The Morning Ledger: EUâ€™s Apple Tax Move May Change the Global Game

The Morning Ledger: EU's Apple Tax Move May Change the Global Game

By Maxwell Murphy

Apple Chief Executive Tim Cook, Niall Carson/PA Wire via ZUMA Press

Good morning. The European Union's ruling against Apple Inc.'s tax situation in Ireland could have global implications. It might affect everything from our domestic tax code to our relationship with foreign countries. The size of the tax demand, which came in a formal decision issued Tuesday, risks further unsettling multinational companies, which face a broader international effort to curb aggressive tax avoidance. But the commission's decision shows companies could be on the hook for past behavior and potentially be handed big bills for allegedly unpaid back taxes. The sum is the highest ever demanded under the EU's longstanding rules that forbid companies from gaining advantages over competitors because of government help.

To the Treasury and members of Congress, EU regulators represent a threat partly because companies could get U.S. tax credits if they pay more abroad, reducing future U.S. tax collections. The U.S. is trying to protect its claim to the foreign income even though it hasn't figured out how to tax it, Richard Rubin writes. The EU move underscores the difficulty American regulators have had to deal with as they try to appropriately tax U.S. multinationals. More on that below.

COSO’s New Proposal Seeks to Link Risk to Business Strategy

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) recently proposed an update to its enterprise risk management (ERM) framework, in recognition of the need for a tighter alignment of risk management, performance and strategy. The new guidelines, which are out for public comment until September 30, 2016, aim to help organizations achieve their intended business objectives more effectively and attain better value from their ERM programs. The new ERM framework could become an important risk assessment tool, similar to the way the COSO internal control framework can be used to assess cyber or third-party risks. Continue »

CFO JOURNAL TODAY

A bright side? The $14.5 billion Apple is being asked to pay to Ireland in back taxes could potentially help offset its tab with the Internal R brigevenue Service, Kimberly S. Johnson and Tatyana Shumsky report. When an American company pays taxes on profits in foreign countries, it owes Uncle Sam only the difference between the taxes paid and the U.S. tax rate. So in the case of Apple, recording a large foreign tax charge could "set the stage for a foreign tax credit," said tax consultant Robert Willens.

A silver lining? But the EU's move could force the hand of Congress, which has been arguing and dithering over an overhaul to the U.S. corporate-tax code. The U.S. levies nearly the highest corporate rates in the world. Ray Wiacek, senior tax partner at international law firm Jones Day in Washington, told Richard Teitelbaum that the ruling "may be the straw that broke the camel's back." With the rest of the developed world moving toward lower corporate rates, the EU ruling may provide the impetus for the U.S. Congress to address the chasm between the U.S. tax code and that of other nations. We'll likely need to wait until November to know more.

THE DAY AHEAD

Salesforce CEO Marc Benioff. Prensa Internacional/Zuma Press

Head in the clouds.As Salesforce.com Inc. gears up to report second-quarter results on Wednesday, the question is whether its latest spate of deals and potential to do more are masking other concerns. Shares have underperformed the tech-heavy Nasdaq Composite by 10 percentage points over the past three months, Steven Russolillo writes for Ahead of the Tape.

CORPORATE NEWS

Potash Corp.'s load-out supervisor at the Cory Mine. Reuters

Fertile ground. Canadian fertilizer giants Agrium Inc. and Potash Corp. said they were in preliminary talks about a possible merger of equals as the industry contends with slumping earnings amid persistently low prices for crop nutrients. However, the companies also said no decision had been made, and there is no assurance the discussions would result in a deal that would give the pair a total market value of more than $28 billion.

CIA's corporate fund gets spotlight. Like the agency that founded it, the Central Intelligence Agency-funded venture-capital firm In-Q-Tel operates largely in the shadows. In-Q-Tel officials regard the firm as independent, yet it has extremely close ties to the CIA and runs almost all investment decisions by the spy agency. The firm discloses little about how it picks companies to invest in, never says how much and sometimes doesn't reveal the investments at all. Even less well-known are potential conflicts of interest the arrangement entails. Nearly half of In-Q-Tel's trustees have a financial connection of one kind or another with a company In-Q-Tel has funded.

Theranos may not be Zika savior. Theranos Inc. withdrew its request for emergency clearance of a Zika-virus blood test after federal regulators found that the company didn't include proper patient safeguards in a study of the new test, said people familiar with the matter. The move is another setback for the Palo Alto, Calif., company as it tries to recover from crippling regulatory sanctions that followed revelations by The Wall Street Journal of shortcomings in Theranos's technology and operations. Theranos has said it is appealing.

Google tailgating Uber. Alphabet Inc.'s Google is moving onto Uber Technologies Inc.'s turf with a ride-sharing service to help San Francisco commuters join carpools, a person familiar with the matter said, jumping into a booming but fiercely competitive market.

Speaking of Uber... Uber is hiring Target Corp.'s top marketing executive to serve as a deputy to Chief Executive Travis Kalanick and oversee its operations. Jeffrey Jones will join Uber next month, where he will be president of ride-sharing and be responsible as well for marketing and customer support globally. He will also advise on corporate actions, such as acquisitions or a potential future initial public offering.

Longtime GE CFO to retire. Keith Sherin, who helped steer General Electric Co. through the depths of the financial crisis and then shrank the company's massive lending business, is retiring after 35 years at the company. GE said he will step aside as chief executive of GE Capital on Thursday and retire from the conglomerate at the end of the year and will be succeeded by one of his lieutenants. He served as GE's CFO for 15 years.

Unlimited means no limits. Sprint Corp. and T-Mobile US Inc. recently said they would scrap data caps and give customers a simpler option: unlimited everything at a single price, but the plans had restrictions. Days later, both carriers unveiled "premium" unlimited plans that cost at least $20 more a month, and even those had limitations. The latest round of unlimited offerings highlights the tactics carriers use to win customers in the competitive wireless market, and the maze of fine print that can catch consumers off guard.

Sears gets a new coat of paint. Sears Holdings Corp. said it would begin selling paint again after a roughly four-year hiatus and bring its Craftsman brand into the paint category for the first time, as the struggling retailer aims to benefit from stronger demand in the home-improvement market. It initially plans to stock shelves at 23 U.S. stores, a fraction of its total, with paint brands.

REGULATION

It's that time of year again. The government's audit regulator found deficiencies in 13 audits conducted by Deloitte & Touche LLP and 12 audits conducted by PricewaterhouseCoopers LLP in its latest annual inspections of the Big Four accounting firms. The 13 deficient audits found by the Public Company Accounting Oversight Board represent 24% of the 55 audits and partial audits reviewed by the board in its 2015 inspection of Deloitte, issued Tuesday. That is up slightly from the previous year's report.

Treasury washes money-laundering myths. U.S. banking regulators sought Tuesday to "dispel certain myths" around anti-money-laundering rules that critics contend have inadvertently cut off access to the U.S. financial system for some countries, businesses and individuals. The Treasury Department, along with four bank regulators, published an unusual, four-page "fact sheet" along with a lengthy blog post to clarify regulatory expectations related to the rules.

EARNINGS

The Abercrombie & Fitch store on Fifth Avenue in New York. Richard Levine/Getty Images

A&F disappoints. Abercrombie & Fitch Co. posted a decline in quarterly sales and gave a more cautious outlook for the year, as the apparel retailer struggled to attract shoppers to its flagship properties. Shares tumbled 20%. Sales at stores open at least a year are expected to "remain challenging" through the second half of the year, the company said. In May, the company expected "better results" in the back of the year following assortment changes and other investments.

ECONOMY

Farm Belt to Dust Bowl. U.S. farm incomes will hit their lowest point this year since 2009, the Department of Agriculture said. The forecast reflects a painful slump in the U.S. agricultural economy driven by bumper corn and soybean harvests, swelling grain inventories and tougher export competition. Farmers are expecting record corn and soybean harvests again this fall, potentially pushing prices for the nation's two most common crops down even further.

CFO MOVES

Baldwin & Lyons Inc., a Carmel, Ind., specialty insurer, named William Vens finance chief, effective immediately. He joined the company about two years ago as managing director of finance and as promoted to vice president of strategy and planning this June. Mr. Vens was previously an investment banker at Bank of America Corp.'s Merrill Lynch. He will now receive a salary of $350,000, with a bonus targeted at $400,000. Its former interim CFO since May, Douglas Collins, will remain with the company as VP of finance and accounting of its subsidiaries.