring the trading and markets issues are properly clarified’.

It organised a meeting in May, two days before MEPs were due to submit their amendments to the proposed legislation, to lobby MEPs against minimum resting times and against a centrally imposed ratio of cancelled orders.

The intensity of lobbying around HFT has frustrated MEPs. ‘Mifid is about the entire market infrastucture, but HFT is taking up a disproportionate amount of time,’ said Swinburne.

The economic affairs committee will vote on the proposals later this month. Despite the lobbying push and the City’s opposition, there is consensus that they will be tough on HFT. But the legislation then moves to the Council of Ministers, where a Treasury minister will sit alongside his European counterparts to agree amendments.

Independent investors said they hoped Mifid 2 would shield them from HFT practices, which are often accused of distorting stock markets and profiting at the expense of traditional market players.

‘We would applaud the Mifid 2 measures: there are quite a few good things coming out of Europe to protect private investors, which are being resisted by the City of London and government which are too protective of the UK’s financial services, so it seems to be to Europe that private investors should be looking,’ said Eric Chalker, policy director of the UK Shareholders’ Association.

Written by   for the Bureau of Investigative Journalism.

Additional reporting by Eve Carson and Alex Morris

China Construction Bank seeks acquisitions in Europe — report

Chinese lender China Construction Bank Corp (SHA:601939), or CCB, is interested in buying a European bank, or a minimum of 30% to 50% in one and has CNY100bn (USD15.8bn/EUR12.01bn) of cash available to finance a deal, according to chairman Wang Hongzhang, as cited by the Financial Times.

Hongzhang told the paper in an interview that CCB views UK, Germany or France as the most attractive markets in Europe for an investment, as it is looking to potentially buy a bank that covers all top countries and that would serve its strategy for international growth.

The executive did not wish to name any of the potential targets, but said that a suitable one should have a large enough international network instead of being focused on its home market and would not raise significant cultural issues.

Investment bankers point at European lenders partially nationalised during the financial crisis as good investment targets, the report said naming 82%-state-owned Royal Bank of Scotland Group Plc (LON:RBS) and Commerzbank AG (ETR:CBK) in which the German state holds 25%.

The British bank has a current market capitalisation of GBP17bn (USD28bn/EUR21.1bn), while the German peer is valued at EUR9bn (USD12bn).
Despite long-time predictions of analysts and bankers that Chinese companies with high market valuations could buy cheaper western lenders, there have been few such attempts, the paper said.

Guo Shuqing, former CCB chairman, said in 2011 that the price of a European bank would not be the only criteria for a potential acquisition, even if that would recommend them as good targets. With their shares declined significantly, such banks may not serve CCB’s development strategy, the Financial Times cited Shuqing as saying at the time.

Asia-Pacific stock markets rebound on G8 comments

Stock markets in Asia and Australia recovered slightly on Monday as G8 members, meeting over the weekend, said they would do everything in their power to avoid another full blown financial crisis

The Nikkei 225 index in Japan gained 0.4%, after dropping sharply on Friday as a result of worries of Greece and the effect a prolonged European debt crisis could have on the global economy. Australian shares rose by 0.7% after hitting a six month low last week.

“The fate of Greece won’t become clear until the election, and markets will be swung around by comments from European leaders in the meantime, all of which makes it extremely difficult for investors to take any positions,” said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo, told Reuters.

“Today’s move is merely a rebound from sharp losses on Friday and it doesn’t have momentum to rise strongly. The G8 outcome lacked the punch to give much incentive for markets.”

US president Barack Obama said that he had faith in Europe’s ability to tackle the sovereign debt crises, but added that Europe must now focus on jobs and growth, echoing the words of newly elected French president Francois Hollande.

Following the comments made at the G8 summit, the EU issued a statement saying that the focus needs to remain equally on austerity and growth.

UK Green Economy Lags Behind Following Launch Of Europe’s Most Advanced Eco Village

UK-based Oxford Sustainable Group, Europe’s largest renewable energy and sustainable development business, has announced the launch of Oxford Park, the most advanced sustainable village in Europe. Located near Tallinn, Estonia, the £170m project is a carefully planned sustainable community that consists of infrastructure, energy and social provision to meet the needs of its residents and the businesses that choose to locate there.

The Oxford Sustainable Group has designed Oxford Park using its Oxford 360 degree Sustainability Index. This has allowed it to create a community that is well in advance of UN Principles of Responsible Investment (PRI) norms for sustainability. This considers the broader requirements of the residents, surrounding economic, environmental, energy, educational, transport and leisure needs as well as long-term job creation, regeneration, finance and investment requirements. The Oxford Sustainable Group has shown that by taking a holistic approach to sustainable development it can increase profitability while benefitting other stakeholders including residents, the local and wider economcy, society and environment.

“Sustainability means a lot more than planning carbon neutral buildings or trendy underground transport systems,” said Hadley Barrett, chief executive of OSG. “We can only create truly sustainable communities if we consider all of the stakeholders in a project. That includes government, investors, and the entire supply chain – as well as the people who will live and work there – and be able to supply a sustainable product at the right price. True sustainability does not mean higher prices.

“We have a practical and down-to-earth approach for Oxford Park that is successful, sustainable and economically viable – investors do not need to turn to projects in the Middle East for green growth. We would like to replicate the planning success of Oxford Park in the UK but we need simplified regulation which allows ‘good developers’ to be fast-tracked rather than held back. We do not need more definitions of carbon free homes, we need facilitating regulation which allows trusted partners to move quickly and effectively and bring about positive changes through entrepreneurship. Practical government agencies from Finland and other locations have been asking us to help them replicate the success of Oxford Park in their countries. Currently the UK is lagging behind.”

All Saints comes back from the brink

The retail giant, All Saints, may have found it saviours in a lucky escape from closing down many of it’s stores.

A last minute deal was pulled off rescuing 2,000 staff and keeping open all 62 stores and 45 concessions in Europe, America and Russia.

The fashion chain, best known for it’s vintage feel sitting at the higher priced end of the high street was on the verge of collapse after running out of cash due to ill-timed expansion.

Chief executive Stephen Craig held protracted talks with a number of investors who had left and amazingly at the last minute secured a deal with a consortium including private equity firms Lion Capital and Goode Partners for £105m.

The deal will be finalised next week and will give Lion takes 65 per cent stake, founder Kevin Stanford will retain 15 per cent and Goode 11 per cent. The management will share the remainder.