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Perhaps I'm being naive

Kitty Miv, Editor
11 June, 2018

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.

According to US Senator Orrin Hatch (R-UT), who is Chair of the US Senate Finance Committee, the tax reform is overwhelmingly popular with US taxpayers across the board, from small and large businesses to employees. Well, he would say that, wouldn't he? After all, as chairman of a panel with jurisdiction over tax legislation, Hatch is as responsible as anyone for the contents of the tax reform bill, the Tax Cuts and Jobs Act (TCJA).

In Hatch's defense, most business surveys show that the corporate tax reform measures are having a positive impact on business operations. The economic boost that Republicans were hoping for when they pushed the legislation through Congress in the dying days of 2017 has materialized, they say.

But we all know that the TCJA is far from perfect. For starters, it's 1,000 pages long. Like the complete works of Shakespeare, there's a lot of room for interpretation. And this perhaps can be considered the law's greatest flaw.

The conclusions of a survey by BDO in the US, published in April, highlighted that the law provides many opportunities for businesses to reduce tax.

According to BDO, "just as there are thousands of pages in the new tax law, there are thousands of possibilities when it comes to planning."

Or, as David Kamin, Professor of Law at the New York University School of Law, put it at a Senate hearing on tax reform in April, the law has turned out to be a "bonanza for tax planning."

Correct me if I'm wrong but I thought tax reform was supposed to put an end to the zillions of dollars spent on tax planning and compliance and the gazillions of hours expended doing so. Perhaps I'm being naive.             

The European Union might be falling apart at the seams, but, despite events in Italy, Spain, the United Kingdom, and Greece, legislative life has continued within the European Commission's HQ in Brussels in a reassuringly repetitive way. In fact, it's been a particularly busy time for tax reforms in the EU.

There can have been few EU tax proposals that have met such a frosty response than the Commission's interim digital tax. And after this project was effectively torpedoed last week by the usually cooperative and moderate Nordic countries, this must surely be dead in the water.

Further, fundamental changes to the architecture of the EU VAT regime are also in doubt after EU finance ministers failed to agree on three items at their meeting late last month. In addition, a schism has emerged over the EU's flagship corporate tax reforms, the CCCTB, and also over the issue of a minimum corporate tax rate, which stands little chance of approval if unanimity in the Council continues to be a requirement.

These big-ticket harmonizing measures are of greater symbolic significance, since they are intended to represent an EU increasingly pulling together in one direction. Instead, the Union appears to be a far from harmonious place, which isn't helpful for multinational taxpayers and investors wondering which direction the bloc's headed next.

The normally altruistic Denmark has at least partly atoned for its mutinous act this week by boosting its sharing and caring credentials – well, its sharing credentials, at least. It's one of the few countries in the world that has decided to provide a measure of tax relief to those participating in the increasingly significant sharing economy. While it's a fairly minor development in global terms, it's worthy of mention here because, normally, all we hear in relation to the sharing economy, or the gig economy as it's otherwise known, is fire and brimstone from authorities to anyone who doesn't report sharing-economy income on their tax return, whether that be a few dollars or a few thousand. 

That more and more tax authorities have at least made pronouncements about sharing economy tax issues over the last couple of years or so is a positive thing, as there was something of a desert in terms of tax guidance. However, what's unhelpful from tax agencies is vague guidance, as has been seen from many a territory so far. In particular, guidance up to now has been vague as to when a person earning some money via sharing economy platforms is carrying on a trade for tax purposes. So, Denmark's step to allow taxpayers to receive a certain amount of income tax-free is a small but symbolic step in the right direction, perhaps.

The UK is another jurisdiction that has eased the tax shackles on small-time "digital entrepreneurs," with the introduction also of a similar "sharing economy tax allowance."

However, another more recent initiative to encourage compliance with UK VAT rules among online marketplaces and those that use them has got off to a less-than-auspicious start, and it's not difficult to see why.

The new scheme is intended to allow online marketplaces to demonstrate their support for the proper collection of VAT. However, the honor of having their name on a list of VAT-compliant marketplaces involves some fairly extensive requirements. These include supplying HMRC with information on marketplace sellers, including, at a minimum, a sellers' identity; the value and volume of sales of each seller; and the sellers' contact details. This is in addition to educating sellers about their UK VAT obligations and responding to any evidence of non-compliance. In other words, online marketplaces will be doing much of HMRC's job for free.

In many respects, this is just part of a trend taking place around the world; increasingly, global sharing economy marketplaces are now effectively the eyes and ears of the tax authority with respect to the individuals and companies that use their platforms to buy and sell services.

Given that the technology behind these portals is almost tailor-made for this task, perhaps this was going to be inevitable in a world with a zero-tolerance attitude towards tax avoidance. Still, it is probably a function that only large companies like Airbnb and other market leaders like it are capable of fulfilling.

Therefore, it comes as little surprise to see that two of the three companies that have signed up to HMRC's scheme so far are Ebay and Amazon. Don't expect many small or startup ventures to add their name to the list any time soon.

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

Denmark caring

Kitty's Execrations

United States (unintended) opportunities

United Kingdom inauspicious



Tags: Euro | Brussels | Law | Economy

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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