If at first you don't succeed
Kitty Miv, Editor
26 September, 2018
If at first you don't succeed, try, try again. At least that's what they might tell you in school. But does this mantra translate successfully to real life? Switzerland is about to find out.
A few years ago, the Swiss Government put many of its eggs into a corporate tax reform basket called Corporate Tax Reform III (incidentally, does anyone remember Corporate Tax Reform I or II? Is this a rare case of a sequel being more memorable than the original?). These are intended to remove a series of "harmful" tax regimes and generally bring Switzerland's tax regime into line with international tax standards, while also ensuring the country remains competitive on tax. However, the proposals were somewhat cruelly struck down at the very last legislative hurdle as the people voted against them in a referendum.
Fearing the wrath of the European Union and yet another reputational battering, the Swiss Government had little choice but to almost immediately pick itself up, dust itself down, and start writing the script for CTR IV, which eventually became known as Tax Proposal 2017, or TP17 for short. And the proposals took a major step forward recently when the two houses of Switzerland's Parliament said that they are largely in agreement on the main points of the changes.
Top marks, then, for persistence on the part of the Government. Although I have to say it's a bit short on inspiration when it comes to naming these initiatives. Can't they come up with a satisfyingly pithy, yet still relevant, acronym for the tax reforms, like they do all the time on The Hill? Who knows, it might even help to stir the Swiss public's imagination. The Government has repeatedly emphasized that Switzerland simply can't afford to get left behind in an increasingly transparent world, and that the country's economic future effectively hangs on these reforms. Perhaps Swiss voters would find it easier to rally round a bill called the SAVIOR Act, for example? I know what the first letter could be.
Businesses who regularly lobby governments on tax issues also know a thing or two about persistence. Their recommendations are not described as "wish lists" for nothing. Sometimes wishes do come true, at least partially. But more often than not they don't, because there are myriad political and economic forces pulling government forces in multiple directions at once. So I'm not holding out much hope for Keidanren, the leading Japanese business association, which issued a comprehensive wish list of tax reforms last week.
Indeed, if governments had given taxpayers everything they wanted over the years, things would obviously be a lot different now. There wouldn't be inheritance tax for a start – arguably the most unloved tax in the world? Capital gains tax would have been given the boot ages ago. Corporate tax would have been similarly dispatched. Withholding taxes would be a thing of the past. Social security contributions fading from the memory. Value-added tax deceased. "Dividends? We used to tax those?," people would be heard to say. Personal income tax would be below 10 percent in most jurisdictions by now (with the possible exception of the Nordics, where it would be just easing below 40 percent) and fast heading for zero. As for transfer pricing regulations – remind me, what were they again? Of course, this is not so much a wish list as a fantasy list. But you get the gist.
Perhaps there is also something of a cautionary tale here too: be careful what you wish for. In the United States, after years of berating successive administrations and congresses about the country's high rate of corporate tax, businesses eventually got a 14 percent tax cut. But they also got a transition tax, GILTI, and FDII. And BEAT – in more ways than one, might I suggest.
For its part, Italy has tried the tax amnesty idea again and again. And again. And again. And possibly is about to again, according to recent comments by Deputy Prime Minister Matteo Salvini. But whether repetition of this strategy has led to success is highly debatable. Studies into tax amnesties suggest that if used on a frequent basis, these devices tend to erode a country's tax compliance culture over the long-term. And without wishing to sound too disparaging about my Italian friends, it has been said in the past that tax avoidance is something of a national hobby in Italy. So maybe there's some merit in these conclusions.
I also suspect it is a general rule of thumb that those countries where tax amnesties are a common occurrence are those with high and complex taxes, and relatively narrow tax bases. Which suggests that tax reform, rather than tax amnesties, is the way forward.
So I suppose the moral here is that you should really try and try again at the right things rather than those that might ultimately harm your interests. After all, nothing good will come from repeatedly slapping oneself in the face.
The European Union is nothing if not dogged in the pursuit of its goals. Even in the face of almost overwhelming obstacles, it tends to stay the course, especially in the area of taxation. Remember the financial transaction tax? The EU certainly hasn't forgotten it! This is despite the fact that the wheels quickly fell off the initiative when only 11 member states agreed to back it. Since then, the engine has ceased, and the brakes are stuck fast. In short, it's not going anywhere fast. Yet the EU continues to wholeheartedly back it.
And for its latest demonstration of obstinance, you need look no further the European Commission's recent show of support for the interim digital tax, a proposal that, in boxing parlance, is surely out for the count following the bruising that it had at the hand of critics, including EU member states.
Indeed, "if at first you don't succeed..." could almost be the European Commission's unofficial motto. Although, it would have to be in Latin of course. And no, I'm not going to attempt to translate it. Latin was a subject at which I tried and tried, but failed miserably, showing once again that this saying is by no means a universal truth.
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