SUMMER – TIME TO SUM UP THE HALF YEAR
July, 2010
Cyprus: corporate tax increase fails
In July the authorities of the Republic of Cyprus tried to increase the corporate tax rate from 10 to 11%. The measure was intended to be introduced for two years, Mr. Kharilaos Stavrakis, Minister of Finance told. The reaction on the possible increase of the most favorable in the EU tax rates varied from total indifference to shock & hysterics. Russian companies registered in Cyprus kept quiet, of course they were not happy about this 1% growth but even 11% corporate tax is still the best alternative in the European Union. However all the opposition parties in Cyprus Parliament disputed the increase of the corporate tax rate up to 11% & blocked the unpopular measure.
Cyprus is the second in the Euro Zone (E 16) for the lowest taxes for physical persons & the leader for the minimal taxes for companies’ tax (10%). According to Eurostat maximum tax rate for physical persons in Cyprus in 2010 will be of 30%, while in Greece it will be of 45% & average rate for Euro Zone countries – 42, 4%. For all European Countries (E 27) – 37,5%. The lowest physical tax rate in Euro Zone is observed in Slovakia (19%). The lowest one in the European Union has Bulgaria (10%), the highest one is in Sweden (56,4%). As we has mentioned above corporate tax rate in Cyprus is just 10%, while in average rate in Euro zone is 25,7%, European Union – 23,2%. The highest corporate tax rate of 35% can be seen in Malta & France (34,4%). The lowest one – in Cyprus & Bulgaria (10%), followed by the Republic of Ireland (12,5%). Finally, the lowest VAT rate in the European Union is again in Cyprus (15%). During 2000 -2010 VAT rate has not changed in 13 countries of the EU, increased in 12 countries & lowered only in Slovakia (from 23% in 2000 to 19% in 2010) & in Czech Republic (from 22% to 20%). The biggest growth was noted in Greece (from 18% to 23%) & in Cyprus (from 10% to 15%).
«Pre-crisis» catchphrase
Number of world millionaires has grown
While in 2009 the most popular catchphrase between the economists was “crisis”, in 2010 it has ceased its leading place to “pre-crisis” credit rates, prices, discounts, supplies’ volume, sums of deals, etc. even the number of the millionaires worldwide also came back to the “pre-crisis” level. Just their natural habitat has changed. Now more and more of them appear in Asia.
Usually investment banks & financial organizations calculate the number of millionaires, they are interested in determining the target group for their “luxury products”. One of the most respectable annual millionaires’ rating is a survey held by Capgemini together with Merrill Lynch. In July they made public new data according to which the number of the millionfaires is growing. In 2009 10 million persons worldwide could call themselves dollar millionaires. This figure could be several times more if the researchers took into consideration the price of the main living real estate & private collections. Total fortune of these 10 million millionaires is estimated to be of 39 trillion dollars. Therefore each one of them posses 3,9 million dollars. It is not that much actually, knowing that the fortune of the richest people in the world is accounted in tens of billion dollars. In 2009 total welfare of the millionaires grew 18, 9% & their number – 17, 1%. Nearly the same figures were registered in 2007. During the crisis the number of millionaires has declined drastically, the fact that allowed the researches to claim that recent figures show the return to the “pre-crisis times”. Yes, we are facing crisis, still the location of the rich changes very slowly. More than a half of them live in three countries: USA, Japan & Germany. The gap between these three & the others is still considerable. Germany, having the third place counts with 861 thousand millionaires, while in China there live 477 thousands. Still these figures can’t even be compared with the leader – the USA with 2, 9 million millionaires. Among the first ten, consisting of, besides the above mentioned ones, Great Britain, France, Canada, Switzerland, Italy & Australia, the best results in the year’s research showed, surprisingly, the Australians. In this far country the number of millionaires grow 34,4% that allowed Australia to enter the Ten, before it had occupied the 11th place, ceasing Brazil. Even in China, where in spite of any crisis the economy keeps growing, the number of rich people increased only on 30%. Italy & Germany failed to overcome the 10% barrier. While the changes in the first Ten are minimal, on the whole the researches noted several tendencies worldwide, that will possibly determine the market mood in the following several years or decades. The case is that by the end of 2009 the welfare of the millionaires form the Asia Pacific region was estimated to be of 9,7 trillion dollars, while Europe had “only” 9,5 trillions. Therefore Asian millionaires successfully competed the European ones. Taking into account that the growth in the region constituted 30% it is most likely that we can expect the widening of the gap in future. The Asians won as well by the total number of the millionaires – they are now 3 millions. Due to this point Asia Pacific region is only several points behind the North America where 3, 1 millions of rich people live. So, in 2011 we can expect a sensation – North America will miss the leadership in the number of millionaires.
It is curious that in Greece the number of the rich declined 1, 2 million, while the debt crisis, that has been the major talk for European countries during half a year, reached Greece only in 2010. The decrease in millionaires’ number was noted in the United Arab Emirates as well. The crisis reached them in the end of 2009, it was related to the potential default of the Dubai World sate fund. But the real reason for the reducing number of the millionaires is that the prices for real estate in the UAE fell 48% in one year. Many Arabs got rich precisely because of their investments in square meters.
As for Russia it doesn’t enter the Ten of the countries with the biggest number of millionaires. Analysts only noted that according to official data the number of the rich grew 21,3% in spite of that the economy reduced 7,9%. Totally there are a little bit more than 117 thousands of millionaires living in Russia. If we consider that the population is 142 million people then there is one millionaire for 1200 persons. The researchers think in future the welfare of the Russians will be growing. There will be more millionaires due to the growth of metal & energy sources prices & export development.
Hong Kong retail volume grew 19%
According to the Statistics Department of Hong Kong volume of retail sales has been showing stable growth during last several month. Thus in the second quarter of the current year the sales volume grew on 19% compared to the same period in 2009 & counts with 3 billion US dollars per month. Taking into account seasonal deference the sales volume in the first quarter of the year grew 5,3% compared to the previous quarter. The last year sales decline can be explained by the influence of the world financial crisis & as its consequence by mass reduction of jobs in Hong Kong.
Thousands of Russians rushed to Hong Kong
About 8 thousands of Russian citizens visited Hong Kong just in one month this year that is 142% more than in any month of the previous year. Therefore Russians occupy the leading place among the foreigners coming to Hong Kong. The Hong Kong authorities explain it by the fact of abolition of visa regime for the Russians. In January 2010 only nearly 3 million tourists visited Hong Kong. Meanwhile the tourist flood from Great Britain grew only 8% - about 44 thousand people. This increasing interest of Russians towards Hong Kong made some airline companies to think about starting regular flights from Moscow to Hong Kong. In particular Cathay Pacific that now flights together with Aeroflot, announced such its plans. Hong Kong Airlines also considers such a possibility
Danger: North Cyprus real estate
Consumer protection organization «Public control» drew the attention of interested citizens of Russia & mass media to the danger of acquiring real estate objects in the north territory of the Island of Cyprus. Recently some dishonest Russian & foreign realtors has started to spread false information about a possibility of supposedly legal ways of acquiring property in North Cyprus. These advertisements however don´t state that it is possible only avoiding legal internationally admitted Cyprus acts & abusing rights of the real proprietors of this real estate objects – Greeks – Cypriots that were forced to leave in 1974.
Thereby RF authorities formulated their recommendations for the Russian citizens who want to carry out commercial transactions with real estate located on the occupied territory of North Cyprus. In particular they state the following: «A number of the UN Security Council resolutions, including 541 & 550 ones are still in force & prescribe that all the members of the international community don´t recognize any other Cyprus country apart form the Republic of Cyprus, respect its sovereignty, territorial union & don´t support in any way the separatist region (so called «Turkish Republic Of North Cyprus») in the north part of the island.»
According to the laws of the Republic of Cyprus & the European Union the Greeks- Cypriots driven from their land in 1974 due to the occupation conserve their rights on the property in North Cyprus. These rights are guaranteed by bilateral treaties between the Republic of Cyprus & Russian Federation & its skipping fraught with material loses, sues & penalties.
According to the bilateral Agreement on legal aid in civil & criminal cases (1984) the verdicts of the Cyprus courts are acknowledged in Russia as well. The fulfillment of such verdicts is possible on the territory of Russian Federation if Russian citizens are involved in misappropriation of real estate in North Cyprus.
Therefore those Russian citizens who want to acquire real estate or land in North Cyprus should be aware that such a deal implies high legal, financial & property risks, as it can be disputed in court. Confiding in some dishonest realtors Russian citizens may conclude an illegal deal without knowing it. Consumer protection organization thinks it is its duty to warn Russians against such advertisement of some realtors offering real estate in North Cyprus & against making illegal deals. Documents for real estate property issued in so called «Turkish Republic of North Cyprus» are not valid in Russia & in case of total regulation of the Cyprus territory issue Russian citizens that bought such real estate can loose their rights on it. 88% of the land occupied by the Turks belong to the refugees – Greeks –Cypriots that posses right titles for it.
Therefore before the invasion in 1974 Turks- Cypriots owned only 12% of the territory, the fact that drastically reduces the number of real right titles in North Cyprus that allow to perform sales & buying, construction & improvement of these lands. When put on sale the lots that have legal owners are given a higher price because in case the Cyprus territory issue is solved their status won´t be questioned. Following a recent Cyprus court decision on the Orams case & its legal consequences everyone occupying land that belong to the Greeks _Cypriots on the territory invaded by the Turks will have to compensate the loses, to destroy acquired or constructed buildings on such lots & even can be put into a jail, not even in Cyprus, in case there will be an international order for arrest, such a person can be detained in any part of the world. Moreover the property that belongs to such a buyer in his country can be «freezed» as well. If this person doesn´t posses enough money to make the compensation his or her property outside Cyprus can be sold by auction subject to the court´s decision. Those who want to buy real estate in the occupied territory of Cyprus should be prepared to defend their rights in the European Communities´ Court. Moreover they risk to get arrested by the Republic of Cyprus police & their property in the country of their permanent residence may be confiscated. As an example we can state the case of «Louizidou against Turkey». On 28 July 1998 Mrs. Tina Louizidou won a juridical battle against Turkish authorities in the European Court of Human Rights. The court issued three decisions admitting the violation of human rights by Turkey in the north part of Cyprus that is controlled by Turkish military authorities. It is a unique & important decision that acknowledges the rights of an individual in Cyprus & gives green light for similar sues related to the violation of rights of the legal owners of the land property in North Cyprus. Acknowledging Mrs. Louizidou as a legal owner of the lot located in the territory occupied by the Turks since 1974 the Court prescribed that Turkey pays her a compensation of 457 000 Cyprus pounds (543600 British pounds) for the period of eight years when Mrs. Louizidou was deprived from using her property since 1990 when Turkey finally acknowledged the power of the European Court of Human Rights. Now Turkey is to pay out the compensation during 3 months from the moment the Court´s decision was issued.
Audit company´s professionalism under prejudice
Some South American financiers assure that major consulting company Ernst & Young was one of the main reasons of the Lehman Brothers´ bankruptcy that started the world financial crisis. Thus, Anton Valucas who officially investigated the case of the Lehman Brothers´ ruin thinks that there is solid evidence of the fact that E&Y didn´t act professionally enough, the issue of withdrawal of $ 50 million from the balance of Lehman Brothers by means of extra balance transactions was not estimated & resolved correctly. Unlike the «critics» the «defenders» of the audit companies of the Big Four – PwC, KPMG, Deloitte & E&Y, noted that these companies made perfect audit for a number of banks facing world financial crisis & received considerable remuneration for this work. Thus, for auditing Lehman Brothers E&Y company gained $27,8 million, auditing for RBS brought Deloitte 17 mln. Pounds. KPMG received $ 9 mln. from its clients during the same period. Some don´t question the professionalism of the Big Four but believe that such a work could be done successfully by other auditors as well for less money. As for the Big Four it is quite obvious that they are taking advantage of their long term image, gained by advertisement & connections.
Problematic but popular
In the middle of July Greece, Spain & Ireland allocated their bonds of 1,95 billion Euros, 6 billion Euros & 1, 5 billion Euros accordingly. Experts note that demand for the non-leading European Countries´ stocks is growing. Totally these three problematic Euro Zone countries allotted their debt warrants on nearly 10 billion Euros. The demands for their stocks is growing, experts are sure that the billions aid program can restrain budget crisis in these countries. «The pressure on loan market is ceasing»,- financial analysts say. «They believe «provincial» markets still have some potential for dynamic growth compared to the Euro Zone nucleus»
Greece: hope for restoration
Greece placed its 13-weeks treasure bonds of the total sum of 1,95 billion Euros under 4,05% per annum. This was second bonds´ placement since Greece received aid from the European Union this May. The demand for the stocks of the country that generated European debt crisis was bigger than the last time, exceeding the offer 3,85 times. Analysts think the auction testifies that there is a hope to restore Greek economy though the process won´t be fast & easy.
Spain: investors change their minds
Spain too placed its treasure bonds of 6 billion Euros totally in July (12 month´s bonds of 4,25 billion Euros under 2,221% per annum & 18-month´s bonds of 1,72 billion Euros under 2,331% per annum). The demand for the bonds as well exceeded the offer 1,95 points for the 12-month´s bonds & 2,44 times for the 18-month´s ones. Spain that is to pay out its 24,7 billion Euros debt in summer faces the third large budget deficit in the Euro Zone. The country´s banks are largely depend on the European Central Bank financing. The Ministry of Finance count with the banks´ stress-tests publication planned for 23 of July that will increase investors´ trust to the Spanish banking system.
Ireland: against all the ratings
While Europe was waiting for the banks´ stress-tests´ results Ireland already passed a «debt test» in the middle of July. The country that lost several points in the Moody´s rating placed its debt warranties of 1, 5 billion Euros to be paid in 2016 & 2020. An average proficiency of the stocks on the auctions was 4,496% & 5,537% respectfully. The demand for the bonds to be paid in 2016 exceeded the offer 3,6 times compared to the 3,1 mark registered a week before.
Crisis reduced migration floods to Russia 15%
During the 2,5 years of the crisis the number of migrants coming to Russia reduced 15%, - information agencies announce quoting deputy Director of Russian Federal Migration Service. According to the FMS last year 17 millions of migrants came to Russia while before the crisis it was 20 millions. The deputy Director of The FMS also made public that during the crisis more than 2 million foreign citizens registered in Russia lost their jobs. He said the reduction of jobs is an objective process that reflects the economic situation. He thinks that the number of migrants will grow if «the economy will develop». Although the number of migrants should correspond the demand.
At the beginning of summer the President of Russia signed a law about introducing special patents for the labor migrants & benefits for highly professional specialists coming from abroad. Besides in order to get a job foreign citizens are obliged to be dactylographied. According to the data of the Russian State Duma´s Committee of Constitutional Legislation & State Building about three millions of labor migrants come to Russia annually.
Obama´s financial revolution
This summer the USA President signed a law that foresees the most radical reforms in American financial system since the Great Depression. The document aims to protect the citizens against banks´ risky policy. The President´s Administration initiated these reforms that stood for the toughening control over financial sector in order to avoid the return of the crisis. The law was approved by the Senate on 15 of July & before that supported by the Chamber of Representatives of the Congress. Obama named the document «the strongest financial consumers´ protection project in history». An independent agency for consumers protection will be found that will approve banking population credit rules & monitor their fulfillment. A new council of the control over financial stability will be created as well. It will monitor system risks in the financial system & possible «bubbles» in markets. Besides, the regulating bodies will be empowered to take control over problematic financial companies in order to minimize the consequences of their possible collapse. As President Obama promised American taxpayer will never become a hostage again of a bank that is too big & which bankruptcy can be a threat to the country´s economy.
The «Walker Rule» (Paul Walker – former head of the Federal Reserve System, now Obama´s counselor for economics) limits the banks´ possibilities to perform their own transactions in the market with their own funds. Hereinafter banks will be able to invest in hedge foundations & private investment funds in the amount not exceeding 3% form their first level capital & to own not more than 3% of the capital of these funds.
