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A rose by any other name . . .

Kitty Miv, Editor
26 September, 2013

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

"A rose by any other name smells just as sweet" says Shakespeare in Romeo and Juliet, so we need not pay too much attention to the OECD's declaration that Ireland is not a tax haven – and never has been. Apparently he was responding to the European Commission's decision a week ago to begin a preliminary investigation into any special tax deals that may have been granted to multinational companies by Ireland, Luxembourg and the Netherlands, which in turn is linked to the G20's discussions on "base erosion and profit shifting" by MNCs, and, in particular, to the recent controversies in the United States, the United Kingdom, France and Germany over the low taxes collected from American companies, such as Apple, Starbucks and Google. The EU has said nothing officially about such a probe, nor have the countries concerned. The reality is that Ireland has one of the lowest corporation tax rates in the EU, which it has clung onto grimly in the teeth of opposition from the harmonizers in Brussels, who in their pursuit of a "level playing field" would like to root out every tiny vestige of competition in the Union, thereby condemning it to permanent economic decline. So plaudits for Ireland which continues to fly the flag of tax competition, and as a result is the destination of choice for US (and other) companies setting up in Europe. You can imagine how much they hate that fact in Strasbourg and Brussels.

As is the case in most weeks, we look in vain to reward a country which has reduced taxes; so we will have to settle this week for Belgium, which has at least decided not to go ahead with a mooted "fat" tax on sugary drinks. Such taxes have been popular in recent years with debt-ridden governments across the world looking for "friendly" taxes. As with green taxes, finance ministers don't give a jot for the moral dimension of "sin," or "fat" taxes. All they care about is plucking the goose with a minimum of hissing, and if they can hide behind a smokescreen of pretended concern for your health and welfare, then so much the better. It's not quite clear why the Belgian Government has backed off its fat tax. It seems to have been persuaded by local industry not to go ahead, and that may be because, as a small, land-locked country, it is more than usually vulnerable to "grey" imports: a high proportion of Belgians are in a position to shop abroad and collect their month's worth of low-taxed alcohol, tobacco and Fantas from a friendly supermarket alongside a gas station just over the border. The Government says it will try to persuade drinks manufacturers to use less sugar. Good luck with that!

India continues to talk the talk; but the moment it tries to walk the walk it falls over, goes round in circles or takes a step backwards. In response to investor concerns after attempts to impose retrospective taxation on Vodafone, Shell, Nokia et al, the Government has created a Tax Administration Reform Commission, which is to cogitate for 18 months before recommending changes to bring the country's tax system into line with international best practice. 18 minutes would be enough for most rational people to tell the Government what it is doing wrong. While the Commission was being set up, a previous panel, which was formed after the World Bank ranked India 132nd among 183 countries on ease of doing business, produced its report entitled "Reforming the Regulatory Environment for doing Business in India," urging the Government to withdraw the retrospective wording included in this year's Finance Act, which it says has damaged the investment climate in the country. So that's the talk; what about the walk? Well, this week in a protectionist move the Government increased import taxes on gold jewelry from 10 to 15 percent, and in case rich Indians want to spend the money on buying superyachts or LearJets instead, it slapped a wealth declaration onto income tax forms for anyone earning more than the equivalent of USD39,000, which would be about enough to have a gold tap in your master cabin. As with the Italian "redditometro," the hope is that the tax authority will be able to identify people who are under-declaring their assets on wealth tax forms, which are separate from income tax forms. But who is going to commit that kind of fiscal suicide? More likely there will be a sudden jump in the number of people earning USD38,999, and, also as happened in Italy, a sudden exodus of LearJets and yachts to Dubai. No word on the retrospective taxation, of course. The problem is that Government is not joined up: evidently there are senior people who know what needs to be done; but the news hasn't filtered through to the finance ministry or the tax department.

I apologize for returning yet one more time to the hoary old subject of French taxation, but I can't let Prime Minister Jean-Marc Ayrault's pledge that there will be a "tax pause" in France, in 2015 rather than 2014, pass without comment. I am reminded of a famous speech by Charles James Fox in 1800 in which he is replying to a suggestion that the war with France should be "paused" rather than that there should be peace negotiations. Said Fox: "…. if a man were present now at a field of slaughter, and were to inquire for what they were fighting – ‘Fighting!’ would be the answer; they are not fighting, they are pausing.’ ‘Why is that man expiring? Why is that other writhing in agony? What means this implacable fury?’ The answer must be ‘You are wrong, sir; you deceive yourself. They are not fighting. Do not disturb them; they are merely pausing. This man is not expiring with agony – this man is not dead – he is only pausing…..All you see, sir, is nothing like fighting – there is no harm, cruelty or bloodshed in it whatever; there is nothing more than a political pause."

So now M Ayrault: ". . . plans to increase value-added tax, to raise retirement contributions, and to lower the family income tax break ceiling (le quotient familial) next year, within the framework of the 2014 Budget, merely represent a "slow down" in tax hikes. There will be a slowdown in tax rises next year before moving towards an effective 'tax pause' in 2015."

So the French economy is not wrecked; the national debt is not rising; taxpayers are not being crushed under the weight of imposts. No, Sir! Not at all, you are mistaken; they are merely pausing! And what when the "pause" ceases in 2016? A return to more taxes, presumably.

And then M Ayrault continues by insisting that the Government has made "unprecedented savings totaling EUR15bn (USD20.3bn) in 2014, to ensure that tax rises are as small and painless as possible." As I pointed out last week, this is disinformation of a particularly shoddy kind. The Government hasn't made any savings at all: this figure is the withdrawal of tax breaks, in other words it is an increase in taxation. Ohhhhhhhh!


Kitty's Encomiums and Execrations

Methodology: each week (this is the 71st) two or three countries are given encomiums and two or 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 is on + 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, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, though.

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:

Belgium lets them eat cake

Ireland comes up roses

And Kitty's Execrations:

France is "pausing"

India all at sea




Tags: Euro | Dubai | G20

About the Author

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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