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Pace Mr Lamy, it has been a good week for trade

Kitty Miv, Editor
04 September, 2013

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things.

As Pascal Lamy bids goodbye (31st August) to the World Trade Organization, he will regret that he was unable to bring the world's squabbling nations into alignment in the Doha Round; but he can reflect that the playing field of the world of trade is a far more level place than when he took office eight years ago, and surely he can take the credit for much of this. The bilateral and multilateral trade deals that seem to be growing like mushrooms all over the place owe a great deal to the pro-trade ethos that has become the new normal in international affairs, and that in turn has been fostered by the thousands of occasions on which trade ministers have sat around a negotiating table in Geneva, Goa or Georgia, learning what they can and can't achieve, returning to bore the pants off their political masters.

Pace Mr Lamy, it has been a good week for trade, in fact. Chile, Peru, Colombia and Mexico, constituting the "Pacific Alliance," have committed themselves to a tariff-free zone, probably coming into force in 2014, which will later be joined by Costa Rica and Panama. Separately, Canada and Turkey agreed to set up a joint economic and trade committee as part of a broader agenda for strengthening their trade and investment relationship, and mapped out an ambitious and comprehensive free trade agreement. And in Brunei, the trade ministers of the countries negotiating the extended Trans-Pacific Partnership (TPP) – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States – reaffirmed their commitment to conclude the treaty by the end of this year. A joint statement said that: "particular areas of focus have included matters related to market access for goods, services/investment, financial services, and government procurement as well as the texts covering intellectual property, competition, and environmental issues." The meeting marked the start of the 19th round of negotiations, and the first one in which Japan has full participation.

Denmark's hosting last week of the 67th Congress of the International Fiscal Association, which came to a successful conclusion on Friday, doesn't quite qualify it for an award; but the Congress did collect a goodly sum through its BEPS swear jar ("don't mention the B-word"). Perhaps the money should be donated to Pascal Lamy's pension fund. Interestingly, there were very varied opinions on the "doability" of the OECD's BEPS Action Plan (another coin in the jar), and an audience vote after a debate on the morality of tax minimization activity undertaken by corporations showing that the majority remained unconvinced by the arguments put forward for corporate fiscal morality. The delegates (mostly corporate, it has to be said) didn't agree that in the current climate, a concern for reputation should inform tax planning decisions. A poll conducted in the UK for Christian Aid came (as you would expect) to a different conclusion; but the poll was based on telephone interviews with 2,000 "UK adults" and then subject to all kinds of weightings. I leave it to your imagination, how representative such a poll can be of the UK population. How many working business people are going to be at home to a pollster? You should never believe what you read in the newspapers; but it's for sure that most of the interviewees did!

European Commissioner for economic and monetary affairs Olli Rehn warned France during the week that further tax hikes would damage prospects for economic growth and put jobs at risk, telling the cloth-eared Communists in Paris (well they were probably in St Tropez last week) that "budgetary discipline must come from a reduction in public spending and not from new taxes." Of course they didn't pay any attention, and said they would increase payroll taxes to shore up the country's creaking social security system, as well as increasing the number of required contribution years from 41.5 to 43. This courageous action is to take effect, wait for it, by 2035!! They don't dare increase the retirement age, which would bring rioters onto the streets of the capital; the first thing Communist-in-Chief Francois Hollande did when he came into office was to cancel the (rather minimal) increase in retirement age decreed by outgoing President Nicolas Sarkozy. Pierre Gattaz, head of France's employers' confederation, got it right, calling the reform "dangerous" and unacceptable, saying that "all the Government does is tax and then tax some more."

For those readers who do business in the cloud – probably most, by now – it is commonplace to read commentaries on the difficulties tax authorities face in coming up with satisfactory models for taxing on-line business. And when organizations like the IRS and Britain's HMRC attempt to implement complex IT solutions even to relatively earth-bound activities, the result is often chaos. In a word, the tax collectors are challenged by IT, and the cloudier things get, the more challenged they become. But some tax authorities are more at sea than others, and for an example of how bad it can get, the UK and US Treasury departments can console themselves with the sight of the Philippines BIR (Bureau of Internal Revenue), which has just grandly announced that it will "start collecting taxes from individuals and businesses selling products online." OK, but there's just one problem, which is that the BIR is firmly stuck in the 20th century, if not the 19th, from an IT perspective, and is hamstrung by a system of "official invoices." In 1880 it must have seemed a good idea to require businesses to use official forms to conduct sales operations; apart from being a nice little earner in itself (you have to buy the forms), it makes sales taxes (and now VAT) easy to administer. The Philippines is far from being the only country to persist with this antediluvian practice, but when it comes to e-commerce, it is simply madness. An on-line trader must register with the BIR, fair enough, but how many will do so when the consequence is that you buy yourself a nice little pad of pre-printed, numbered forms to issue to your clients when you sell things? Oh, OK, there's a de minimis exception, that's OK then. Except that it is equivalent to 57 US cents, well below the minimum amount for which the customer can use a credit card. And you can't buy an awful lot for 57 cents, even in the most tenuous of clouds. I quote: "Online sellers will also need to withhold the required creditable/expanded withholding tax, final tax, tax on compensation of employees, and other withholding taxes, and remit the revenue collected to the BIR, having issued to their customers the necessary Certificate of Tax Withheld." If you don't do it, then of course they lock you up and throw away the keys. Please, gentlemen, please, please grow up!


Kitty's Encomiums and Execrations

Methodology: each week (this is the 68th) two or three countries are given encomiums and two or three 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 on + 1, 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, though.

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:

Chile, Peru, Colombia and Mexico being Pacific

And Kitty's Execrations:

France hooked on tax

The Philippines and quill pens




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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