| 14 February 2013
Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things. Mention Ugland House on Capitol Hill and they probably whisk you off for interrogation; this is the famed building in Cayman covered in so many brass plates you can't see what it's made of underneath - gold bars probably. So opening a company in the Cayman Islands capital, George Town, is easy, right? You just sit down with your nominee director in the cafe opposite with two rum punches, he brings out a ready-filled certificate of incorporation, you sign it, and that's it. Oh, and you give him a gold bar, of course, to add to the 18,867 he's already got. Not a bit of it! The Cayman business community is agonizing over the level of government bureaucracy and red tape, and the new Prime Minister is promising to do something about it. Promises, promises. It will mean another law, of course, called the Ordinance To Simplify Laws; but at least they're making the right noises. One thing's for sure, though: the gold bars won't get any smaller. And FATCA won't help, either: this week the jurisdiction moved a step closer to adopting IGA Model 1 to comply with the new rules; that's another form to fill, and no small one at that! It's tough keeping up with the tergiversations of the German legislature. One party says it will reduce taxes, its partner disagrees, the lower house votes it through, the upper house throws it out, a reconciliation commission comes up with a compromise that's so complicated no-one can understand it, and then one of the Lander (States) challenges its constitutionality. So I am not quite sure how much to rely on this week's news that the Bundesrat (upper house) has allowed through at least part of the government's tax reductions. Anyway, it sounds good; and the government seems to be wallowing in money, so it can well afford some cuts. Or perhaps they ought to save it up to give to poor little Cyprus? Just EUR17bn; come on Angela, you won't notice a tiny amount like that, surely? A couple of weeks back I was suggesting rather facetiously that rich specks of rock in the Caribbean ought to merge their governments, and, lo and behold, here are two specks of rock in the English Channel doing just that. Jersey and Guernsey are making moves towards sharing certain aspects of their administration. I'm not claiming any credit, and I don't even know how many readers we have on the islands; it's just an idea whose time has come. Why would you have two prisons, for instance, with two sets of correction officers? Two tax authorities, when they have identical corporate taxation systems? Two statistical offices? Two telecommunications ministries just about equally far behind the times? Something else I can't understand is why there can't be a market in countries, or at least in their administration. I see why the Greeks wouldn't want to hire Goldman Sachs to put a couple of hundred islands on the market (although that's exactly what they ought to do), but why wouldn't some islands in Melanesia or the Caribbean want to invite bids to take over and run their pension systems? Fidelity would offer however many billions for a 20-year contract, and the voters (who would share out the money) would have the say-so, just like shareholders. Then what about armies? There have always been mercenaries, but the idea has been somewhat buried by nation-hood. They don't have armies in Jersey or Guernsey; it is contracted out to the British government, which actually proves my point very neatly. Instead of getting constantly smaller, perhaps the Ministry of Defence should start recruiting again and offer its services to some of those African countries which constantly fail to shoulder their UN responsibilities, turning up weeks late and with half the required number of soldiers to join the latest peacekeeping force. Enough silliness! Let's take aim at India, which had another dreadful week on the international investment stage, with the tax department dreaming up several new schemes to purloin money from rich international companies: a new case against Vodafone, a similar claim against Nokia, and their latest wheeze, a US3bn hit on Shell, dating from 2009. Why don't they just send out bills to every foreign investor they've had since 1962, when the Income Tax Act was passed? Perhaps that's what they're doing. Most laughable of all is the decision to levy minimum alternative tax at 18.5% on the SEZs which were introduced in 2005, and which will completely negate their purpose. I just love the reason the Finance Ministry gives for it: "the SEZs have drained revenue, and the new MAT will make the corporate tax burden fairer." Give the man an economics doctorate. It makes the IRS seem like a paragon of reasonableness. Does anyone remember Belgian dentists? Back in the early days of eurobonds (sovereign or, later on, corporate bond issues which deserted New York for London when they lost their tax-exempt status) the typical bondholder was referred to as a Belgian dentist. I never knew quite why: did Belgians evade their taxes more than say the French or the Spanish? My ex-husband's French father used to drive across the border to Switzerland with bags of Louis d'or in the trunk, and he used to pack out the soles of his shoes with 500 franc notes when he came to England. Those were the days! They may be coming back, so don't laugh. Anyway, for now, Belgians are not having a happy time; the average single employee pays a whopping 57% of earnings in tax and social security. It's true that there are corporate loopholes for international companies, as recently demonstrated by Bernard Arnault's escape from France, but you can imagine that your Belgian dentist may not be very happy if you offer to pay your (extremely high) bill with a check or a credit card. And now the government (yes, they finally have one after doing without for a year or two) is going to increase taxes still further. And they're going after the dentists, too. My fellow Jester in Italy, Silvio Berlusconi, is continuing his Theatre of the Varieties, or perhaps it's a Theatre of the Absurd, by offering to repay the EUR5bn raised in 2012 by the IMU tax on real estate. Mario Monti called him a "snake charmer", so one may fairly assume that they are not going to be bed-fellows in any post-election coalition. Opinion polling has finished now, but the last set of figures make it reasonably certain that a left-center coalition between Bersani and Monti will take charge. Silvio aims to pay for his largesse out of budget cuts and money reclaimed from illicit Swiss bank accounts, but he must know that such a flow, if it ever comes, is still years away. He is safe enough, knowing that he won't be re-elected, so all he is doing is to try to make sure that in opposition his party has as many seats as possible. A very recent survey carried out by the SMEs association put the average tax total for those Italians who pay tax at 54% (many don't) so it's difficult to see that much more can be done to increase the tax take. Rather surprisingly, another recent survey says that tax evasion is worst in the north of the country, but that's probably just because more people live there. It reckons that tax evasion accounts for one third of all tax due; that fits with what I observe in the south, where I have a holiday cottage. I would have guessed it to be higher, in fact. For certain, I would hate to be in charge of Italy over the next few years, between the rock of public-sector unions and the hard place of taxpayer fury.
Kitty's Encomiums and Execrations Methodology: each week (this is the 39th) three countries are given encomiums and three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany has a ranking of – 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, falling back again in week 24 to minus two. The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there. Kitty's Encomiums: Cayman makes it simpler Germany reduces taxes - maybe Jersey and Guernsey huddle up And Kitty's Execrations: Belgium extracts more than teeth India in cloud-cuckoo land Italy will turn left 
Ciao Kitty
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Kitty Miv, Editor
Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net
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