28 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.
Brazil is one of those countries which fiddles constantly with taxes in a protectionist way, tries to manage its exchange rate, and generally behaves badly in my book, so it's good to be able to welcome a tax concession aimed at improving connectivity. But then they would have to go and stipulate that 50% of any equipment installed must be sourced locally, so only half a cheer. Then you wonder, at least I would if I was a foreign supplier of modems, say, how to get around that rule. There is bribery, of course, but you're not allowed to talk about that unless you're Silvio Berlusconi; so the next thing might be to try to interpret the "sourced locally" wording. What does that actually mean? A certificate issued by the local fisc? Then what if you have assembled the modems locally from cheap bought-in components, it would depend on how much value you could attribute to the local process. Etc, etc and so forth. Lots of burrowing around in transfer pricing regulations, and boy, are those complicated in Brazil. You can see what a bureaucratic mare's nest the whole thing will become. Probably they would have done better not to put on the conditionality at all, but my Portuguese isn't up to explaining that to Finance Minister Guido Mantega. He's been in the job for six years now, so you would think he'd understand, but no . . .
Full marks to the Cayman Islands for hitting back at critics after the territory received yet more unwanted publicity during Jack Lew's confirmation hearing. But just maybe it would have been better to keep a stiff upper lip. Cayman and all the other low-tax investment destinations used to have a policy of maintaining as low a profile as possible. Those days are gone, not least because intense spotlights have been shone on them by the OECD, the FATF, the Congress and so on, but also because they are being forced to compete with one another for business. Recent political scandals haven't helped, either. There is no connection between McKeeva Bush's alleged wrongdoing and hedge funds, but the affair won't have helped public perception of the islands. Clam up, guys and gals!
Another miniscule island statelet which has not been helped by the exotic behaviour of a senior figure is Antigua and Barbuda, which is now trying to extricate itself from the consequences of the Allen Stanford debacle (he is serving 110 years for fraud in a Florida penitentiary) and is itself being sued for megabucks over the affair. More damaging to Antigua, though, was its ill-thought-out bet on internet gaming as a passport to riches, which has brought it head to head with the United States, one David versus Goliath combat which may not have a Biblical ending. Anyway, my award to Antigua is for tackling its fiscal problems in a coherent way without taxing the life out of its citizens. CARICOM is offering to help the islands in their battle with the US, which is noble but probably misconceived. C’est magnifique, mais ce n’est pas la guerre: c'est de la folie. Said about the Charge of the Light Brigade by a French general, but will serve very nicely for our purpose.
I've been trying not to attack France for the last few weeks, because as a target it is too tempting and too easy, and it doesn't seem fair to kick a country when it's down. Of course it's not the country I'm kicking, it's the blind and incapable government it has been landed with. The Government's own auditors are telling it to stop raising taxes and spending money, but they might as well go swimming in the Seine for all the attention they are going to get. Anyway, that's not my beef this week; I am worrying about the anti-banking frenzy that has taken hold of French politicians. The law to separate retail and investment banking is Glass-Steagall all over again, but you don't need any lessons from history to know that this separation is a mistake. The French are not alone, of course: there is Dodds-Frank, there is Liikanen, there is Vickers. They're all at it, and they're all wrong. It's just that the French are doing it so enthusiastically. One question, and I'll shut up: where would you start a new bank in 2014 - Paris, London, Jersey, Denver or Singapore? There isn't exactly a right answer, it depends on the circumstances; but I'd like to meet the person who opts for Paris.
So the EBRD (remember Jacques Attali's marble?) has finally come out and accused the Ukrainian authorities of endemic corruption in the tax and customs service. If only it was just among the tax collectors! The Ukraine is the most corrupt country I have ever worked in, and I have worked in most, including Russia. I don't forget a dinner with the ceo of a top US beverage multinational and the finance minister at which the ceo said that it was impossible to make profit in Ukraine within the law. Stop and think about that for a moment. OK, it was in 1997, and lots could have changed since. But I don't think it has. I don't read or hear anything to make me think things are different. Like the Russians, they have probably gotten better at hiding it, making it less blatant, but it is still there, just as dangerous, just as immoral and just as bad for the country and the mass of its long-suffering citizens. If David Cameron wants to learn about the business immorality with which he, supposedly a right-wing politician, peppers his speeches, let him try to open a pasty-stand in Kiev.
Every island is different; even the ones which have no corporate taxation have differences, and knowing about them can help to guide one in choosing a location for a business or an investment. It might be something as simple as geography or climate: if you are a Floridian, then you might choose The Bahamas as a place to start your offshore IP subsidiary simply because the flight connections are good. You probably wouldn't choose the Isle of Man, because the climate is horrid, and you might worry about the enthusiasm with which the authorities have surrendered to FATCA, even to the extent of agreeing a mini-FATCA with the UK government. Mind you, the IOM is not in a happy situation: unlike every other offshore location, it has a joint VAT regime with the UK, which the latter has unilaterally changed adversely to the tune of several hundred million pounds a year, throwing the IOM's finances into disorder and forcing it to bring major retailers within the 10% corporate tax net. I wonder how many Manx retailers there can be with annual profits over GBP500,000, but perhaps some UK firms are based there. That's maybe not too worrying for your average millionaire looking for a secure home for her money; but all this information flying about so readily? The IOM wants to be clean and respectable, but it seems to be giving up precious ground without much of a fight, and this is a difference that people will notice. Maybe the IOM sees its future as being poor but respectable? Cleanliness is next to godliness, they say.
Kitty's Encomiums and Execrations
Methodology: each week (this is the 41st) 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 neutral ranking, 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, but reverting to neutral territory in the following week..
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.
Antigua and Barbuda stays the course
Brazil at it again
Cayman fights its corner
And Kitty's Execrations:
France repeats history
The Isle of Man surrenders
Ukraine: corrupt? me?
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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. email@example.com