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Love it or loathe it, Google is now almost as ubiquitous as the Internet itself

Kitty Miv, Editor
22 December, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. 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.

I frequently find myself "googling" something (that is, searching for something on the "net"), even though I might not be using that particular search engine. Google's business model is one of the major reasons why the Internet remains largely free to use, and the vast majority of us probably want it to stay that way. The free Internet has its losers, as well as its winners, though. And the publishers of traditional newspapers see themselves as one of the biggest losers of the digital revolution, with few people prepared to pay to receive quality journalism any more . But that is just a fact of life these days, and the newspapers would do well to adapt to the new environment. Some have accepted this reality in the knowledge that Google's news aggregation service drives huge amounts of traffic to their websites, bringing in bountiful advertising revenues. Others have erected their own pay walls so that users must subscribe to their content, which is also fine if one is loyal to a particular publication, and by and large these models seem to be working, even while most of their rivals' content remains unlocked. There are some though who continue to hold out against the tide, arguing that Google must compensate publishers for placing headlines and news snippets from their publications on free-to-use Google News. Germany tried a so-called "Google tax" last year, and Google's reaction was simple but very effective at changing the Government's mind : it just pulled German publications from Google News, after which traffic to these sites plunged. More or less the same thing happened in Belgium. So when Spain approved its own Google tax, at the behest of the Spanish media association AEDE, the result was entirely predictable. I have seen figures that suggest traffic to Spanish media sites fell by 15 percent within hours of their removal from Google News. One suspects that Canon AEDE, the Spanish legislation in question, will have a similarly brief life.

From one type of "Google tax" to another now. I praised the UK Government 's Autumn Statement last week for its long overdue reform of stamp duty land tax on property purchases – but against my better judgment as it turned out. They often say that the devil is in the detail of Government Budget statements, and it transpires that the Autumn Statement is home to a particularly ugly demon taking the form of the so-called "diverted profits tax." One can see why people get hot under the collar about corporate tax avoidance, when most individual taxpayers see a quarter to a half of their pay taken by the Government before it even hits their pockets and with few legal avenues open to reduce individual tax liability for most salaried workers. But it's one thing for a Government to talk tough on multinational tax dodging, and quite another to destroy a carefully cultivated reputation as a friend to business with the stroke of a pen. Actually, it's more than one stroke, as OECD Secretary General Pascal Saint Amans observed last week. The draft DPT legislation stretches to 18 pages, and it's certainly saying something when the OECD appears bamboozled by a tax measure. Which is, indeed, one of the problems with the proposal. I'm not sure what the worst thing about the DPT is – the tax itself, or the fact that others are keen to ape it. Australia's Finance Minister Joe Hockey, prominent among them, doesn't seem to realize how bad an idea it is; not only does it undermine the OECD's BEPS work – with Saint Amans, too, criticizing the UK for jumping the gun – it is also riddled with flaws. It's aggressive and punitive in nature, and the proposal, as drafted, once again stacks the dice against the taxpayer by handing sweeping powers to HMRC to determine who is playing by the rules and who isn't, with few rights of appeal built in. It's also at odds with the UK's obligations under its vast network of double tax treaties, the result of which could be a cornucopia of tax litigation. I'm willing to give Osborne the benefit of the doubt that he hasn't completely taken leave of his senses. Perhaps this is a calculated move – a suitably timed piece of multinational bashing with a general election six months down the line – rather than an attempt to curry favor with Gurría and Saint Amans et al. The UK is banking on the fact that by next year it will have the lowest corporate tax rate in the G20, and so multinationals will no longer be tempted to shift profits to tax havens, but perhaps the stick now outweighs the carrot.

It would be all too easy to execrate the United States for yet another fine mess Congress has made of the tax code, after the House of Representatives and Senate managed to agree an effective two-week renewal of a ragbag of around 50 tax provisions. (Most expired at the end of 2013 and have been renewed retrospectively to the end of 2014.) Yes, it's bad, but we all expect it now, and in a way things can only get better. It's the season of goodwill, and I want to be optimistic that Congress, with its Republican majority for the next two years, will really grasp the nettle and consider some radical tax reform proposals, like a federal consumption tax or value-added tax, as Senator Ben Cardin (a Democrat) has. Some might question whether such outlandish proposals are really necessary. The US economy is ticking along quite nicely, despite the mangled state of the tax code. However, with most arguments against a federal sales tax being that it would be regressive and would risk dampening consumer sentiment, Senator Cardin's proposal tries to make things more progressive, albeit through a consumption tax rebate for low and middle-income earners that to my mind introduces complexity into a system meant to be simpler. So, certainly, there are plenty of problems with a new consumption-based tax system, and it will probably never happen in my lifetime. But the likes of the IMF keep telling Governments not to rely so much on taxing incomes, and to tax consumption instead, so there has to be some merit in it; anything has to be better than the dog's breakfast we are presented with now. I have a friend who frequently complains to me about the amount of time he spends with his CPA in order to make sure his tax affairs are in order – time he'd rather spend running his company. His company's tax return now resembles a book, yet he still lives in fear of an IRS audit. How did we get to this? Tax is now almost a science, but scientists don't generally get fined, bankrupted, or thrown in jail if they get their equations wrong. Just imagine the restorative effect that a completely new way of taxing – and one that doesn't rely on incomes – could have on the economy. The US political system can be maddening at times, but at least Congress has the ability to think out of the box: a world without tax returns – now I'm dreaming, but wouldn't that be something?


Kitty's Encomiums and Execrations

Methodology: each week (this is the 136th) 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:

United States blue skies thinking

And Kitty's Execrations:

Spain misguided

United Kingdom jumping the gun



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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