Life is complex
Kitty Miv, Editor
20 November, 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.
Supporters of tax reform legislation currently making their way through the United States Congress would have us believe that their tax reform proposals (plural, because there's still two of them) are all about simplification. There's a lean and mean new corporate tax, and when tax reform is all signed and sealed, Form 1040 will be the size of a postcard.
That may be the case, but let's not kid ourselves. These tax reform bills are complex. And if you look beyond the headline measures, you'd probably be inclined to agree. For example, if you're brave enough to browse through the scores of amendments made to the Senate Finance Committee Chairman's mark prior to committee approval, you'll find such essential measures as those related to services performed by certain individuals in the Sinai Peninsula, the replanting of citrus plants, and the craft brewing trade – the latter being a major theme in the package of amendments. I can't help but connect the dots – is there a US citizen making a tangy beverage in the deserts of Egypt? So much for ending the practice of pandering to special interests!
In one way, this is indicative of just how far the tax code's tentacles have spread over the past 30 years, to the point where virtually no form of economic activity is left untouched. But perhaps it also tells us that simplification can only go so far. Modern economies are complex. Life is complex. So tax, I'm afraid to say, will be complex too. Not that we shouldn't guard against unnecessary complexity. Indeed, something is clearly wrong when it can take hundreds of hours for a business or individual with complex financial affairs to discharge their tax obligations – and even then inadvertently arrive at the wrong amount.
Tax reform is expected to not only have a transformative effect on the US itself, but also internationally, as US and foreign investors shift more investment to America. And Ireland is one country worried about the impact of the proposed corporate tax cuts and foreign dividend exemption in the US.
Brexit is often identified as the greatest danger to the Irish economy, given its strong commercial links to the United Kingdom. But, with Ireland's trade and investment links to the United States arguably even more significant, the economic fall-out could be more serious than a hard Brexit.
Statistics attest to how Ireland's economic fortunes are intertwined with those of US investors. US investment in Ireland totals USD343bn, and while Ireland represents just 1 percent of the European economy, it attracted 20 percent of all US FDI investment to Europe in 2015. Some 150,000 people are now employed by American firms in Ireland – around 7 percent of the workforce. So it almost goes without saying that if substantial numbers of US investors began pulling out of Ireland, this could be disruptive for the economy.
But perhaps the risks are being overblown. The United States may become more competitive relative to Ireland if its tax reforms go through. But this won't necessarily diminish Ireland's competitiveness. Its low corporate tax is unlikely to change any time soon, its membership of the EU makes it a convenient entry point into the EU markets, and there are a range of other factors beyond these two key advantages that attract foreign investors from the US. Fergal O'Brien, Director of Policy and Public Affairs at Ibec, put it well recently when he said that US firms "will still find Ireland a compelling investment location."
It's become something of a cliché in the world of taxation these days to say that tax systems have been left trailing in the wake of the digital economy. But it's true nonetheless. After all, the whole point of the OECD's BEPS work is to bring tax laws up-to-date with the early 21st-century economy. One wonders though, if we'll need another BEPS project for the mid-21st-century economy, and then another one for the late 21st-century economy, and so on, such is the pace of technological development. But then again perhaps not. Human beings will probably be rendered economically obsolete soon anyway.
In the here and now, the "collaborative" economy, which encompasses the sharing economy and the gig economy, is one of the toughest riddles to be solved, not only by governments and tax authorities, but societies at large.
It seems that the gig economy is particularly incompatible with legal frameworks which are largely rooted in the latter decades of the 20th century. But it's uncertain yet who should adapt – laws to the gig economy, or the gig economy to the laws. Probably a bit of both is required, I suspect. But we need only to look at the United Kingdom to see how murky the waters are. On the one hand, Uber is required, as a result of employment tribunal rulings, to treat drivers as employees, decisions which could have huge tax ramifications for company. But on the other hand, take-away food provider Deliveroo doesn't have an employer-employee relationship with its riders, according to a November 14 ruling by the Central Arbitration Committee.
Digital economy, collaborative economy, sharing economy, gig economy – whatever next? One thing's for sure. As the famous Bill Clinton campaign slogan goes, it's the economy, stupid. We just don't know what the economy is anymore. And tax authorities aren't stupid!
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.
United States comprehensive
United Kingdom confused
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