Supreme Court ruled that the Indian tax authorities have no jurisdiction to tax Vodafone’s $11.2 billion acquisition of Indian cellphone company Hutchison Essar from Hong Kong based Hutchison Whampoa because it was structured as a transaction between two foreign entities.
As Vodafone Cashes In, India Gov't Wrestles With The Tax Law
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Jan. 24 2012 — 1:46 pm | 0 comments
As Vodafone Cashes In, India Gov’t
Wrestles With The Tax Law
To India’s political class, the Indian Supreme Court’s ruling in favor of a
billion dollar tax windfall for UK telecom Vodafone was a lot like ripping
MY ACTIVITY FEED
a band-aid off a hairy arm. So painful was the sting of the case that
India’s divisive and warring political parties finally agree on something: it Show all activity
hurts. Tax laws have to be changed, or more multinational deals will get KENNETH'S NEW POST 1 hour ago
done without a dime being paid to the Indian government. The fact that As Vodafone Cashes In, India
the $2.2 billion victor is a British multinational adds insult to injury. Gov't Wrestles With The Tax Law
India’s never really been forgiven for kicking the British Empire out in
KENNETH COMMENTED 3 hours ago
1947. Vodafone’s success was a high-five, the slap heard around the “I have to say that although I did not live in
world. MA when Romney ran the state as governor
(was...”
India’s Supreme Court also ordered the government to refund the Posted to THE ONE SUCCESS STORY ROMNEY CAN'T
DISCUSS
company $500 million in taxes. Plus 4% interest on top of that.
KENNETH COMMENTED 3 hours ago
“This is a hot potato politically in India,” said Shan Nair, co-founder of “All true. But life is so not black and white
Nair & Company, a consulting firm helping international businesses and you know that Joshen. Just as many
Americans are...”
incorporate overseas. “Eventually the law is going to change, probably
Posted to OVER A MILLION PEOPLE SIGN PETITION
within six months in my guess, and it is going to affect all foreign AGAINST BRAZIL'S 'PANDORA DAM'
companies that have more than 50% of their assets in India. If that is KENNETH CALLED OUT 3 hours ago
you, and you sell the company, you will have to pay a capital gains tax on securityaffairs
it. That’s not the case now, at least how the Supreme Court interpreted it.
Commented on EU OIL EMBARGO ON IRAN SEEN
It’s a big problem because you have Indian multinationals setting up HAVING 'MINIMAL' IMPACT ON OIL MARKETS
shop off shore in Mauritius in Africa and claiming that a foreign group “I share the decision, but le me remind you
that unfortunately the money folds all logic,
owns them, even though the bulk of the work and the management is all while we decide for...”
based in India.”
CONTRIBUTOR COMMENT Yesterday
Mauritius is a favored off-shore country for India corporates and
investment firms looking to avoid some of the country’s high taxes.
http://blogs.forbes.com/kenrapoza/ 1/24/2012
2. Kenneth Rapoza - BRIC Breaker - Forbes Page 2 of 8
Ultimately, the Supreme Court ruled that the Indian tax authorities have ABOUT ME
no jurisdiction to tax Vodafone’s $11.2 billion acquisition of Indian I covered Brazil pre-Lula and post-Lula and spent the
last five years covering all aspects of the country for
cellphone company Hutchison Essar from Hong Kong based Hutchison Dow Jones, Wall Street Journal and Barron's.
Whampoa because it was structured as a transaction between two foreign Meanwhile, for an undetermined amount of time, and
entities. The government argued that Vodafone, through Whampoa, had with a little help from my friends, I will be
parachuting into Russia, India and China. (I figure if
acquired 67% in Essar and should pay taxes on the deal. Anderson Cooper can parachute, I can parachute.)
See my profile »
The Vodafone battle was being watched closely by multinationals
concerned that India’s top officials could bribe Supreme Court judges to
Followers: 116
see things there way, adding to the general uncertainty of doing business Contributor Since: March 2011
in the country. “This ruling sends a positive signal to foreign companies Location: New York, NY
that India is open for business and its top court is incorruptible,” said
Nair. MY PROFILE MY RSS FEED
MY HEADLINE GRABS EMAIL ME TIPS
The outcome bodes well for U.S. firms like AT&T (T) and General Electric
(GE), which are threatened with similar taxes on transactions. Their
window on escaping that tax loophole, however, is closing as ruling and
opposition parties hammer out new regulations to protect its tax
collecting powers. Foreign investors and even domestic firms appear
genuinely delighted that the court has taken what they see as a fair legal WHAT I'M UP TO
decision rather than blindly siding with the government. Other countries About BRIC Breaker
have tried to tax the sale and purchase of assets in foreign M&A deals BRIC Breaker covers the big emerging markets of
Brazil, Russia, India and China. The focus is on
controlled by offshore entities. politics, corporate and investment news, thoughts
from senior level money managers and analysts,
The verdict is clearly great news for Vodafone, which had to set aside $5 equity and fixed income investment ideas from
mutual fund managers, and some celebrity and
billion in case the court ruled against them. culture if relevant to the news cycle. The page is
updated throughout the day, five to seven days a
Vodafone Highlights from Nair & Co. week.
• The deal with Whampoa
and Essar was struck in
2007 and structured
between Vodafone’s
Dutch subsidiary and a
Cayman Islands-based
company that held
Hutchison Whampoa’s Image via Wikipedia
India assets.
• India’s Supreme Court ruled that the deal is not subject to capital
gains tax because the company was not domiciled in India. That
means Vodafone had no reason to withhold tax and was thus
repaid under court order. The government was unable to convince
the court of the fact that the main asset being sold in the
transaction was based in India.
• The court said that the offshore transaction is a “bona fide” Economic Growth From Coal www.americaspower.org
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structure and the fact that the selling party’s Cayman Islands unit lowers costs.
was in place for many years before the deal implied that the deal
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• The verdict provides clarity for other foreign direct investors
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• Some of the deals that are facing similar disputes include – Idea Learn to Invest Right!
Cellular-AT&T; GE-Genpact; Mitsui-Vedanta; SABmiller-Fosters
and Sanofi-aventis-Shantha Biotech. British firm Cairn Energy has
already agreed to pay taxes in India as well as the UK on selling its
stake in Cairn India to Vedanta Resources. Depending upon the
http://blogs.forbes.com/kenrapoza/ 1/24/2012
3. Kenneth Rapoza - BRIC Breaker - Forbes Page 3 of 8
size of the stake sale, the tax liability could range between $850
million to over $1 billion.
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BUSINESS LAW
Jan. 23 2012 — 7:06 pm | 4 comments
The One Success Story Romney Can’t
Discuss
Politics is not without its
bitter ironies, but none is
greater in this presidential
election campaign than the
one plaguing Mitt Romney.
Talk about a dilemma. The
man’s biggest success story in
his political career is the one
story his party’s voters don’t
want to hear.
On April 12, 2006, Mitt
Romney passed the
Massachusetts version of
what would later become
known as the dreaded
“ObamaCare”. It will go down Image via Wikipedia
as his crowning achievement
as the state’s one-term Republican governor. For all he might say on the
campaign trail, some of it true, the rest pandering to a base of anti-
Obama, anti-government Republicans, Mitt Romney is mighty proud of
signing Massachusetts Healthcare Reform into law on that day. Or at
least he was. So much so, in fact, that he ordered the signing of that bill
carved into stone in the Massachusetts State House tradition. Inside the
golden domed State House on Beacon Hill is an oil painting of Romney
with a copy of a bill decorated in a medical symbol beside a portrait of his
wife Ann.
“Each governor gets an outgoing portrait of himself to hang in the State
House and he chose to have an image of a notebook with a medical
symbol on it to immortalize that policy. It was his biggest
accomplishment,” says Sarah Iselin, president of the Blue Cross
Foundation of Massachusetts, a non-profit organization dedicated to
healthcare and part of the Blue Cross Blue Shield insurance company.
Ever since the days of Bill Clinton, Democrats have been trying to get
universal healthcare coverage for all Americans. Hillary Clinton tried it
and failed in the 90s. On a national level, Republicans have always been
against it despite the fact that Americans actually like the idea of
http://blogs.forbes.com/kenrapoza/ 1/24/2012
4. Kenneth Rapoza - BRIC Breaker - Forbes Page 4 of 8
affordable, universal health insurance by a margin of 2-to-1, according to
an ABC News/Washington Post poll.
President Barack Obama, when he was running for the presidency in
2008, promised some form of universal health insurance during his
tenure. He modeled much of the Affordable Care Act on Massachusetts
Healthcare Reform. Republicans hated it, gave it a media friendly
nickname, ObamaCare, and told everyone that Obama was coming after
their aging momma.
Now, in the election campaign of 2012, with ObamaCare’s future still
unknown as Republican challengers vow to overturn it if elected,
everyone is going after Romney. Herein lies the Republican who made
possible ObamaCare — the president’s most controversial policy, at least
by media standards.
“I have been around politicians for a long time and I can say that the fact
Romney cannot talk about the biggest policy success in Massachusetts in
the last 25 years has to be one of the biggest ironies I’ve seen in a while,”
says Michael Widmer, president of the non-partisan Massachusetts
Taxpayer Foundation.
Three years after Massachusetts enacted its groundbreaking health care
reform law, Chapter 58 of the Acts of 2006, the number of residents with
health insurance has increased by more than 432,000, roughly the
population of Boston, giving the state the lowest rate of uninsured
residents in the country.
An analysis by the Massachusetts Taxpayers Foundation in 2009 showed
that the cost of this achievement has been relatively modest and well
within early projections of how much the state would have to spend to
implement reform. In short, universal care, mandates and fees on
business to help pay for it has not made companies close shop, or caused
residents to buy into a program they cannot really afford. In terms of
government expenditure, based on actual and projected spending data
for the first four years of health care reform, the Foundation concluded
that state budget spending on health reform has grown from a base of
$1.04 billion in fiscal year 2006 to a projected $1.75 billion in fiscal year
2010, a gross increase of $707 million. After the federal government
reimburses part of that for its portion of Medicaid costs in the plan, the
total comes down to around $353 million for the state. For some people,
that’s a kick in the bucket for the common good.
“We are doing another study on this right now and it looks like the state
pays maybe $100 million a year out of its budget to keep universal
coverage,” said Widmer. “I’d say that’s not a big problem for a
government with a $30 billion budget.”
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BUSINESS PHARMA AND HEALTH WASHINGTON
Jan. 23 2012 — 3:04 pm | 0 comments
For China, It’s Slowdown Shmoedown
China’s economy is no longer humming along at the double digit rate it
once was, and could conceivably sputter along in the high-7′s and 8%
range in 2012. But if commodity demand is any indicator, the China
http://blogs.forbes.com/kenrapoza/ 1/24/2012
5. Kenneth Rapoza - BRIC Breaker - Forbes Page 5 of 8
dragon is still hungry for raw
materials. The Chinese economy
isn’t done growing just yet.
While China’s economy is
undeniably slowing, this is one
kind of slowdown the global
economy needs. For the most
part, the country is importing
more commodities than it did in
2010, but in percentage terms
volume growth is not as big as it
was when comparing 2010
imports to 2009 imports.
Nevertheless, China’s December trade data showed solid commodity
demand above and beyond what markets had been expecting, Barclays
Capital said in a report on Monday. Demand for commodities across the
board was 8.7% higher.
In base metals, copper imports actually set a new record of 406,937
metric tons.
“While we believe the strength of imports into the end of 2011 was driven
by consumer demand following the end of destocking, we also believe a
portion of these imports went into trader and exchange stockbuilding.
Chinese copper imports fell over 2011 as whole, but it was a year of two
halves: a weak first half due to destocking but a strong rebound in the
second half due to a recovery in
buying and attractive lower prices,” Barclays analysts wrote in a report
for clients on Monday titled “Feeding the Dragon.”
December trade data for precious metals showed a continuation of recent
trends. Silver and platinum imports declined, while palladium imports
continued to rise, tracking China’s underlying auto market trends.
On the energy side of commodities, crude oil imports broke a record last
month, too. China imported 5.067 million barrels of oil a day in 2011. Oil
demand also averaged a record high of 9.231 million barrels a day, up
6.4% from 2010.
All in all, despite a relatively weak year for China, with credit constraints
and inflationary pressures, China’s underlying demand provides a strong
support to commodities this year. Barclays analysts said that they were
maintaining their view that should global growth surprise to the upside
by a small extent, credit conditions improve and China decides to start
buying more commodities to restock– for which signs are emerging
already – Chinese oil demand can be key source of upside surprise
relative to consensus estimates this year.
China demand for commodities remains robust, but not as robust as the
year before when compared to the previous 12 months. China’s
government is still managing to hold onto a soft landing of the economy,
as fixed investment slows, the housing market corrects significantly, and
the country’s biggest trading partners in Europe head for a recession.
China Energy Commodity Trade Data
Crude Oil Imports (000 b/d)
2011: 60,800
2010: 57,667
http://blogs.forbes.com/kenrapoza/ 1/24/2012
6. Kenneth Rapoza - BRIC Breaker - Forbes Page 6 of 8
Coal Imports (000 tons)
2011: 182,395
2010: 164,833
LNG Imports (tons)
2011: 12,212,646
2010: 9,355,842
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COMMODITIES CURRENCIES INVESTING
Jan. 23 2012 — 2:11 pm | 2 comments
EU Oil Embargo On Iran Seen Having
‘Minimal’ Impact On Oil Markets
The European Union agreed
to an unsurprising Iranian oil
embargo Monday. The impact
on the energy market will
likely be “minimal,” says
Richard Soultanian, director
of energy consulting firm NUS
Consulting in Park Ridge,
New Jersey.
EU slaps embargo on Iranian oil. Impact on oil markets
minimal, energy consulant forecasts.
Soultanian said last week that an EU embargo would be handed down on
Monday, following similar sanctions from Washington. The Obama
Administration applying the pressure on Asian countries now, the main
recipients of Iranian crude outside of Europe. Results so far have been
mixed.
U.S. Treasury Secretary Timothy Geithner tried convincing the Chinese
government this month to follow Washington’s lead, but Beijing said that
it will continue to import Iranian oil. India said the same thing, adding
that it will only fall in line with Obama if the United Nations issues the
embargo, too.
Moreover, the biggest importers of Iranian oil in Europe are Greece, Italy
and Spain, all borderline bankrupt. The embargo will likely give those
countries leverage to lock in cheaper rates for Iranian oil over the next six
months before they have to look elsewhere, if the embargo remains in
effect.
“The implementation of the sanctions has gotten off to a mixed start,”
Soultanian says. “The likely impact to Iran and the oil markets will be
minimal. At present it appears that the most likely consequence of (the)
sanctions is the provision of additional leverage to Iran’s customers to
negotiate deeper discounts in order to continue the relationship,” he said.
Iran produces approximately four million barrels of oil per day and
exports a little more than half of that production, primarily to China,
Europe, India, Japan, South Korea and Turkey. Japan said it will reduce
its Iranian oil imports, but will not ban them altogether because the
country is still rebuilding from last year’s natural disasters. Looking
http://blogs.forbes.com/kenrapoza/ 1/24/2012
7. Kenneth Rapoza - BRIC Breaker - Forbes Page 7 of 8
elsewhere for oil, possibly at higher prices, could impede the country’s
recovery.
Meanwhile, Turkey and South Korea have not formulated any official
position at this time.
All of the 27 European Union member states agreed to the sanctions on
Monday morning after two failed meetings between EU ambassadors last
week. In addition to the oil embargo, European governments also agreed
to freeze assets of the Iranian central bank abroad in an effort to starve
the Iranian government of funds for its nuclear program. Brussels and
Washington both agree that Iran will eventually use its nuclear
capabilities to build weaponry.
“The Iranian programs are proceeding apace and represent a strategic
threat,” an unnamed EU diplomat was quoted saying in The Guardian on
Monday. “The aim is to have a big impact on the Iranian financial system,
targeting the economic lifeline of the regime.”
See: Turkey Eyes Saudi Oil Amid Iran Sanctions–Today’s Zaman
South Korea Seeking Exemption From Iran Oil Embargo–
Agence France Presse
EU To Embargo Iranian Crude As Tensions Mount–Fox Business
News
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BUSINESS ENERGY
Jan. 23 2012 — 1:29 pm | 0 comments
Top Value Picks In The BRICs For Week Of
Jan. 23
Emerging markets remain a
very hard sell for retail and
institutional investors as 2012
is now underway. Sales teams
have their work cut out for
them in trying to convince
investors to build positions in
equities. Last week, HSBC
Chief Strategist Philip Poole
told clients that there was
some steep value in some of The weekly ValuEngine/BRIC Breaker Picks in the
BRICs returns this week after a brief hiatus. Petrobras
the big emerging markets. is off the list. Vale is on it. And Baidu is still a buy.
That makes for good buying
opportunities for investors with horizons longer than a year, and willing
to give up 20% or more in losses. The MSCI Emerging Markets index
exchange traded fund (EEM) lost over 20% last year. This year it’s up
over 9%.
Risk assets continue to be a roller coaster ride. For those who meet the
height requirements, the stock forecasters at ValuEngine have 15 ADRs of
BRIC companies that — according their methodology — are priced to
http://blogs.forbes.com/kenrapoza/ 1/24/2012
8. Kenneth Rapoza - BRIC Breaker - Forbes Page 8 of 8
perfection. That includes long time Forbes BRIC Breaker/ValuEngine
pick Ambe (ABV), Brazil’s top beverage company. But new to the list is
Brazilian mining major Vale (VALE), trading at a steep discount of under
6x. Meanwhile, China’s highly volatile solar panel makers are looking
cheap, though maybe for good reason, and China’s main search engine,
Baidu (BIDU), is still a buy. Here’s the rest of the list, along with current
price to earnings ratios based on trailing 12 month earnings.
Company Country Rating* P/E
Ambev (ABV) Brazil 4 24.67x
Baidu (BIDU) China 4 47.98x
BrasilFoods (BRFS) Brazil 4 19.25x
China Mobile (CHL) China 4 10.32x
CTrip.com (CTRP) China 4 23.53x
Cosan Ltda. (CZZ) Brazil 5 4.47x
Eletrobras (EBR) Brazil 5 5.36x
Infosys (INFY) India 4 18.21x
LDK Solar (LDK) China 5 7.17x
Mechel (MTL) Russia 5 7.01x
Renesola (SOL) China 4 2.12x
Suntech Power (STP) China 4 41.30x
Tata Motors (TTM) India 5 10.75x
Vale (VALE) Brazil 4 5.35x
Telefonica Brasil (VIV) Brazil 4 16.54x
Wipro Ltd (WIT) India 4 24.63x
*A rating of four indicates a buy. Five is a strong buy. Although
ValuEngine’s buy list for the BRICs is much larger, the BRIC Breaker
blog only considers high volume stocks trading at least 600,000 shares
a day. Price to earnings ratio is based on trailing 12 month earnings.
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INTERNATIONAL INVESTING STOCKS
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