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Ignorance is sometimes bliss, but not if you live in Scotland

Kitty Miv, Editor
22 September, 2015

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.

Ignorance is sometimes bliss as they say, but not if you live in Scotland, where ignorance could mean a nasty surprise in your paycheck next year, when the new "Scottish Rate of Income Tax" (SRIT) comes into force. Then again, you might be pleasantly surprised to find that the Scottish Government has decided to cut your income tax. We just don't know yet, because the new income tax rates and thresholds haven't been announced. Which is my reason for mentioning (execrating) the SRIT this week, because all this tax devolution is getting very confusing. And don't take just my word for it, have a read of HM Revenue and Custom's e-brief on the matter, published last week, for what's in store for those with connections to Scotland. I wasn't that surprised to learn that awareness of the SRIT among individual taxpayers is virtually non-existent, according to a poll by Ipsos MORI, although large companies and payroll agents are more clued up. This result does make some sense, as the majority of the individuals questioned are probably salaried individuals, who don't necessarily need to know the finer points of income tax law, while the companies withholding tax from their salaries do. However, it does kind of make a mockery of this clamor in Scotland for greater fiscal autonomy from the UK, when most people don't seem to care what the tax changes actually entail. Another point worth mentioning is that the SRIT, with its complex residency rules, could be a nightmare for mobile self-employed workers, not to mention small firms, which don't typically have small armies of tax experts on the payroll to figure these things out – ignorance almost certainly won't be bliss for them.

It's certainly getting harder for the world to ignore the mass migration of persecuted and war-weary people into Europe. And I can understand the frustrations of the countries bearing the brunt of the migrant crisis in Europe, when there are several larger and considerably better off nations that seem to be turning a blind eye to it all. But I sincerely hope the countries on the front line aren't using the emergency as an excuse to dream up new taxes. Unfortunately, that seems to be the case. Hungary's Government, which is certainly creative when it comes to finding new sources of revenue, has said that the influx of refugees into the country (the majority of whom are trying to reach Germany) has cost it over EUR109m (USD124m) so far, and a budget "adjustment" – aka, a tax hike – will have to be made sooner or later to cover the costs of policing and security. I suppose Hungary does have some justification to raise taxes. Surely the same can't be said of Finland, which is hardly on the front line of all this (Finland has agreed to take two percent of the 120,000 refugees to be relocated across the EU). Nevertheless, the Finnish Government has announced proposals to hike income tax and introduce a "solidarity tax" (aka "the government is broke tax") to help cover costs associated with housing asylum seekers. What really needs to happen is for these governments to cut spending elsewhere, but it's a lot easier and politically expedient just to invent a "temporary" crisis tax when the going gets tough. I'm aware that this is a very sensitive issue, and emotions are running high in certain parts of Europe right now. But this calls for a collective solution from the world's richest nations, and one that goes beyond the blunt instrument of national tax hikes.

To paraphrase Queen Gertrude in Hamlet, the longer and more vehemently a person denies something, the more the listener is inclined to disbelieve them, and methinks that the Tax Commissioner doth protest too much in his insistence that Brussels is not out to harmonize EU corporate tax. Of course, I don't just mean current incumbent Pierre Moscovici – he's only been in the job five minutes. A succession of Tax Commissioners, stretching back through the terms of Algirdas Semeta and Laszlo Kovacs, were frequently heard denying that tax harmonization was the Commission's goal. However, the denials are beginning to look more and more disingenuous in the wake of the revamped CCCTB proposal, which will be mandatory if the Commission gets its way, and the recent agreement by six key EU institutions for greater harmony of fiscal policy and more EU influence over national budgetary decisions. Indeed, Jean-Claude Juncker, President of the European Commission, has almost discarded the pretense that the EU supports national tax sovereignty, and in a recent meeting with members of the European Parliament he said the internal market was incomplete without corporate tax harmonization. The inconvenient – and rather amusing – truth here is that Juncker used to be finance minister of Luxembourg, a country that has become rich partly as a result of competing aggressively in the area of corporate taxation, and which is at the center of the multinational tax ruling storm. Indeed, the Commission President got rather prickly when MEPs kept referring to the "Lux Leaks" affair and suggested they be called "EUleaks" instead, since other member states are involved too. Given that many of these so-called sweetheart tax deals were dished out on Juncker's watch, some MEPs understandably wanted to know his involvement in the rulings. To which Juncker replied that while he met with large companies on several occasions, he didn't talk about tax with them. After all, why would a finance minister want to talk about tax?!

Conveniently, this allows me to link to the next subject: Luxembourg itself. Here, Minister of the Economy, Étienne Schneider, recently announced the abolition of the temporary additional income tax. Certainly, it's not the most earth-shattering of announcements in the world of taxation. But it's worthy of mention nonetheless because, if nothing else, it's an exception to the rule that there's no such thing as a temporary tax. It's been a pretty bad few days for the world's governments on the tax front – an encomium had to be awarded to someone.


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

Luxembourg temporary tax

Kitty's Execrations

Hungary expedient

Finland also expedient

European Union disingenuous

United Kingdom fractious



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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