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QUEST MEANS BUSINESS

It Has Been The Worst December For The Dow Since 1931; The U.S. Supreme Court Has Upheld A Federal Judge's Order That Blocks The Trump Administration From Implementing New Asylum Restrictions; The Brexit Uncertainty Is Expected To Stall U.K. Growth Next Year; Senate Votes on Funding Bill as Government Shutdown Looks Likely; Israeli Politician Expresses Regret at Mattis' Resignation; U.S. Supreme Court Upholds Block of Trump's Asylum Ban; Czech Republic Coal Mine Explosion Kills 13 People; Justice Ginsburg has Cancerous Nodules Removed; Amazon Shares Sink Amid Tech Selloff; Director of OECD Says World Making Progress on Massive Tax Avoidance; France to Levy New Tax on Tech Giants on January 1st. Aired: 3- 4p ET

Aired December 21, 2018 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, ANCHOR, QUEST MEANS BUSINESS: Good evening, tonight from London as investors worry and watch because all investors want for

Christmas is market stability and they are getting a lump of coal instead. A day that started well and is evaporating sharply.

The Dow has now swung to a range of 650 points in today's session with one hour left to trade. We're in the last hour together and the Dow is heading

for its worst week in more than two years. The broader market. The S&P is off 1 percent. The NASDAQ is down 2 percent. And can now be defined, at

least, technically, and immediately, as a bear market. Whether it becomes a full bear market depends on whether these losses are sustained, but it

does seem like they are.

And even the Dow is off some 15 percent from its recent highs, similarly with the S&P. Now, investors made a list of drivers and we are watching

closely. For example, the Washington turmoil needs to be watched carefully.

Donald Trump says the chances of a shutdown are, in his words, very good. Global slowdown fears. The U.S. has revised its GDP lower and more

Halloween than Christmas with a quadruple witching which adds its own volatility -- index, stock options and futures are all expiring.

There was a brief moment of optimism and it comes round about here, an hour into the trading. It was comments from the President of the New York Fed

which pushed the Dow to its highest point of 300 points. On CNBC, John Williams said the Fed might reconsider raising rates.

(BEGIN VIDEO CLIP)

JOHN WILLIAMS, PRESIDENT, NEW YORK FEDERAL RESERVE: We are listening to the - there are risks of outlook. There is clearly some concerns that

maybe the economy will slow further and we are sitting there - not sitting there thinking what we actually know for sure what's going to happen. What

we are going to be doing coming into next year and through next year, is reassessing our views of the economy, listening to not only markets but

everybody that we talk to, we look at all the data and be ready to reassess and reevaluate our views and obviously, reassess and reevaluate our policy

stance.

(END VIDEO CLIP)

QUEST: Christina Alesci is at the New York Stock Exchange joins me now. Yesterday, on the program the global strategist for HSBC said that it

appeared the investor had capitulated and was not even aiming for a rally or anything. That would be borne out by what we are seeing today and

yesterday, which is just this drum beat of selling.

CHRISTINA ALESCI, POLITICS AND BUSINESS CORRESPONDENT, CNN: That is right. I just got off the phone with one of my sources who basically said that

market sentiment is broken. That is how he described it. There was a brief optimism today and you see that in the chart when the New York Fed

President tried to reassure markets that it wasn't going to rip the punch bowl away and basically, maybe moderate rate increases if warranted by

economic data.

But the market was positive for a little while and it just tanked because investors do not want to be holding on to these stocks going into yearend.

And it is described to me as panic selling at this point because if you really think about it, look, it's not just the Fed. It is not just the

government shutdown. If you look at where we are versus the high in October, we are now 15 percent off the high in October. What does that

tell you? That tells you this market is trying to re-price some of these assets, some of these companies and it doesn't know - all it knows it is

down from here and that's what going on here. Investors just want to be in cash, Richard.

QUEST: So, what is it going to take - and I realize we're asking this right at the beginning of this or probably 20 percent into this cycle of

such a - this doom or gloom, maybe even less. What is it going to take for the sentiment to change?

ALESCI: Well, there's one thing that would help a lot which would be if the administration announces real progress in a trade war between the U.S.

and China. That would reassure market sentiment. I think that's the biggest, you know, question mark out there.

I think also investors just want to wait and see what happens in January. They've already essentially priced in the dysfunction in Washington and

they are hoping that there's a pause in the dysfunction and that they can restart in January fresh slate.

But as you know, often times, that does not happen in January, Richard.

[15:05:07]

QUEST: So, let's have a moment of common sense. If we look back at the Dow 30 for this question, it allows me to put it in place probably.

Christina, there is no - look, Ford hasn't stopped making automobiles. Caterpillar is still building earth moving equipment. Disney is about to

start streaming. Best, I checked, P&G hasn't stopped supplying household goods and consumer products.

There's no - these stocks might have been overvalued, but they are still going about their business in the same way, Christina, but tonight, you

might buy something from Amazon and watch Netflix.

ALESCI: But, Richard, the difference here is you are right. These companies do feel fundamentally pretty good about their business. If you

talk to most CEOs, they are kind of scratching their heads. They are saying nothing has fundamentally changed about their business, except for

some companies do have problems with tariffs and the trade wars and that have warned against that.

But that's very specific areas. To your point, you are right, nothing has changed fundamentally. The only thing that's changed is market sentiment.

And the market doesn't know what the right price is. So it is just overcorrecting to the negative at this point.

QUEST: Christina, have a good weekend, if such that be, with markets as they are. We will all do our best. Now, it has been the worst December

for the Dow since 1931. Yes, 1931. Look at the major indices. They are down 7 percent to 9 percent over the course of the year. The tax cut

effect has evaporated, and it's now fears of tariffs and slowdowns.

Some sectors have performed better than others. These are some that generated headlines this year and they ranked from the best to the worst.

If you invested $10,000.00 on the last day of the year, this is how much your investment would be worth today. $10,000.00 FAANG. Well, remember,

you're $10,000.00 probably went up quite considerably and now, it's come all the way down.

Your gold is - look, good is gold is gold is gold. Brent crude is down. Cannabis, with your $10,000.00, even that's down and bitcoin was the worst.

Mark Grant is the chief global strategist at B. Riley FBR, he joins me. Looking at that list --

MARK GRANT, CHIEF GLOBAL STRATEGIST, B. RILEY FBR: Hello, Richard.

QUEST: What it tells me is - thank you - at this stage, in whatever it is that's happening, you are really doing nothing more than capital

preservation.

GRANT: Well, Richard, I think I was fortunate enough to hear your comments earlier. I disagree somewhat with what you think the importance of the Fed

is. I think one of the reasons that we're having these issues is that the Fed raised rates again. They said they are going to raise two more times

next year. One more time in 2020. I think this is a huge mistake. I think the Fed is way off base in raising interest rates in a time when the

economy using their own numbers is contracting and they are raising rates.

I mean, I think that the Fed is causing a great deal of this problem. There is one more issue, Richard, that you have not mentioned that I think

is critical here and that's that the Democrats are going to take control of the House in the new year and there's a lot of consternation of what is

going to happen to President Trump. Are they going to try to impeach him? What with the political consequences that are going to be for the

government.

QUEST: In that scenario, what do you do? Because people are looking at 401(k), pension plans, probably best not to. People look at portfolios.

If you didn't sell in October, it's probably too late now. What do you do?

GRANT: Well, we spend a lot of time emphasizing the equity market, the bond market, the credit market has widened out substantially both in high

grade credits and high yield credits versus treasuries. Of course, you don't get very much income owning treasuries. We also have a flat yield

curve with a slight inversion in the middle which is also telling you we may be looking at a recession.

The place that I like to answer your question, Richard are, closed-end funds where you can get 10 percent, 11 percent or 12 percent on your money.

Some of them pay monthly. That gives you the opportunity to have money every month that gives you the opportunity to reinvest at lower prices if

this downdraft continues.

QUEST: This downdraft as you describe it, how bad do you perceive it is going to be? Others have said on this program that there could be a

recession mid to late next year. We've had others who say no, there is no likelihood of a recession.

[15:10:08]

QUEST: But a slowdown is going to take place. But it is from say, 3.5 percent growth to 1.5 percent to 2 percent growth.

GRANT: I think it could be that bad or worse, Richard. This, as I said, I've put a lot of emphasis on what the Fed is doing because it is a lot of

expectations. So for instance, there are 57 percent of the investment grade credit market or b-AA-3 with higher borrowing cost. We could see

Moody's and S&P and the other major rating agencies downgrade a lot of these into high yield and junk that that is going to cause a lot of

problems along with the equity markets.

QUEST: So if you take our list of things we started with and which include, of course, FAANG, it includes cannabis stocks, it includes the

market -- gold, oil and it included bitcoin. If you think of those, which would you like as we go into 2019?

GRANT: Well, I'm not a big fan of gold because it is a total appreciation play. There is no yield in it, as I said, I like the closed-end fund play

because of the monthly payments and because the yields are high. I think that is the best play.

I think it is going to be very difficult for equities and bonds because the Fed is raising the borrowing cost of everybody and everything whether it's

a student loan or a home mortgage or the borrowing costs of this - I'll refer to what you just said of Caterpillar tractor and any of the other

major companies. They are going to be paying more, which means that their profits are going to be less.

QUEST: Thank you.

GRANT: And it changes the EBITDA calculations.

QUEST: Good to see you, sir. Good to see you, sir. Have a good Christmas and festive season. We look forward to talking to you. Thank you.

GRANT: Okay. Thank you very much.

QUEST: As the stock market has moved from boom to bust in 2018, there have been some clear winners and losers. The worst performing stocks on the Dow

this year, Goldman which of course was hit by 1MDB. Dow DuPont struggling to merge. IBM tough to shift to Cloud was the worst mentioned of - in

fact, the last two, IBM and GE, they were both the dogs of the Dow at the end of last year. GE is now down 58 percent and is no longer in the Dow.

The top three on the Dow -- Merck and Pfizer with a promise of new drugs. Microsoft because of the successful shift to the Cloud. Paul La Monica

joins me from New York. You can always see amongst the Dow those that are doing better than most in a wider sense, they are still down on down days,

they are just not down as much.

PAUL LA MONICA, CORRESPONDENT, CNN: Yes, exactly. And I think what you have with the case of these stocks that have done this well this year, I

mean, Merck and Pfizer in particularly, obviously both being in healthcare, both being viewed as a little bit more defensive in nature. Their dividend

yields are very high, about 3 percent, which is attractive in a market where people are worried about returns clearly right now.

But the fundamentals are also very good. I mean, Merck is a company that has a blockbuster cancer treatment, Keytruda, and I think that has really

powered their earnings. Pfizer doing a recent deal with Glaxo-SmithKline to combine their consumer healthcare business. I think people like that

deal as well, and you pointed it out exactly with Microsoft.

Microsoft, Satya Nadella has moved that company away from selling office products in boxes at Comp USA and other stores that don't exist anymore to

services over the Cloud and that is recurring revenue. It is very profitable and high margin and that is why Microsoft has done so well.

QUEST: Paul, we definitely - well, I say we definitely - you tell me if you agree have moved into a new stage. Whether it be the end of the bull

market, it might end up just being a matter of semantics. But we are now in a different phase, would you think?

LA MONICA: Yes, I think it is safe to say that right now, investors are trying to figure out whether or not 2019 is going to be a time where even

though earnings growth is likely to be slower, will it be sufficient enough to still justify the market going higher? I think people are worried that

it just might not be. When you look at some of those losers that you have in the Dow this year, clearly Goldman Sachs is a company that you

mentioned, 1MDB. But it's a company that could be hurt by rising interest rates potentially, as well as the dramatic volatility and shifts on Wall

Street. So that's a company that clearly, people are going to be watching in 2019 as well.

[15:15:01]

QUEST: Paul La Monica, thank you. Breaking news to us, the U.S. Supreme Court has upheld a Federal judge's order that blocks the Trump

administration from implementing new asylum restrictions.

The policy bars migrants from who are illegally crossing into the United States through the Southern border from seeking asylum outside official

ports of entry. The judge had banned it or at least, put the order on hold and now the Supreme Court refused to hear the case.

Coming up later in the show, we will look at Disney's money making machine "Mary Poppins" and why it will make Disney a merry Christmas profit.

There are a raft of GDP reports to round off the week. The U.S. economy grew to 3.4 percent annual rate that revised slightly lower from the last

estimate, but you don't see that number in next year, if everything we see holds true.

Canadian GDP grew faster than expected in October. There, it was the manufacturing sector which helped. And the U.K. GDP is solid, but Brexit

is affecting investment according to officials. The IMF says India will overtake Britain even if U.K. manages to reach a deal.

The Brexit uncertainty is expected to stall U.K. growth next year. Craig Beaumont is the Director of External Affairs for the Federation of Small

Businesses, he joins me now. Good to see you, sir. The idea of a no-deal Brexit. Nobody wants it. But it is starting to get on the agenda as being

a possibility. It may even become the received wisdom.

CRAIG BEAUMONT, DIRECTOR OF EXTERNAL AFFAIRS, FEDERATION OF SMALL BUSINESSES: Yes, we do think that a managed no-deal is a misnomer. It is

very hard to manage something that could be catastrophic to small businesses up and down the country. So we are looking at how do you move

that? How do you change that? We need to get a deal across the lines somehow in Parliament. Politicians will need to focus on that when they

come back after Christmas break.

QUEST: Well, you say you need to get a deal across the line. The only deal on the table that the E.U. is going to allow is the May deal - the

Theresa May deal. So you are effectively saying you want that deal?

BEAUMONT: Well, if you are a small business, what do you think is the truth right now? Is it May's deal? Is it a better deal? Is it a

referendum? Is it an election? Is it a managed no deal? It is really hard if you are a businessman right now - a business person right now to

work out what you should plan.

QUEST: Okay, but the corner shop, which is a small business makes no difference to some extent. They are still going to be opening up in the

morning and selling newspapers and selling chocolates and things like that. Which companies of your small members are you talking about?

BEAUMONT: Well, when you segment a small business, because there is 1.6 million of them, when you segment then, then you've got to look first of

all those are that trades.

[15:20:09]

BEAUMONT: So today, the government came out with all its information about the small businesses that trade with the E.U. The moment they don't have

to go through any paperwork. Within the next 98 days, they are going to have to get ready with an EORI number, customs declarations, safety and

security declarations, appoint a customs freight forwarder, look at custom software. All of these things that is one segment. Another segment is,

there will be just - the second segment would be anyone, any small business who employs an E.U. citizen on their work force who don't at the moment

know for certain that they can stay.

QUEST: That's not true. That's not true. Both sides have said that existing citizens, even in the event of a no deal, the Prime Minister and

the E.U. and their contingency plans have both said, citizens can stay.

BEAUMONT: But freedom of movement ends. Immigration white paper came out two days ago, people are not sure. I don't think people are sure about

their rights and responsibilities and if a small business can keep their employees.

QUEST: So we are 98 days away. In the scenario, which do you and does your members prefer if it comes down to a managed no deal Brexit with

temporary chaos, but maybe longer term stability and longer term better options or Norway plus or the Theresa May deal or this other deal that

could turn Britain as Jacob Rees-Mogg was saying, into a vassal state? Which would you prefer?

BEAUMONT: Of those, I think we would have to go for, hopefully, improved version of May's no deal - May's deal, sorry, because that is the only way

you are not with a transition period, which gives the certainty of a longer period.

QUEST: Even with its backstop.

BEAUMONT: Yes, even with the backstop because even without the backstop is incredibly unpopular, but it does allow our small businesses in Northern

Ireland and Ireland to keep trading. It protects that - it sorts out that border and prevents a hard border coming in, so for all sorts of reasons,

an improved version of that deal would be our option.

QUEST: I will be here in the week of the vote. All the week of the vote, hopefully you will come back and talk me through how your members are

thinking about it then. Much appreciated. Thank you.

BEAUMONT: Thank you, Richard.

QUEST: Now, to Gatwick where flights have resumed once more. It was suspended earlier in the day after reports of another drone sighting. It

has been a day and a half of travel chaos. CNN's Erin McLaughlin is there. Now, the last confirmed drone I thought was last night. So what is this

drone that was happening this afternoon?

ERIN MCLAUGHLIN, CORRESPONDENT, CNN: I was on the phone with the spokesperson from Gatwick Airport who told me that there was a drone

sighting confirmed and that happened at 5:10 p.m. The drone was seen in the area, although authorities are not saying where specifically.

Out of abundance of precaution at the time, they took the decision to stop all flights coming in and out for about - just over an hour or so. I was

told a total of 11 flights were diverted as a result. Once the investigation had completed, once they hey determined that it was, in fact,

a drone that was in the area, they then resumed air traffic. This investigation is very much ongoing.

I was speaking to former intelligence officials. This was a clear signal from whoever was doing this in their view. They see it as an attack on a

critical piece of national infrastructure here in the U.K. and whoever is behind these so-called attacks in the words of these former intelligence

officials there, sending a clear message, "Catch me if you can," to British authorities.

After all in the last 48 hours or so, the military have moved in. There are some 20 police units from two different forces as well. Really high

tech surveillance systems designed to catch the perpetrators who continue to evade authorities, Richard.

QUEST: Erin McLaughlin at Gatwick. Thank you. And you wondered how I got from New York last night to London today. It's very simple. You forget

those long things where people sit in planes. "Mary Poppins" is back in cinemas where the sequel to the 1964 Disney Classic.

Emily Blunt plays the magical nanny.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Mary Poppins.

UNIDENTIFIED FEMALE: You came back.

UNIDENTIFIED MALE: You seem hardly to have aged at all.

MARY POPPINS, FICTIONAL CHARACTER: Really? One never discusses a woman's age, Michael. I thought I have taught you better.

(END VIDEO CLIP)

[15:25:05]

QUEST: Jolly holiday for Frank Pallotta who joins me from New York. Good to see you, Frank. When you and I talked - I haven't seen the movie yet.

But a rare event took place. Pallotta raved about a movie.

FRANK PALLOTTA, MEDIA WRITER: I really, really liked it. A lot of people had mixed reviews. I should prerequisite all of this by saying I go to

Disney World like twice a year. So take my criticisms of the movie and take my recommendation with a grain of salt or better yet, a spoonful of

sugar. But it is really a nice fun kind Disney film.

It kind of reminded me of the original "Mary Poppins" and the type of Walt Disney productions from the '60s. And it looks like it's going to have a

very jolly holiday as you said for Disney at the box office in the U.S.

QUEST: I saw the original "Mary Poppins" of course in those first few years after it came out. Is this good? Is this - I mean, Emily Blunt for

Julie Andrews - it's always a heresy.

PALLOTTA: I mean, she kept - Emily Blunt is the best part of the movie. The music can be a little hit or miss even though I liked it. It can be a

little bit too much stuff and nonsense for some people. But she - her performance is really great. She is practically perfect in every way as

Julie Andrews would say herself.

But what's really impressive this year, speaking of practically perfect is just how big of a year Disney has had at the Box Office. Seven of the nine

films they released this year have made over $100 million domestically. They had the top domestic film with "Black Panther." They had the biggest

global opening of all time with "Infinity War" and they had the biggest animated film domestically of all time with "Incredibles 2."

And they just crossed $7 billion a few weeks ago and it could climb even more with Missus Mary.

QUEST: And now streaming service next year. Frank, can you say supercalifragilisticexpialidocious backwards?

PALLOTTA: I'm not going to do that. But since you brought up next year, I really do think that next year is going to be a huge year for Disney. So

that is going to be super - I am not going to even try. We are on live television. I was going to try it. I mean, you are flying in on

umbrellas. I'm very confused. I think I have done everything I needed to do here. I have to catch an umbrella myself because it is almost the

holidays. So there you go.

Happy holidays. Go see "Mary Poppins Returns."

QUEST: Happy Holidays. Supercalifragilisticexpialidocious. Franks, thank you very much, Frank Pallotta.

You are going to need to be saying something like that after the break. A special report on taxes and tech. How tech giants got away with paying so

little and what can be done to fix it besides a spoonful of sugar helps our medicine go down.

[15:30:00]

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, there's more QUEST MEANS BUSINESS in a moment. When France prepares to crack down on Silicon Valley over massive

tax avoidance, we'll now hear from the tech industry voices who say it's already paying its fair share. No more digital tax, it's a special report

on tech and taxes in a moment.

But before we get to that, you are watching CNN, of course, on this network, the facts always come first. In Washington, the clock is ticking

down as the U.S. government appears to be heading for a partial shutdown, only hours from now.

Senators are voting on a funding bill that seems all, but sure to fail. The top Senate Democrats says support for President Donald Trump's proposed

border wall just isn't there. Reaction, more reaction now after the U.S. Defense Secretary James Mattis submitted his resignation on Thursday.

Former Israeli Defense Minister Avigdor Lieberman posted on Facebook, "it is sorry to hear about the news and considers General Mattis a friend."

U.S. Supreme Court has upheld a federal judge's order to block the Trump administration from implementing new asylum restrictions.

The policy would bar migrants who are illegally crossing to the U.S. through the southern border from seeking asylum outside official ports of

entry. A methane explosion in a Czech coal mine has killed at least 13 miners and injured ten. Search and rescue operations had to be pulled off

due to poor conditions of the mine and a raging fire is the worst mining disaster in the country since 1990.

And in the United States, the oldest Supreme Court Justice Ruth Bader Ginsburg has undergone surgery to remove cancerous nodules found in her

lung. Surgery was successful and there are no remaining signs of the disease. The Justice says she will continue to serve on the Supreme Court

as long as she is able.

Amazon shares are down 5 percent today, it rounds off a historic year, became a trillion dollar company and announced brand new headquarters in

New York, not Virginia. What it also did was attract more anger over its tax bill, which is at the heart of the controversy is a simple question.

Now, imagine if you're sitting here or like me, and I am sitting here and I buy you a Christmas present, and a $100 Christmas present at that, it will

be a good one. So, and let's say you're in -- well, and you'll be in Australia or you're back in the United States, where should Amazon pay the

taxes?

Is it in London where the transaction was made? Is it in Luxembourg where Amazon's European headquarters is the base or is it in the United States

where the website itself was built? It's an argument that's consuming lawmakers across the world.

And by navigating this debate, tech companies have been able to pay a much lower tax rate than their rivals in other industries. Tonight, we're going

to show you and explore how companies like Amazon work the system and what's been done to stop them.

First, this is not just Amazon, but let's focus on them for the moment. Samuel Burke looks at how Amazon has kept its tax bill as low as possible.

Some say unrealistically low.

(BEGIN VIDEOTAPE)

SAMUEL BURKE, CNN BUSINESS & TECHNOLOGY CORRESPONDENT (on camera): Alexa, how much is Jeff Bezos worth?

ARTIFICIAL INTELLIGENCE ROBOT: Jeff Bezos is worth an estimated $126 billion U.S.

BURKE (voice-over): He is the richest man on earth. But around the world, many are asking if his company is paying its fair share of taxes. In the

U.K., Amazon paying just $2 million in taxes on about $92 million in profit last year. And this incredible headline, U.K. media reporting Chelsea's

N'Golo Kante made four times in income tax what Amazon paid in corporate tax.

The bulk of Amazon's U.K. tax bill comes from its local warehouses and logistics operations, not from the company's online sales in Britain.

[15:35:00] Amazon is not required to disclose how much U.K. tax is paid on those revenues because they are reported to Amazon's Luxembourg operation.

SOL PICCIOTTO, SENIOR FELLOW, INTERNATIONAL CENTER FOR TAX & DEVELOPMENT: Well, we know Amazon as a worldwide company. The international tax rules

which date from nearly a century ago still treated as if it were a collection of independent companies in each country.

BURKE: And like many big tech companies, Amazon has slashed its tax bill by giving employees valuable shares in the company according to the tax

filings. And Amazon spokesperson tells Cnn, "we pay all taxes required in the U.K. and every country where we operate, and that corporate taxes are

based on profits, not revenues and their profits have remained low, given retailers a highly competitive low-margin business and our continued heavy

investment."

(on camera): Amazon's tax strategies can make it difficult for stores on main streets like this to compete. Local retailers are often paying the

U.K. standard 19 percent corporate tax rate, and that's about ten times what Amazon pays. This comes as the U.K. retail sector lost 80,000 jobs

and saw hundreds of stores close in the first six months of 2018.

Analysts blame the high cost of rent, higher minimum wage and the fact that more people are shopping online.

PICCIOTTO: These large tech companies, because of the large pools of untaxed cash, they have been able to grow much faster and penetrate these

new markets much quicker that makes it harder for competitors to compete with.

BURKE (voice-over): Those challenges extend far beyond the U.K. The European Union estimates internet businesses pay an effective tax rate of

just 9.5 percent compared with 23-plus percent for brick and mortar firms. Even so, just this month, the EU abandoned a plan for digital tax reform,

targeting tech giants like Amazon.

(on camera): Alexa, do you think your bosses should pay more in taxes?

ARTIFICIAL INTELLIGENCE ROBOT: Sorry, I'm not sure.

BURKE: Samuel Burke, Cnn, London.

(END VIDEOTAPE)

QUEST: The world tech companies may not be breaking any laws, and they're definitely not breaking any laws. They're still generating anger over the

size of the tax bill. Cnn.com-slash-join is where we will certainly be looking at it tonight.

And we're asking you, are tech companies paying their fair share in tax? There on cnn.com-slash-join. Now voting is open, we'll give you the

results at the end of the program. It is -- some of you jumped in straightaway, 86 percent. But remember, before you start clicking away,

the difficulty of where they should pay their tax.

It's fine for you to say no, they shouldn't pay or yes, they are paying their fair share tax. But where should they pay? It seems to me is an

option where they make the transaction, where they're based? So are they -- are they not just caught in the middle?

And there you are, oh, dear, and clearly not do much of an entreaty, you're going up to 91 percent on that. The OECD has made part of its mission to

try to close tax loopholes. It worked with the G20 to try to address massive tax avoidance. The man in charge of its tax policy insists things

are actually better than they were a decade ago.

(BEGIN VIDEO CLIP)

PASCAL SAINT-AMANS, DIRECTOR, OECD CENTER FOR TAX POLICY: Until the work we've done with the OECD and the G20, companies could look either profit a

zero tax jurisdictions. Until last year, you had $3,000 billion U.S., $3,000 billion of accumulated profits of U.S. companies in Bermuda and

Cayman. This is over, this is gone.

However, tax spending is still possible and companies can still use Ireland(ph) with a rate of 12.5 percent. But they have to locate

substance. They have to locate people there. It doesn't make people happy, it doesn't make all the people happy. But progress has been made

and we need to go further in particular as it regards the digitalization of the economy.

Companies making big business in the country without being physically present, Netflix is a good example, they do massive business in Europe and

elsewhere, they don't have a single employee. And the question rises or where should they pay their taxes?

Only in the U.S. or also in Europe or all the other markets? And that's what we work on with the G20 currency.

QUEST: I suppose the -- where they should pay their taxes is one question. But they should pay taxes is another, and I guess I can see an argument

that says, well, we are paying taxes. We're paying taxes in the United States which raises the issue of whether your Europe revenues should be

taxed in Europe or in a lower tax restricted jurisdiction where you have your headquarters.

SAINT-AMANS: That's a very fair point. And again, until recently, they were paying taxes nowhere on their offshore profits. And that needed to be

fixed. This has been fixed. Now, once you've decided that the zero tax jurisdictions are no longer in the game, where should companies pay their

taxes?

[15:40:00] Where they create value. But where do they create value? Where the intangible property, where the algorithm of Google if you want is

located or where the customers are. And on that countries, I'm not necessarily in agreement, and interestingly, the United States of America

is changing its approach.

Until the tax reform, they thought that all the taxes were to be paid in the U.S. by American companies, and now the U.S. is shifting, saying we're

a big market. European companies are making profits out of our market and we should tax them more than we are currently doing, recognizing that the

Europeans may tax our own companies a bit more. And that's the conversation which is taking place.

QUEST: If you accept that there is change under way, how much of that change was driven by the moral question of public pressure rather than the

legalese of politicians? This moral idea that it is wrong not to pay tax.

SAINT-AMANS: Well, the issue of tax, at least in Europe, but also in Asia and Latin America, a bit less in the U.S. has been quite high on the

political agenda because people feel concerned. They feel concerned about increasing inequalities and they feel concerned about some people not

paying their taxes.

Wealthy individuals hiding their money in tax havens. This is over, we've put an end to bank secrecy. But also big multinationals not paying their

fair share of taxes. That's the work of the G20, and now this question of the balance, it's still here in Europe, it's a big question that

governments need --

QUEST: Right --

SAINT-AMANS: To face.

(END VIDEO CLIP)

QUEST: The issue of all big tech companies paying their fair share of taxes, 90 percent of you say no, they are not. The OECD says France has

the highest taxes of any wealthy country, but that's not stopping the government from taking some dramatic measures to try to make Silicon Valley

pay even more, which not surprisingly has the industry foaming at the mouth.

(COMMERCIAL BREAK)

QUEST: The OECD says France is the most heavily-taxed country in the world. And starting in the new year, tech companies there may face even

more taxes. France already has the highest corporate tax rate of any of its major neighbors.

[15:45:00] And the French government still wants to take on Silicon Valley. This week, after trying and failing to get the EU to put a new tax

on big tech, the French Finance Minister Bruno Le Maire said France will take matters into its own hands. From new year's day, France will impose

its own digital tax which will cost companies hundreds of millions of dollars.

So our next question to you at cnn.com-slash-join. Now remember, 90 percent of you said, 90 percent of you said they should pay though they

weren't paying enough. That they were -- that they are being taxed properly. So where should tech companies pay their taxes?

Second part of the question, firstly, the place of transaction, I bought you a present, I am in London, you are in the United States. Secondly, the

local headquarters which is for example here in the U.K. or in Luxembourg if it's in Amazon's case or the global headquarters which is, for example,

Seattle for Amazon or will be -- so, you get the idea.

The place of transaction where you've done it, the local HQ in Europe or wherever or the global HQ? But the biggest companies, this new tax that

France is intending, which of course it's raised they're going for the local tax. The local HQ. This new tax is a nuisance for smaller rivals.

It's an opportunity, Jim Bittermann reports.

(BEGIN VIDEOTAPE)

JIM BITTERMANN, CNN SENIOR EUROPEAN CORRESPONDENT (voice-over): In the Paris suburbs, software developer Planisware has steadily grown over 20

years to more than 350 employees around the world. The global sales of 70 million euros from which the company hands over 4 million euros to the

French tax man.

PIERRE DEMONSANT, CHIEF EXECUTIVE OFFICER, PLANISWARE: Actually, we're paying more tax on Facebook.

BITTERMANN: So you can understand why the boss is aggravated that an internet giant like Facebook pays far less.

DEMONSANT: I think that Facebook is paying something like $2 million or $8 million in less terrestrial. I'm not sure it's fair. I'm saying it's fair

when you run a business in a country to pay tax to the country.

BITTERMANN: The French tax man, Finance Minister Bruno Le Maire agrees. He announced that starting January 1st, the internet giants like the GAFA,

Google, Amazon, Facebook, Apple and others which have been avoiding French taxes by basing themselves in lower tax European countries like Ireland

will face more taxes in France and revenues that are earned here.

BRUNO LE MAIRE, FINANCE MINISTER, FRANCE (through translator): The money is with the digital giants who make considerable profits, thanks to the

French consumer, thanks to the French market and who pay 14 percent less tax than other smaller companies.

BITTERMANN: Government estimates that the relatively small tax increase that it's imposing, 3 percent will generate 500 million euros in badly-

needed tax revenue. Badly needed in part because with the concessions made as a result of the yellow vest movement.

Tax breaks and cost of living increases which will cost an estimated 10 billion euros.

(on camera): Long before those protests however, the French Finance Ministry back there tried to convince other countries in Europe to take

collective action against the tax avoiders, but without success. Now though faced with increased budgetary pressures, the government here has

decided to take action on its own, and it's confident that other countries in Europe, Germany, for instance, would soon follow suit.

Cnn reached out to Google, Amazon, Facebook and Apple which for the moment are not commenting on the French move. Google France said, it's waiting

for details. But French-based companies are happy to see the government making moves to level the playing field.

That's certainly is the case at Stanley Robotics; a startup that's developing robotic parking system. Its CEO Clement Boussard fully supports

the government action.

CLEMENT BOUSSARD, CHIEF EXECUTIVE OFFICER, STANLEY ROBOTICS: We are all playing the same game, but you have to play with the same rules, OK? So we

consider that today Google, Facebook, Amazon, Apple, they are playing the same game without the same rule, and so I'm not happy with that.

BITTERMANN: Now, he hopes those business giants will start paying the kind of taxes his startup does. Jim Bittermann, Cnn, Paris.

(END VIDEOTAPE)

QUEST: It's complex, this, but it's fascinating because it is so huge and the difficulty is so great. The notion of a digital tax has the tech

leaders squirming. After the break, the industry gets its chance to respond.

[15:50:00] (COMMERCIAL BREAK)

QUEST: You've heard from the OECD about its fight to close the loopholes, and from France, where they're trying new ways to fight avoidance. Now the

industry gets a chance to respond. I spoke to Josh Kallmer of the Information Technology Industry Council, a lobbying group and Grover

Norquist; the president of Americans for Tax Reform. I asked Grover what he thinks of the idea of the digital tax.

(BEGIN VIDEO CLIP)

GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX REFORM: What it is, is an effort to get taxation without representation. Now, Bruno Le Maire; the

French Finance Minister says he wants to tax American high tech companies, he doesn't want China to tax Louis Vuitton.

Countries are always trying to figure out how to tax people who can't vote against them. In the United States, people try and tax guys in the state

next door. So we this all the time. We hope the Germans will come, Europe down and won't move forward with this.

We don't need at this point other countries trying to export their taxes to the United States. Europe should get their spending and taxes in line, and

learn to compete like the rest of us.

QUEST: Josh, I suspect you agree in principle that there shouldn't be this tax, but the companies involved have done an excellent job for many years

of avoiding tax.

JOSH KALLMER, EXECUTIVE VICE PRESIDENT FOR POLICY, INFORMATION INDUSTRY COUNCIL: Well, I mean, this is further to Grover's point, we certainly

wouldn't welcome taxation without representation. What's problematic about this set of measures though, Richard is that, this situation is really

about digitalization.

It's not about any one or two companies, it's about the fact that the world is becoming digital, the global economy over the last 10-20 years is

increasingly digital. And so, the old basis for levying corporate tax which is based on physical presence are being called into question.

And we accept that. What is harder to accept is that any government, whether it's the French government or the European Commission or any other,

will sort of in effect take its ball and go home --

QUEST: Right --

KALLMER: And go out on its own to redefine what the appropriate tax rules ought to be.

QUEST: But Josh, I'm taking Grover's point that companies should pay tax appropriately. I think this -- you're jumping Grover if I misquoting you.

If companies should pay tax in the appropriate jurisdictions and companies -- and countries should not be allowed to tax outside.

The problem is your members are defeating it by sleight of hand, by putting themselves in the lowest tax jurisdictions, taking advantage of single

markets and running all the business through the lowest common denominator.

KALLMER: No, I mean, I just respectfully disagree. Our companies play by the rules and they are prepared to and committed to paying appropriate

shares of tax.

[15:55:00] But the question is how that is defined. Look, the global economy and as a result, the global tax system is incredibly complex, it's

incredibly inter-dependent. It's based on longstanding practices related to taxable events. It may or may not be appropriate to modify those norms

and those rules.

And in fact, there's a very promising effort going on right now in Paris at the OECD to do that. Our companies are all in on that, and they are --

want to be a part of the solution. They recognize the economy is changing. What we object to is the idea that any individual nation state or any

individual economy ought to essentially depart from that multilateral conversation and seek to create facts on the ground and create what in

effect could be a tax war.

It has diplomatic repercussions, it has policy repercussions, it potentially has legal repercussions. This is a shame. There's an ongoing

initiative that France has been a part of the EU --

QUEST: All right --

KALLMER: It's been a part of the United States, it's been a part of who we want, everybody to commit to that.

(END VIDEO CLIP)

QUEST: We will have a profitable moment after the break.

(COMMERCIAL BREAK)

QUEST: Tonight's profitable moment. It would be very tempting for me just to finish our last proper program of the year with a catalog of woes.

What's wrong in the world? Well, we rehearsed that, you and I every day. I think that will be a terrible way to end the year between us.

Instead, let's maybe just pause for a moment. Sure the portfolio may be down in the toilet, but maybe we better just not look at that for a couple

of months until it sorts itself out. Maybe we can think about how NASA landed on Mars, and all the results that we're going to be getting there or

the comet that they landed on.

What I'm saying to you is, there is vast amounts of good, exciting, relevant, scientific events taking place that will make us profits in the

year, and that is so much better for us to think about as we go into Christmas and the new year. And that's QUEST MEANS BUSINESS for tonight, I

am Richard Quest in London.

Whatever you're up to in the hours ahead --

(BELL RINGING)

I hope it is with family and that you enjoy it. The bell is ringing, Jake Tapper, "THE LEAD" is next.

END