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Nice work if you can get it

Kitty Miv, Editor
09 August, 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.

We're told in many countries that owners of diesel vehicles (perhaps "keepers" is a better description, since hardly anyone actually "owns" a car anymore) won't be punished with punitive taxes in the wake of the "dieselgate" scandal and the realization that this particular fuel, when fed into an internal combustion engine, produces some very nasty toxins. And I should hope not. After all, it was the Government in many countries that encouraged people to purchase (okay, acquire) diesels because of their superior fuel economy. Therefore, it would be rich of them in the extreme to whack those who took the advice in good faith.

Instead, new incentives to encourage drivers to get rid of their diesel vehicles are being talked about in France and the United Kingdom, which have just announced brave plans to ban the sale of gas and diesel-powered cars by 2040. And this seems like a fairly reasonable response. Still, I fear that some governments just won't be able to resist the temptation to slap new or additional taxes on diesel vehicles and their owners. Indeed, recent reports suggest higher diesel taxation will be announced in the UK by the end of this year. Not only this, there is the risk that taxes based on vehicle emissions will rise after the introduction of recalibrated tests. EU car makers certainly aren't kidding themselves. Better put the hours in if you want that Tesla though.

The controversy continues this week as I switch to the vexed issue of corporate inversions. Remember those? They used to be all the rage, but now they seem so 2016. At least, they appear to have gone out of vogue. I had to search pretty hard for evidence of any recent corporate inversions. But perhaps it is the case that final regulations issued by the US Treasury Department last year under the Obama administration have finally made inversions uneconomic.

However, in so doing, they might have made being in business generally almost uneconomic. As the American Institute of CPAs wrote in a letter to the IRS last week: "The main purpose of the regulations is to decrease the incidence of corporate inversions. However, the regulations are highly complex, and impose significant documentation and analysis requirements on US corporations for routine and ordinary intercompany transactions."

It seems to be the case that companies are not only investing a lot of time in complying with these regulations, but also spending money to reconfigure internal processes and systems. And the worst of it is that companies are being hit irrespective of whether they have inverted or are planning to invert. Which is an awful lot of companies when you think about it – corporate inversions averaged about five per year from 2004 to 2014, according to the Congressional Budget Office.

So, there are probably thousands of companies throughout America which breathed a collective sigh of relief on hearing that the offending documentation requirements have been put on hold for another year. But tax reform surely can't come soon enough, as it would end the need for regulatory measures, which have a propensity to produce unintended outcomes.

With regards to taxation, it is widely acknowledged that the United States is increasingly out of step with much of the world now, with a combined federal/state corporate tax of around 40 percent in many cases, and its systems of worldwide taxation for companies, and taxation by citizenship for individuals. Indeed, there seem to be few countries that cast their tax net so wide.

But just when you thought the US tax regime was a pretty bad example to the rest of the world to follow, up steps South Africa, which has had a string of execrations recently. Yes, in a similar vein as the US, South Africa has proposed the removal of the 183-day foreign-earned income exemption in certain situations.

Those certain situations, it seems, are when an expat resides in a jurisdiction with very low or non-existent taxes, which means they could be getting away with being doubly non-taxed. But the proposal has led to inevitable concerns that expats will end up being doubly taxed instead.

The Government argues that the foreign income exemption was put in place at a time when South Africa had far fewer double tax avoidance treaties than it does today. It assures those taxpayers likely to be affected by the new rule – if introduced – that tax credits will be available to prevent situations of double taxation arising. Although I imagine applying for a foreign tax credit is unlikely to be a comforting prospect for those who currently don't need to. What's more, this is yet another worrying sign of the fiscal times for South Africa, and one wonders which direction the Government will move next in its quest for more revenue.

If it's anything like the Indian Government, perhaps it will go online .

It used to be said that you should never discuss your financial affairs, especially with reference to tax, down the pub. You never know who might be listening. Perhaps drop the anecdote about your luxury cruise when you declared income of a few bucks the previous year?

Indeed, it was once relayed to me by a tax professional how an ex-tax inspector he knew would frequent bars in order to gather intelligence on loose-lipped and potentially non-tax compliant business owners. Nice work if you can get it!

Of course, keeping your tax affairs schtum is still sage advice if you're on a night out. But the world is moving on rapidly. Social media is where it's at now, and, not at all coincidentally, social media is where the Indian Government is at, scanning the twittersphere for the cyber equivalent of loose bar talk. Not that I'm condoning hiding things from the tax man. But walls have ears and all that. And so, it seems, do smartphones, tablets, and laptops.

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

United States relieves

Kitty's Execrations

South Africa double tax

United Kingdom toxic tax

India eavesdropper



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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