Do courts act as a restraint on government excess?

There is always a risk with government that it will attempt to exceed its legitimate powers. However, in jurisdictions where the state structure includes an independent judiciary, such attempts can in theory be held in check by the courts.

The notion that the state should be modelled so as to incorporate sources of internal opposition — often referred to as "separation of powers" — is a relatively modern idea. It depends on taking a sophisticated view about what government should be: not just a device for achieving what is desirable, but one with built-in restraints which on the face of it make its job more difficult.

The courts acting as a check on government requires the presence of a legal system that is autonomous enough, and self-confident enough, to be capable of critically comparing what the government tries to do with what the rule of law demands.

Notional autonomy may be a necessary condition for the role of constraint on government but is probably not a sufficient one. Opposing the government means regarding something other than government as your master; adherence to abstract legal principles, for example. If your primary commitment is to an agenda which happens to be the same as that of the government, you are likely to have little motive for resisting the government when it tries to bend the rules.

The legal system of the EU, including the European Court of Justice, was created from scratch along with the corresponding governmental entity (the forerunner of the European Commission). The whole structure was aimed at achieving a particular objective, namely European integration. A system of this kind is likely to be compromised from the outset with regard to judicial independence. The unspoken purpose of the legal apparatus will be to assist in moving towards the objective, not merely to enforce the prevailing set of rules.

Not surprisingly therefore, there is a question mark over whether the European Court of Justice is genuinely independent, or adequately fulfils the separation-of-powers function.

The above is an extract from the forthcoming article 'EC v Apple' (part 3), scheduled for publication in October.

Transfer Pricing for beginners

Transfer pricing is an issue that arises for multinationals, i.e. corporate groups with a presence in more than one tax jurisdiction. Total group profits have to be allocated among the individual companies, and this is achieved by the group setting notional prices for goods or services transferred from one group company to another.

Say a company makes motor cars in country A and then sells them via its subsidiary in country B. The profit which the B‑company reports for its selling operation will depend on the amount charged by the group per car transferred to it. The lower this transfer price, the more of the overall profit will be allocated to the B‑company. (See figure below for an example.)

Some groups may try to bias profit allocation towards countries with a lower tax rate by adjusting the transfer price. If country B has a higher tax rate than A, it is in the group's interests to minimise profits in B by setting a relatively high transfer price per car.

Governments are of course aware of this ruse. B's tax authority is likely to reject the company's calculation of profit if it considers the transfer price unreasonably high. Conversely, country A may object if it considers the price to be artificially low, so that too little of the profit is taxed in A. Disagreement about whether transfer prices are reasonable can result in long-drawn-out disputes.

The principle which guides authorities' decisions about whether a transfer price is reasonable is the arm's length rule. This states that transfer prices should approximate to what would happen in transactions between unconnected parties. Unfortunately, the interpretation of this is often anything but straightforward. There may be little or no market data to help answer the hypothetical question: what transfer price would be set if the two divisions were independent?

In the case of relatively homogeneous industries like motor cars it may be possible to look at mark-ups on cost charged by rival manufacturers to independent distributors, take an average, and adjust for any special factors. Alternatively one can look at the profit margins of independent distributors, and argue that the transfer price should result in a similar level of profit margin for distribution companies within a group. These are some rough and ready methods used in simple cases.



At the other end of the spectrum, if what is being transferred within the group is the use of intellectual property ("IP") — say from a technology company to one of its subsidiaries — there may be little or no basis for calculating an arm's length price.

A method often used in market-based transactions involving IP is to charge the IP user a percentage of the revenue he obtains from selling products that make use of the IP; in other words, a royalty. This suggests that the IP holder within a group should charge a royalty to other group companies. But royalty rates used in market transactions range from less than 1 percent to more than 20 percent, so this does not necessarily get one very far.

The above is an extract from the forthcoming article 'EC v Apple (part 3)' which is scheduled for publication in October.

LEGO and sex

I've been monitoring the LEGO cards that come free with Sainsbury deliveries. They're funny! But there's something curious about the gender division of the characters.



There seems to be some kind of pattern here. I haven't quite figured it out — but I'm working on it!

coming soon

 
● New article is in progress.

Interesting times

An interesting phenomenon of recent times is how a significant number of politicians, ostensibly committed to the notion of democracy, demonstrate their commitment to another set of values that overrides their support for majority voting.

Thus we witness, for example, a White House member of staff boasting anonymously in the New York Times* about his (or her) efforts to subvert US President Trump's policies.

The anonymous writer is vague about what is so objectionable about the policies that it justifies such behaviour, though he tries to paint a picture of a President who is erratic and deluded. The writer summarises his complaint in terms of Trump's alleged "amorality", by which he apparently means that the President "is not moored to any discernible first principles that guide his decision making". I can see why someone might dislike lack of commitment to principles in a politician, but it is hard to understand why it should be grounds for subversion.

A Republican commentator has expressed disapproval** of the article, arguing that the writer's behaviour will only make the President "more defiant, more reckless, more anti-constitutional, and more dangerous". The commentator recommends that the President's aides should rather resign, or work towards impeachment.

The commentator might have suggested that the writer, and like-minded colleagues, should attempt to overcome their antipathy and comply with the President's wishes as far as possible, on the basis that Americans voted in a way that implies they would like them so to comply. However, the commentator does not do so.

This revealed weighting among elected politicians and commentators between (a) the results of a vote, and (b) their own personal preferences is surely one of the most significant contemporary issues in political affairs, and worthy of attention.

Exercise for the academically inclined
1. See how many recent scholarly articles you can find on the phenomenon of Western politicians opposing the results of majority voting, in which the authors regard it as something that needs explaining.
2. Contrast the number you get in part 1 (which may well be zero) with the number of articles which ask how it came about that voters recently made 'bad' decisions and which suggest remedies for preventing it from happening again.

* 'I am part of the resistance inside the Trump administration', anonymous op-ed, New York Times, 5 September 2018
** David Frum, 'This is a constitutional crisis', The Atlantic, 5 September 2018

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● The third and final part of EC v Apple should be on the website later this month.

Bond: time for a change

I like the idea of Idris Elba (star of BBC series Luther) as James Bond, a role for which he is reputedly being considered. The Bond 'franchise' could do with a 'reboot'.

Daniel Craig makes a complex and intense Bond, which is interesting to watch. But the character he plays is not a person one would eagerly invite to a dinner party.

The Bond films have moved well away from the spirit of Ian Fleming's novels. A return to traditional values would be refreshing. Suave and polite, charming and witty, a touch sadistic perhaps — but not overly burdened by demons.

With a black actor, the film makers might feel less obligated to strike a gritty tone, and allow some glamour to creep back. If that is too out of sync with contemporary values, why not set it in a parallel universe. Or the Sixties.

Unlike Bond-world, Aston Martin has embraced modernity without losing its original ethos. An Aston Martin featured in Fleming's 1959 novel Goldfinger, and the cars have appeared in many of the Bond films. The company is set for a flotation on the London Stock Exchange later this year.

• Picture of Idris Elba is from the cover of GQ Magazine October 2013.

Snowflakes

I note it has become fashionable among left-wing columnists to refer snidely to free speech snowflakes. "You think that debate on important topics should not be circumscribed by speech laws? Aww, diddums."

What next — political prisoner snowflakes? "You think that people should not be imprisoned for their beliefs? Aww, diddums."

The cultural elite and the "upper middle class"

Has it become acceptable yet, in polite circles, to criticise the il-liberal elite?

(Attacking the elite may smack of "populism". Populism is, at the moment, widely regarded as bad — though why it's supposed to be bad is rarely elucidated.)

Judging by Radio 4 presenter Justin Webb's article in yesterday's Times, it may be okay, provided you can demonstrate your egalitarian credentials.

Webb talks of polarisation between America's cultural elite, and the many ordinary Americans who do not partake of the beliefs of political correctness, e.g. self-righteous indignation at white people or men.

However, instead of using the description "politically correct cultural elite" — which might sound critical of moderately-paid but highly-ideologised groups such as teachers, academics and government employees — Webb labels his targets as the "upper middle class".

"Who will challenge the American upper middle classes?" he asks. "Who will take away their tax breaks?"

Inviting resentment of a class because it is said to possess privileges it doesn't deserve? Doesn't seem that different from what the subjects of Webb's critique do.

The Power of Life or Death - 2

It is undoubtedly the case that medical professionals are at times overly interventionist, in the sense that drastic life-saving measures are imposed on some clients who would prefer not to have such measures applied. Certainly this phenomenon is part of what fuels the ‘right to die’ movement. Yet because the autonomy issue is evaded, the debate has a tendency to turn on the question of whether treatment is ‘appropriate’ rather than on whether it is not wanted by the client.

One of the results of this has been the development of a view according to which life-prolonging measures may well be ‘inappropriate’ in certain circumstances and therefore may — indeed should — be withheld. This is a consideration which operates to some extent independently of the wishes of the client.

Thus, ironically, arguments about the right to die have so far not resulted in any facilitation of suicide for the terminally ill, but have instead promoted a tendency to deny treatment to those who might wish to prolong their life however poor its apparent ‘quality’.

from The Power of Life or Death, Foreword by Thomas Szasz

Available from Oxford Forum via Amazon UK or Amazon USA.

Google: hyper-neophilic

An interesting thing happened about a year ago. I remember the day clearly, because it was the one day Google did not  fiddle with the presentational frills of one of their products ...

I am grateful to be able to use Alphabet’s suite of online office products for free — Chrome, Docs, and the rest. And I know change is supposed to be good, healthy, empowering etc.

But for the sake of the brains of users who are no longer teenagers, couldn’t the tweakers at Googleplex, restlessly implementing their latest ideas for 'improvement', be encouraged to regard stability as a virtue?