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Another job for the robots

Kitty Miv, Editor
01 June, 2018

Kitty's Country Rankings are below, with a description of how they are compiled. 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.

Maybe it's because we now live in increasingly fast-paced, on-demand economies, but there seems to be a growing sense of impatience at the pace – or lack thereof – of the OECD's work on some crucial areas of the BEPS project – notably around the taxation of the digital economy.

That the European Union went charging into this matter like the proverbial bull in a china shop can be put down to its usual enthusiasm for fixing international tax problems. But even the saintly United Nations now can't wait any longer, having decided to press ahead with its own work on digital taxation. When the UN can bear the OECD's procrastination no more, you know the game's up. The patience of saints is only finite, it transpires.

The official line of most governments is that it is preferable to work in conjunction with the OECD on this matter, rather than in competition with it, and to await the digital tax recommendations that will emerge in a couple of years' time. Yet, even though many countries have condemned the EU's rush to legislate, including some EU member states, it's equally apparent that the same jurisdictions are looking to hedge their digital tax bets.

Last week, for example, Norway's parliament rejected a proposal that the Government examine its digital tax options, resolving that Norway should stay the multilateral course. Nevertheless, at the same time, the parliamentary resolution also urged the Government to assess the suitability of temporary taxes on digital companies and evaluate the possible consequences of introducing a tax on digital companies similar to that proposed by the European Commission in March. All of which seems a little confusing, not to mention unhelpful, given that unilateral forces are thought the biggest threat to the success of the BEPS project.

Governments and tax authorities are already taking steps to bring certain digital business models, notably online platforms providing accommodation and transport services, into the tax net, irrespective of whether those have a physical presence or not. For instance, earlier this month, Denmark announced a landmark tax reporting agreement with Airbnb. Other jurisdictions are considering digital nexus rules, like Canada, or have already introduced them, such as Slovakia, where there is now an obligation for companies providing transport and accommodation services to Slovak residents via digital platforms to register a permanent establishment in the country, if they render their services there repeatedly.

Moving on, and if you're one of life's pessimists, you might be wondering what will come first. Climate Armageddon, or the "robocalypse," as the UK-based think tank, the Institute of Economic Affairs (IEA), dismissively termed the impact of automation on employment recently.

At least carbon and other emissions-fueled climate change can be taxed. Robots can't, or at least shouldn't be, according to the IEA. It said it would be unwise to tax robots to shore up tax bases weakened by fewer tax-paying humans in the workforce (if indeed automation does destroy jobs, a claim the IEA is skeptical about). Not because the taxation of automation would spark a robot uprising, but because it would effectively represent an additional corporate tax, deter innovation, and be generally bad idea economically all round, it said.

But with carbon and other environmental taxes, almost the opposite is true. Governments have license to tax emissions as heavily as they dare, because pollution is a highly undesirable and possibly dangerous externality. And the World Bank's latest figures show that authorities at national and sub-national level are taxing them increasingly enthusiastically, with USD30bn having been collected in carbon pricing payments last year, a 50 percent increase on the previous year.

Whether this is leading to the necessary fall in emissions is the key question, and that outcome seems difficult to judge at present. But carbon taxes and pricing schemes do also present something of a dilemma for governments. You might even call it a conflict of interest. Because the more emissions that are released the more revenue they collect, and vice versa. This means there's a danger that they could become rather too comfortable, even reliant, on these taxes, which means they almost have a vested interest in pollution.

Another problem is a lack of consistency between carbon pricing schemes, with some jurisdictions opting for carbon taxes, others for cap-and-trade mechanisms, and others still for variations on these themes. In some cases, there's even inconsistency within a country, with Canada recently being cited as a prime example.

Perhaps, in an ideal world, the responsibility for collecting and spending carbon tax revenues should be taken out of a government's hands altogether. Another job for the robots, maybe?

Since interim solutions are all the rage right now, until such time as the robots are ready to take over this gig, perhaps a politicallyneutral international panel should be tasked with formulating carbon tax recommendations, based on the broad consensus that emerged from the 2015 Paris Climate Conference that carbon pricing is the way to go to cut emissions. Just don't give it to the OECD. We might not have that long to wait!

Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more 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 at minus 2, 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, but then quickly recovered one step. Etc etc.

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

United Kingdom robocop

Kitty's Execrations

Norway unhelpful



Tags: Euro

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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