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So much for the flexible UK workforce that Osborne likes to take credit for

Kitty Miv, Editor
07 October, 2015

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.

Apparently, the numerous consultations that the OECD undertook with businesses and other stakeholders as part of the BEPS project generated some 12,000 pages of comment. I do wonder, however, how much of this verbiage the OECD actually took on board when formulating the final BEPS reports, which were announced, in that most modern of ways, via a webcast from OECD HQ in Paris, on October 5.

In reality, the content of the 15 reports, filled as they are with jargon, official-speak and complex tax concepts, is what most of us were expecting. What's really quite worrying me is that the OECD seems to be utterly in denial that the BEPS recommendations, when (and if) implemented, could do any harm to businesses, investment, and economies. Indeed, I was astonished to hear Saint-Amans admit in his presentation that more double taxation is going to be inevitable, at least in the early phases of implementation of the BEPS measures. But he said it would be worth it in the long run because we will have a better tax system overall. Hmm. That will depend, of course, on 200 countries interpreting and implementing the proposals in the same way. And let's hope that some of them don't jump the gun. What's that? They already have? Oh dear.

So why is it that the OECD doesn't appear to be taking the concerns of businesses seriously? In my view, it's probably because the authors of the reports aren't business people themselves. Take a look at Saint-Amans's resume for example. After graduating from France's National School of Administration in 1996, he spent almost 10 years as an official in the French Finance Ministry where he oversaw legislation and policy on wealth tax, headed up tax treaty negotiations and mutual agreement procedures, participated in and chaired the OECD Working Party No. 1 of the Committee on Fiscal Affairs, and served as Deputy Director in charge of litigation at the Direction Générale des Impôts. He joined the OECD in September 2007 as Head of the International Co-operation and Tax Competition Division before becoming Director of the Center for Tax Policy and Administration in February 2012. In other words, he's a career bureaucrat. And judging by his previous jobs, he might know an awful lot about tax administration, but it looks like he's never been near a business in his life, at least from the point of view of forming one, running one, or even working for one.

Sure, the time has come for some kind of new contract between multinationals and governments with regards tax – I get that – but it's becoming all too obvious that not enough thought is being given by those driving the BEPS project to the economic consequences of its proposals. So how ironic would it be if, in the almost borderless age of digital innovation, governments conspire, as a result of BEPS, to effectively shut down parts of the world economy to investment. That's not going to help foster growth and technological progress, especially in the developing world. And this is beginning at a time when the world economy is growing slower than at any time since the nadir of the financial crisis. Talk about shooting yourself in the foot!

To the UK now, and on the face of it, "boy" George Osborne has had a good record as Chancellor of the Exchequer as he approaches his sixth year in the post. He has slashed corporate tax, business  that fled the erratic tax policies witnessed at the end of the previous Labour administration are coming back, and he has presided over some of the strongest – and most surprising – rates of economic growth seen in the G7. He's also been a very canny Chancellor and hasn't been too proud to lift popular policies previously espoused by opposition parties, thereby enabling the Tories to outflank their opponents and consolidate power. Yet, I think his record has been mixed. Interspersed with these achievements are some tax measures that wouldn't have looked out of place had Francois Hollande presented them. Some of these have been quite anti-small business, which is odd considering the Government in general likes to champion the "kitchen table" CEO. The latest of these is the idea to restrict the amount of expenses that self-employed contractors can claim for travel, subject to a test based around whether contractors are directly supervised while they work in an office. Why? Because HMRC is cracking down on "false" self-employment as part of its wider anti-avoidance and anti-evasion work. Which is all well and good, but self-employed groups are warning that thousands of genuine contractors, many of whom earn quite modest incomes, will be scooped up in HMRC's dragnet, and won't have the financial means to challenge any tax punishments meted out to them. What will the result of this be? Contractors will probably have to increase their charges, to cover travel costs. But then companies might decide it's cheaper to keep things in house. Or contractors might think it's not worth the hassle or the risk to be self-employed anymore. Indeed, the Association of Independent Professionals and Self-Employed has already warned that 45,000 freelancers could be driven out of business if the UK Government proceeds with these plans. So much for the flexible UK workforce that Osborne likes to take credit for. Silly boy!

 

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 Execrations

OECD in denial

United Kingdom silly

Ciao

Kitty



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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