European middle-market firms want lawmakers to step up their efforts to tax global internet giants despite a backlash from the US, according to figures from RSM. In a survey conducted in partnership with the European Business Awards, the auditing network found that 84% of EU mid-caps think that major tech multinationals – such as Alphabet, Amazon and Facebook – don’t pay their fair share of tax, with 62% taking the view that a digital services tax (DST) on firms at that level will help to level the playing field.
The findings followed EU commissioner-designate for economic affairs Paolo Gentiloni’s 16 September comments that he would pursue a DST even if the US didn’t agree with it – a move that could lead the US to retaliate in the form of trade tariffs. He said: “My first task will be to see whether it is possible to introduce a web tax at the OECD/G20 level – that is to say, at a global level – because that would be the most effective solution. The Commission will seek to reach an accord by 2020. But if that’s not possible, my mission will be to propose a European web tax… we’re not prepared to wait.”
RSM international head of global tax Rob Mander said: “The middle market is the engine room of the global economy, and it is right that governments around the world are looking at ways to level the playing field between them and their multinational competitors. However, these narrowly defined national taxes can cause more harm than good. By focusing on a small number of large businesses in one market, it is very easy for the costs to be passed down the supply chain. All parties need to come to the table and negotiate a solution that works for business. If they do not, the risk is that we will see higher taxation, more tariffs and potentially lower and uneven economic growth. This is not what anyone wants.”
US corporate treasurers are selling off increasing quantities of so-called ‘junk bonds’ to help their firms settle up for more expensive debt, says an 18 September analysis from the Financial Times (subscribers only). The piece notes that, during the four days to 6 September, a record number of bonds were sold globally and in the US – with Dealogic figures showing that, in just the first half of the month, US treasurers sold $120bn of new bonds across 100 separate deals.
In the FT’s view, firms are for the most part taking advantage of low financing costs to pay off costly debt and/or buy themselves more time to pay it back. The resulting “deluge of debt”, it notes, has been “easily digested” by investors “who are battling to generate returns with about $14 trillion of negative yielding bonds outstanding”. Examples of corporates that have contributed to this surge of junk bond sales include Pennsylvania property developer Toll Brothers, which sold a $400 million, 10-year bond with a coupon of just 3.8%, and Burger King owner Restaurant Brands International, whose $750m bond also had a coupon of less than 4%. Other, high-profile contributors the FT cites are Verizon and AT&T.
Geopolitical factors have played a key role in paving the way for the junk bonds flood. The FT points out that a decline in treasury yields in August, fuelled by renewed trade tensions between the US and China, provided treasurers with an ideal opportunity to sell off riskier, high-yield debt.
A global slowdown in M&A transactions spread to the US market in Q3 2019, Mergermarket figures have found, causing year-to-date (YTD) dealmaking around the world to drop by 11.4% on last year to $2.49 trillion across 13,304 deals. Global activity was particularly subdued in that specific quarter, with $622.2bn worth of deals struck: down 21.2% on Q3 2018’s haul of $789.7bn – and with 1,164 fewer deals.
At $262.9bn in Q3 2019, US M&A is down 32.1% on the same period of last year ($387.1bn). With its YTD activity worth $1.25 trillion, US M&A is still marginally up on the $1.23 trillion total for the first nine months of 2018, just about retaining a 50% share of global M&A activity – but down from 52.5% in the first half of this year. In Asia, meanwhile, activity has been marred by the ongoing trade and technology war between Washington and Beijing and political instability in Hong Kong. YTD M&A in the region is 26.5% lower than last year, at $417.2bn. And despite a small recovery over the summer, European M&A is 29.4% down on the same period last year, with geopolitical tensions and a weakening regional economy dampening activity.
However, despite all those trends, there are some positive developments. European sponsors have conducted six buyouts in excess of $1bn on North American soil this year, five of which took place in Q3. At $424.6m YTD, the average size of deals with disclosed values is sharply up on the $380.1m recorded for 2018, and the highest on Mergermarket record. And so far this year, 31 megadeals (valued above $10bn) have taken place: only the second time since 2008 that over 30 such deals have occurred in the first nine months of the year.
Mergermarket global editorial analytics director Beranger Guille said: “Whether they are motivated by the desire to get more growth, or a way to secure future survival, deals are getting larger. On the back of the longest equity bull market in history, and amid persistently low interest rates, corporates have ample cash reserves and appealing debt financing options at their disposal to pursue M&A. This context, and the growing feeling that it will not last forever are pushing valuations up.”
A worrying 75% of hacks against European companies are never made public, despite EU rules requiring firms to report specific types of breaches within 72 hours of detection. In a survey of almost 600 corporate decision-makers in 33 European countries, RSM found that just 23% of businesses choose to notify regulators of breaches within the time frame stipulated under the General Data Protection Regulation (GDPR). While reputational damage emerged as a key concern for respondents, genuine confusion is driving the lack of transparency – with a third (34%) admitting that they don’t understand the circumstances in which they would have to report a breach.
RSM further discovered that almost 40% of European firms have knowingly fallen victim to cyberattacks in the past five years – a problem compounded by a sense of apathy and acceptance, with 62% of respondents believing that hackers are more sophisticated than security software developers. And at a time when 80% of European firms cite digital transformation as a strategic priority, only 34% of firms have in place cybersecurity strategies that they are confident will protect them from cybercrime.
RSM Germany co-head of risk advisory services Gregor Strobl said that human error is inevitable, and is “costing European middle market businesses dearly”. He stressed: “Hackers are skilful manipulators and well versed in taking advantage of our curiosity through carefully crafted phishing emails. It is vitally important to ensure that staff know-how to recognise and respond if they are targeted by ransomware or phishing attacks.”
With that in mind, he added: “It is troubling, but unsurprising, that so few cyberattacks are ever made public to the authorities or affected businesses. Transparency is key to raising awareness, catching criminals and minimising the damage – but the rules need to be clearer and applied more consistently.”
Singapore has made a significant upgrade to its national Networked Trade Platform (NTP), courtesy of advanced, artificial intelligence-based credit scoring software. Provided by Tradeteq, the new technology leverages a broad set of data sources – for example, details on each company and receivable in the supply chain – and harnesses the power of machine learning to provide a rigorous scoring report, minimising the risk of interruption to trade flows, payments and receivables.
Backed by the Singaporean government, the NTP enables players in its domestic trade finance ecosystem – from multinationals and SMEs to trade financiers, shipping companies and other logistical and service providers – to seamlessly connect with each other via a single, secure portal. Once they have done so, they can collaboratively manage relevant documentation, as well as track trade flows and monitor payments.
Tradeteq CEO Christoph Gugelmann said: “Over the past year, we have worked closely with the Singaporean government and other stakeholders to transform the credit scoring process and improve information sharing. Our machine learning, data-driven reports will provide unparalleled intelligence that will transform the procedures and speeds at which import and export trade flows are approved. This has the benefit of increasing access to financing for importers and exporters, while assessing supply chain risks to mitigate against a supplier or counterparty at risk of not fulfilling its credit or trade requirements.”