Bershidsky on Europe: EU Acts on Tax

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Here's today's look at some of the top stories on markets and politics in Europe:

EU to close tax loophole for hybrid structures

The EU has moved to close a widely used tax loophole for "hybrid" schemes in which subsidiaries' dividends paid in one country are declared as tax-deductible loan repayments in another country. As a result of the scheme, the income is not taxed anywhere. The European Commission is also amending its rules to let member countries' tax authorities ignore any "artificial arrangements" made by companies to save on taxes and "ensure taxation takes place on the basis of real economic substance." The question is whether governments really want to crack down on the complicated cross-border tax structures. Countries such as Ireland, Spain and other EU members tolerate the schemes because they allow them to lure large taxpayers: Some tax income from them is better than none at all.

EU accuses U.S. companies of abusing access to Europeans' personal data

The European Commission finished a review, started last summer, of the so-called safe harbor pact, which allows U.S. internet giants such as Facebook and Google to operate in Europe without local supervision. "The personal data of EU citizens sent to the US under the 'safe harbour' may be accessed and further processed by US authorities in a way incompatible with the grounds on which the data was originally collected," the commission's report says. It stresses that the European Commission has the power to end the regime. That would force the U.S. internet companies to split off their European operations, processing and storing all customer data locally. The U.S. needs to provide some serious assurances to Europe that it would end it massive electronic spying efforts. If it does not do so quickly, the competitiveness of some of America's strongest global companies may be destroyed.

RBS accused of forcing client defaults

An advisor to the U.K. business secretary found that the Royal Bank of Scotland revalued or changed the terms of loans made to small businesses to drive them into insolvency so that it could seize and sell their assets. The U.K. government is taking the accusation seriously: finance minister George Osborne called it "shocking" and promised further investigation. The nationalized bank has been part of every scandal that has hit the industry in the last few years, from interest rate fixing to insurance mis-selling. There were, however, always others with whom to share the blame. The new problem is entirely RBS's own. The good news is that all the wrongdoing, proven and alleged, happened under the previous management. Chief executive Ross McEwan can always say he is starting with a clean slate.

German coalition talks nearing end

After two months of talks, Germany's two leading parties, Angela Merkel's CDU/CSU and the Social Democrats, are set to announce they have reached a coalition agreement. The deal, expected by Nov. 27, will be subject to approval by the Social Democratic Party's full membership of 470,000 and could still fail, but a peaceful outcome is more likely. The two parties have agreed on the most contentious issue, an $11.5 an hour nationwide minimum wage. They have also run up a $70 billion combined spending wish-list which any government will be hard put to implement. Even an imperfect agreement, however, is better than a new election and, almost inevitably, a new round of coalition talks.

Bayer offers 27 percent premium for Norwegian drug firm

The German pharmaceutical company Bayer has offered to buy Norwegian firm Algeta for $2.4 billion, a 27 percent premium over its last close. The two companies partnered in developing cancer treatment Xofigo, now marketed in the U.S. and soon to enter the EU market. It is not a big seller yet, but Bayer must know something about the prostate cancer drug if it is willing to add such a hefty premium to a price that already approached 20 times the company's projected 2015 earnings. Specialized knowledge will beat analysis every time.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net