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Ireland’s absurd tax give-away

Oligarchy is a weekly newsletter tracking how the super rich are changing the world for the rest of us. Also in this edition: Yachts as yardsticks and the cynical flattery of Liz Truss

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THE HAVES, AND THE HAVE YACHTS

If you’re waiting for your superyacht to be delivered, then I’ve got some bad news. Because of the global supply chain issues, as well as the general Covid difficulties, a lot of orders have been unavoidably delayed, so there’s a strong chance you won’t be out on the water for a while yet. You have my sympathies. But look on the bright side, you can at least take some comfort from the fact that lots of other high-net-worth people right now are in the same, well, boat.

  • “Delayed projects are nothing new – each year the GOB includes boats whose deliveries have slipped beyond our year-end, but the sheer number this year is significant, and double that of an average year. Covid-19, clearly, has played havoc with superyacht delivery schedules around the world.” That’s the top line from the Global Order Book (GOB), from Boat International.

But that’s not to say there aren’t some bright spots in this gloomy picture. Most notable is the strong growth in the number of new superyachts longer than a 100 meters. For the record, 100 meters is really big: that’s longer than the Statue of Liberty is tall, and many of these boats are bigger still. Biggest of all is the REV Ocean, which will be when completed – at 182.9 meters long – not only the longest yacht ever built, but also bigger than all but the very largest naval destroyers.

If you want an idea of what such a vast vessel might be like inside, here are some facts about the Azzam, the yacht it will displace at the top of the list, which is quite something. The interior of the Azzam features an amount of mother of pearl equivalent to the entire world’s annual production, although my personal favorite snippet about it is how hard the designers worked to ensure the chandelier in the main salon didn’t tinkle in rough seas.

  • “It was difficult to know in advance how this would behave, but it was tested in every possible way with sophisticated software and set up challenging targets and it was not a problem,” says Mario Pedol, founder of Nauta Design, which helped design the boat.

Every possible way? The mind boggles.

Of course, most of these new yachts won’t be that big nor presumably will have such challenging lighting specifications (or indeed “a golf training room”), but still, they’re massive by any ordinary standards.

  • “In the Netherlands, Feadship has just shipped a 118-metre project into one of its sheds, Amels has announced a 120-metre order and Oceanco has an impressive order book of five 100-metre-plus giants.”

It all helps color in the picture we’ve been drawing for most of the last two years, which shows how the world’s very richest people –the kind of people able to buy a yacht as big as a warship — have found Covid-19 an incredibly profitable experience. It’s been, for example, a great year for Russian billionaires whose collective wealth has risen 30% to $630 billion. One study from earlier this year estimated that Russia’s top 500 people own more wealth than the bottom 99.8 percent of the adult population, which is 114.6 million people.

Still, even Russian billionaires pale in comparison to the finest available in the United States. In fact, considering what a spectacular year billionaires have had, Elon Musk was a highly appropriate recipient of Time’s person of the year award. And fair play to Editor-in-Chief Edward Felsenthal for not pulling any punches in explaining why he felt Musk’s incredible wealth deserved highlighting.

  • “To Musk, that is progress, steering capital allocation away from the government to those who will be good stewards of it. To others, it is testament to capitalism’s failings as staggeringly wealthy, mostly white men play by their own rules while much of society gets left behind,” the magazine’s article on the award stated.

Concern over this widening gulf is affecting politics all over the world, including in the U.K., where Boris Johnson has promised to “level up” parts of the country left behind by economic progress. There are already plenty of reasons not to believe a word Johnson says, but this report into the effect of his two years in office provides yet another one.

  • “The government’s handling of the pandemic has led to the richest families and regions getting richer, while the poorest families are even poorer now in real terms than the month of Johnson’s election victory (having been left particularly exposed to rising inflation). This would be an indictment on any government, let alone one where the promise to ​“level up” sits at the heart of its political and policy agenda.”

A fascinating driver of that has been house price gains, as shown in this new report, which also proposes some tax reforms that could help address it.

DEATH AND TAXES

When Benjamin Franklin was alive, it may well have been the case that nothing was certain except death and taxes, but that has been out of date for a long time. There are plenty of folks working to see if death can’t be negotiated away (or, at least, postponed for people rich enough to afford the requisite boutique services), and it looks like taxes are going to remain voluntary for a while longer yet. I always read anything on the minutiae of taxation policy with the weary recognition I will end up not understanding any of it, and this piece on Ireland’s threat to Joe Biden’s Global Tax Deal is no exception.

The deal was supposed to set a minimum floor of 15% tax rates, and thus end the race to the bottom which has led to countries competing against each other to offer ever more generous terms to already incredibly wealthy companies and people. Ireland, it turns out, has already worked out how to neuter this, thanks to its generous treatment of intellectual property.

  • “Ireland’s relatively generous tax allowances permit multinationals with a presence in the country to sell intellectual property, such as patents and brands, from one subsidiary to another to generate deductions that can be used to shield future profits from tax,” the article says.

If I understand this correctly, this is like me selling me the rights to my book, and thereby cancelling out my tax bill for the next decade. Presumably, it makes more sense when translated into accountant-ese.

  • “In 2020, Adobe Systems Software Ireland Ltd purchased intellectual property from another subsidiary that was both an Irish-registered company and a resident in Bermuda for tax purposes. The set-up meant no tax was due on the $11 billion profit from the sale. Meanwhile, Irish-tax resident Adobe Systems Software Ireland registered an $11 billion expense that could be used to offset taxes on profits over a period of about eight years because it is an asset that depreciates over time, according to the subsidiaries’ accounts.”

See? Simple really.

SUMMIT ON DEMOCRACY

Did the Summit on Democracy achieve anything? Answers on a postcard. Still, it’s good that the White House is trying to do something, considering the parlous state of democracy pretty much everywhere, and Joe Biden deserves credit for that.

I’m not sure, however, that the list of people sanctioned (I don’t understand why the State and Treasury lists are different, but I’m sure there’s a good reason. Perhaps it’s just to confuse the bad guys) on International Anti-Corruption Day is quite as exciting as some people are making out. Yes, it’s good to deprive corrupt people of their access to our financial system, but wouldn’t it also be good to sanction people while they were still in power? It wasn’t exactly a secret for example that Isabel dos Santos was accused of skullduggery during her ascent from daughter of the Angolan-president to Africa’s richest woman, although she denies any wrong doing and insists her current difficulties are politically motivated.

Similarly, there were a lot of questions about the head of Ukraine’s constitutional court before he was dismissed last year, as well as the former head of the Ukrainian presidential administration, and others. I appreciate that all governments have to negotiate with whomever happens to be in charge in another country, and can’t just sanction them all willy-nilly, but – considering the questionable guest list for the Summit on Democracy – waiting until people aren’t in a position to be corrupt anymore before sanctioning them for being corrupt does leave a bit of bad taste.

Anyway, this is just nitpicking compared to my objections to the “first major speech” made by Britain’s Foreign Secretary Liz Truss last week under the theme “the network of liberty”, which sounds like one of those absurdly-overblown names dreamed up for a US military operation, but was in reality intended to dovetail neatly with the White House’s agenda. I wrote an article about it last week laying out the main way I hate it, but there’s an extra aspect I didn’t have room to mention there. The trouble with the U.S. stressing a theme is that all the other countries that want to be America’s bestest best friend then talk about it too (Russia used to be very good at doing this with the “War on Terror,” and cynically rebranded the war in Chechnya that it was already conducting to make it sound connected to 9/11. A Kremlin source of mine at the time used to laugh about how gullible the Americans were).

I would urge any Americans reading this not to be persuaded by rhetoric like this from Truss: “as JFK put it, we will inspire others not with an imperialism of force or fear, but the rule of courage and freedom, and hope for the future of man.” It’s the diplomatic equivalent of my kids wangling a late bedtime out of me by suggesting that we watch a film they already know I like. The current British government should be called out for its backsliding on basic integrity, not congratulated, no matter how many times its leading figures reference JFK.

WHAT I’M READING

We are beset on all sides by catastrophes: climate change, kleptocracy, human rights abuses, genocide. Most people want to leave the world a bit better than they found it and would like to do something to make these catastrophes a bit better, including by how they invest their pensions and savings. This is why ESG (Environmental, Social and Governance) ratings are so important, because they show us whether a company is not just making money, but also doing good. We don’t have time to comb through every detail of a company’s operations, and an ESG rating makes everything clear in one little snapshot. Yay, my money’s on the side of the angels.

Except, actually not yay at all, it turns out. As this extraordinary investigation from Businessweek makes clear, ESG ratings have all the coherence of debt ratings just before the 2007-8 finance crisis. Except, if ESG ratings are wrong, it’s not Lehman Brothers that will go pop, but the whole world. Read it, get angry, then find somewhere else to put your money (if you’re lucky enough to have any).

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.

@OliverBullough

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