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Any certainties are welcome in an uncertain world

Kitty Miv, Editor
02 February, 2017

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.

In a global economy, there's always something going on in terms of tax and trade.

Let's take the European Union – or more precisely, Italy for starters, which in recent times has attempted to resist lectures from the European Commission on how to balance its budgets and set its own course on tax policy, including cutting its corporate income tax rate. However, like a dog with a bone, the Commission just can't let the matter go, and in mid-January sent another missive to Italy's Finance Minister indicating the "significant" risk that Italy will breach its "required adjustment path" under the EU's medium-term budgetary objectives.

It must feel a tad galling for Italy to be singled out in this way. Yes, austerity measures are still in place, just as they are in other member states; but it could be forgiven for wanting to forge its own budgetary "adjustment path" by attempting to reverse its economic troubles through tax cuts rather than tax rises – possibly mindful that another member state, the UK, has managed to do it to a large extent, despite warnings to the contrary from the likes of the IMF.

Staying with the UK, and the accusation by the Director General of the Institute of Economic Affairs that a recent Oxfam report "demonizes capitalism" might have come across as a bit strong. Oxfam does, after all, work in some of the poorest and most troubled parts of the globe. However, the report did aim its accusations at the very wealthy, and at governments that it feels should do more to tackle tax avoidance and raise taxes.

For some, this might be seen as a dangerous game, as the most wealthy among us are often the most supportive of charities; and some governments (such as the US and the UK) contribute vast sums of taxpayers' money to international aid. There is a fine line to be trodden here; a case of being careful of biting the hand that feeds you, perhaps.

One developing economy where Oxfam might feel its services are needed is India, where news was released of POEM guidelines. No, we're not talking sonnets, Haikus or couplets here, but the "place of effective management" test for tax residence purposes.

The measure was originally introduced in the 2015 Finance Act to clarify when a company is regarded as tax resident in India in the previous year, with the aim of preventing companies from artificially escaping tax resident status in India. No doubt supporters of the BEPS project would approve, but whether the new measures will help clarify matters such as where taxable income arises, only time will tell, bearing in mind past controversial endeavours by India's tax authority to claim nexus on income arising through various multinationals' commercial activities.

Still, to be fair, India has progressed hugely in calming past doubts over the tax treatment of multinationals operating in the country, and is forging ahead with advance pricing agreements with the US in particular to settle past disputes. So perhaps this latest development should be seen as a positive move for providing even greater certainty.

And in an uncertain world, any certainty like this might feel justifiably welcome.

Ciao

Kitty



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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