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He Would Take Off his Shoes and Extract the One-Thousand Dollar Bills

Kitty Miv, Editor
22 August, 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.

Switzerland has had some bad press lately, partly due to the readiness of its banks to help Americans escape the IRS, and partly due to the doings of a lunatic fringe of "populist" (read "socialist" or worse) activists who have been pursuing a xenophobic, "little Switzerland" agenda via referendums which require only 100,000 signatures to take place, and then generate large quantities of heat and light, usually to no effect at all. Some cantons, it's true, have abandoned the "flat" tax which allows wealthy foreigners to pay a set amount of tax (much more than their Swiss tormentors earn, to be sure) regardless of their actual income. In most cases, however, the said wealthy foreigners merely skip across to another canton, so there is no net loss to Switzerland, and it must be good business for the lawyers and the removal companies. Perhaps that's what's going on: maybe they're not Little Swiss at all, but covert lawyers?

Anyway, one way or another, Switzerland continues to profit from its low taxation: this week, the Franco-Swiss Chamber of Commerce and Industry released figures showing that there is a steady drip-feed of French businesses and businesspeople across the border into Switzerland. Nothing new: when I was being "finished" in Geneva, a long time ago (don't ask) I had a French girl-friend whose rather rich textile manufacturer father used to come from Lyons to see her every weekend. The customs officials got so used to seeing him they just waved him through (there were still capital controls in those days), but in the apartment he had bought for her he would take off his shoes and extract the one-thousand dollar bills from the false in-soles. His daughter would pay them in the next morning as a Swiss resident, no questions asked. At 5,000 dollars a week it builds up quite quickly – do the math!

I'm not sure if I would want to put my thousand-dollar bills in Switzerland nowadays, and definitely not if I was American. Other figures out this week testify to the success of Singapore in attracting international investment. It has a particularly attractive regime for SMEs, even better than rival Hong Kong. If I was looking for a home for my international news-syndicating business (I wish: offers to kitty@wolterskluwer.com, please) I would seriously consider Singapore. Top origins for incoming businesses are from the British Virgin Islands, the United States, China, Japan and India. That's what you might expect, but I am intrigued by the BVI, on this list. Singaporean authorities vehemently deny that they are attracting money fleeing Europe's increasingly onerous tax regimes, but how would they know? Singapore doesn't keep records of the beneficial ownership of companies, so that the Swiss or Chinese owner of a BVI company (most BVI company formations are said to be made by Chinese) can set up a Singaporean holding company, creating a structure that is impenetrable, and that's even before considering the use of trusts, which are themselves quite opaque in Singapore.

We carried a largely negative feature article on India in last week's issue, from the perspective of foreign investment, of course, and this week has seen no improvement. Increasing import duties on precious metals is hardly of importance to cell-phone manufacturers (although electrical contacts often employ gold?) but is an example of a generally illiberal attitude towards trade. The way to reduce a current account deficit is to export more, not restrict imports, and exporting is what foreign investors often do, especially if they are in SEZs. India created a tax-privileged network of SEZs, which indeed started to export on a large scale, but then, incomprehensibly, imposed Minimum Alternative Tax on them. The aviation sector is also replete with evidence of India's incoherent attitude towards FDI. This week saw the Government take further action against Kingfisher Airlines, the most advanced basket case of the country's terminally sick airline industry. The country is expected to become the world's third-largest domestic air travel market in the next ten years, yet predictably the Government seems to have done everything it can to restrict foreign investment in its airline sector. Two years ago, with losses soaring at domestic carriers, the Government bowed to the inevitable and started to plan to allow minority stakes in domestic airlines. Why minority stakes? Well, of course, to protect the interests of domestic investors. Finally this month the first of a series of possible deals has taken place between Etihad Airways (UAE) and domestic carrier Jet Airways, with the sale of a 24 percent stake; but most large international airlines are wary of deals with Indian-owned operators, and the prevailing sentiment is to compete in the Indian market through expansion of existing foreign-owned operators, which is exactly what India should not want.

This is the "silly season," the time of year dreaded by all journalists, when politicians are on the beach and nothing silly happens, so perhaps it should really be called the non-silly season. There was a small piece of silliness in the USA this week when a study linked the timing of childbirth to levels of taxation, but the best place for being silly at present is Italy, where the entire political class has embarked on a major exercise in silliness because of one man's legal entanglements, that man being of course Il Cavaliere, aka Silvio Berlusconi, who is going to have to choose in October between sweeping the streets and house arrest – a no-brainer, you would think, given that he has palaces dotted about all over Italy, not to mention a few islands here and there. The Government's silliness is that it has allowed this one man's situation to dominate its policy-making, particularly in relation to tax, with the Finance Minister desperately trying to find enough revenue from other sources to allow him to accede to Berlusconi's demand for abolition of the IMU, a tax on real estate, which all impartial observers agree should stay in place. The President, himself an honorable man who would like to retire (he is 87), was forced to stay on for an extra term because the parties couldn't agree on anyone else who could be relied on to be sensible in the face of Il Cavaliere's onslaught. The President has now exacerbated the political stasis by (foolishly, as I see it) refusing to allow Berlusconi any escape route from his conviction. So the country is being held hostage to Berlusconi's situation. That may be good justice, but it is silly statesmanship. Surely the right thing to do would have been to give Berlusconi a pardon on condition that he leaves politics? Instead, there are now umpteen ways in which the Government may fall in the coming months, all of which Berlusconi is orchestrating with relish, knowing that his (right-wing) party is likely to emerge the winner from any new, chaotic post-electoral stand-off. Meanwhile, the country judders sideways, and downwards. It's just too silly. And sad.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 66th) 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. Four 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:

Singapore v Hong Kong

Switzerland v France

And Kitty's Execrations:

India v trade

Italy being silly




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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