NEWS,25.11.2012

Thousands of Italians rally against austerity

Tens of thousands of students and workers rallied across Italy today, to protest against austerity measures imposed by Prime Minister Mario Monti's technocrat government.Appointed a year ago when Italy came close to a Greek-style debt crisis, Monti has pushed through painful tax increases and spending cuts to try to rein in public finances at a time when schools and universities say they desperately need more support."We need to fight for our rights. This government doesn't represent us and these austerity measures and all the cuts they've introduced are totally anti-democratic," said student protester Tommaso Bernardi, attending a rally in Rome.Far-right group Casapound marched through the capital Rome later on Saturday, chanting "Monti, go away!". Anti-fascists staged a counter-demonstration in another part of town."This government is making the nation starve and is destroying the social welfare system," said Casapound president Gianluca Iannone. "The weakest are hit hardest - the disabled, students and single-income families."Police organised different routes and times for the rallies to reduce the risk of violence after scuffles broke out between police and demonstrators during protests on November 14 that saw the police criticised for heavy-handed tactics.Several thousand students and workers also rallied in other cities including Naples, Florence and Catania.No clashes were reported but the widespread protests highlighted the scale of discontent in the recession-hit country ahead of parliamentary elections next year."We need to change this country, starting from investments in schools, universities and culture," said Michele Orezzi, a university union coordinator, adding that Italy's education system was "crumbling into pieces".With youth unemployment at about 35%, more than three times the national average, and Monti's austerity policies biting into education spending, school pupils and university students have taken an active role in anti-government protests.Much anger is focused on an education reform bill going through parliament that would give schools more autonomy and allow them to accept other sources of funding than the state. Protesters believe this is intended to encourage privatisation.Students have occupied schools around Rome in recent weeks to express their anger and frustration at repeated funding cuts, chaining gates shut and camping inside classrooms.Monti has defended his austerity plan, saying he believes his technocrat government will be remembered for having helped Italy pull itself out of a deep economic crisis without needing to resort to external aid.Italy has been the European Union's most sluggish economy for more than a decade, fuelling investor concerns about its ability to bring down public debt of around 126% of output.

World Week Ahead: Deal or no deal for Greece?

Two deals might help extend last week's momentum on equity markets in the US and Europe -one that helps the US avoid its fiscal cliff and a second that would end the immediate threat of Greece defaulting on its debt.Optimism was fuelled on both fronts last week, though the timing for an agreement by US lawmakers on preventing automatic tax increases and spending cuts worth about US$607 billion set to kick in on January 1 remains more open-ended. Officials from the White House and Congress will resume negotiations this week.US President Barack Obama said on November 18 he was "confident" a new US budget deal would be reached. Meanwhile, EU commissioner Olli Rehn on Thursday said he saw no reason a deal on Greece could not be concluded tomorrow when euro-zone finance ministers, the International Monetary Fund and the European Central Bank meet again.Greek Finance Minister Yannis Stournaras expressed confidence that the IMF would ease earlier deficit targets imposed on the debt-stricken nation, thus opening the door to the transfer of more funds."It's a done deal," Stournaras told reporters in Brussels on Friday after meeting with EU officials and IMF Managing Director Christine Lagarde, Bloomberg reported.Commitment to resolving budgetary and debt issues that risk hampering both US and European economies bolstered stocks last week.In the Thanksgiving holiday shortened week in the US, the Dow Jones Industrial Average gained 3.3%, the Standard & Poor's 500 advanced 3.6% and the Nasdaq Composite climbed 4%.In the past five days, the benchmark Stoxx Europe 600 Index jumped 4%. It is the first time the gauge has gained every day of the week since July 1, 2011, according to Bloomberg.The advance in European stock prices came even though EU leaders struggled to see eye to eye in talks about the next seven-year budget for the region and a two-day meeting late last week ended in failure.European Council President Herman Van Rompuy said they decided to abandon the special summit on the 2014-2020 EU budget, worth about 1 trillion euros, and would try to reach a compromise early next year, according to Reuters.On the US economic front in the days ahead, investors will eye the latest reports on durable goods orders and consumer confidence on Tuesday, weekly jobless claims on Thursday, the Chicago Purchasing Managers Index and personal income and outlays on Friday. The Federal Reserve's beige book is due on Wednesday.Also, three reports on the housing market might confirm the recent data indicating strength and optimism in this industry's pace of recovery.The S&P/Case-Shiller home price index for September, due Tuesday, is expected to show the eighth straight month of increases, while new home sales for October, due Wednesday, and October pending home sales data, due Thursday, are also expected to show a stronger housing market.The US Treasury is set to auction US$35 billion of two-year notes on Tuesday, US$35 billion of five-year securities Wednesday and US$29 billion of seven-year debt on Thursday.The first clues on how retailers fared on Black Friday, the day after Thanksgiving, will also provide a helpful indicator on the state of the American consumer. The National Retail Federation predicts sales during the holiday season to increase 4.1% this year, down from last year's 5.6% growth.On Friday, Europe offered some surprisingly good economic news. The Ifo institute's business climate index unexpectedly rose, climbing to 101.4 in November from 100 in October, the first increase in eight months.That helped the euro finish what had already been a good week on an even more positive note, rising 1.8% against the greenback and climbing 3.2% against the Japanese yen in the past five days."Certainly sentiment towards euro has changed," Camilla Sutton, chief currency strategist in Toronto at Bank of Nova Scotia, told Bloomberg News. The euro "rallied slightly again after we got German confidence numbers, which highlighted better-than-expected business sentiment."

International arbitration for tax disputes

The United States is undefeated in the nearly two years since it began settling corporate tax disputes with Canada through a winner-takes-all process popularly known as baseball arbitration.Tax lawyers and accountants in both countries said the US Internal Revenue Service had won three of the binding decisions and Canada none. They said the IRS had collected a significant sum of money, possibly in excess of $100m.Launched in December 2010, the arbitrations follow the rules for resolving salary disputes between Major League Baseball players and their teams. In the tax game, however, the companies forced to pay and the payments remain confidential. The United States has had similar agreements with France since 2004 and Belgium and Germany from 2006, but no cases involving them have gone to baseball arbitration, the tax experts said.Baseball arbitration plans are in pending tax treaties with Hungary, Luxembourg and Switzerland. Future treaties with the United Kingdom and Japan may have the same provisions, tax experts said.The arbitration process arises often in tax questions involving a multinational company's transfer pricing taxes, where two countries disagree over which of them should collect corporate taxes. The winning country gets the tax revenue. The loser goes home empty-handed. Companies like the baseball arbitration provision because it lends certainty to their tax bills. Companies can request that countries go to arbitration if revenue agents cannot settle their tax disputes in two years.Aiming too high?The arbitration panels are made up of three experts, one chosen by each country and the third by the other two experts. Revenue agents from each country submit a tax bill number to the panel. The panel picks the number it thinks is closest to the right answer. Tax experts on both sides said Canada had lost all three disputes because it was trying to hit home runs  seeking too much in taxes during arbitration."Canada has lost three in a row," said Dale Hill, a former manager of Canada's cross-border tax negotiations with the United States and a partner with Gowling Lafleur Henderson LLP in Ottawa. "Maybe Canada has been more aggressive," Hill said.David Rosenbloom, a Washington, DC-based US tax lawyer at Caplin & Drysdale, said: "The Canadian Revenue Agency has developed over the years a habit of taking really extreme and unwarranted positions. It's almost as though they're unaware arbitration is in the treaty." Richard McAlonan, who directs the IRS negotiating program,his month that the agency had resolved a "handful" of the cases. He declined further comment. The Canadian Revenue Agency said in a statement that it prefers to resolve its tax disputes with the United States "at the negotiating table". Going to arbitration "would be the last resort", the CRA said. It declined to comment on the cases, citing confidentiality rules in the treaty. Canada's losses may mean its revenue agents will be more cautious in tax negotiations with the United States. The countries negotiate 75 to 100 cases a year, Hill said. "It's going to get tougher for Canada to negotiate," he said. Treaties pending The tax treaties with Hungary, Luxembourg and Switzerland passed the US Senate Foreign Relations Committee in 2011. But Republican Senator Rand Paul has so far prevented all three treaties from going before the full Senate.A spokesperson for Paul could not be reached for comment. Paul has previously objected to the treaties' provisions that require more sharing of US taxpayer information. New treaty arbitration provisions with Switzerland and the UK would especially benefit the pharmaceutical industry, while auto companies would appreciate the provision in a Japanese treaty, said Lorraine Eden, a professor at Texas A&M University.Companies in both sectors have a lot of transfer pricing tax uncertainty and can face double taxation if unable to force countries into binding arbitration, she said.UK-based GlaxoSmithKline reached a $3.4bn transfer pricing settlement with t he IRS in 2006. But the UK did not accept the US settlement, and Glaxo faced UK taxes on the same profits, Eden said."Would they like the opportunity to go to binding arbitration and settle this? Absolutely," Eden said.