Sometimes, you just can't win
Kitty Miv, Editor
27 March, 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.
Thousands of words have been written across countless pages by the OECD to describe, analyze, and consider the tax challenges of the digital economy. Yet it took only a 97-word press release from United States Treasury Secretary to potentially consign them all to the trash can. He might as well have used Twitter.
Of course, Mnuchin's statement, and the publication by the European Commission of a proposal for an interim digital tax, won't kill the OECD's work in this area any time soon.
Nevertheless, these developments tell us pretty much straight away that the OECD will struggle to attain the multilateral consensus that will be required to ensure that any new tax digital measures are workable. Statements issued by various EU member states, and also Switzerland, inform us of that.
While businesses and tax practitioners against this interim measure might hope these schisms might eventually scupper the introduction of interim measures, a lack of a multilateral consensus may encourage individual jurisdictions to fill the vacuum. And the EU isn't the only one with itchy fingers (or should be itchy digits?)
True to form, the Unilateral Kingdom – sorry, I think that's what you call a Freudian slip. I'll start again: true to form, the United Kingdom included options for a digital excise tax in the updated version of its working paper on corporate tax and the digital economy, and Canada has also announced that it is studying the issue. Doubtless, we'll read about similar developments at jurisdictional level in the coming weeks and months.
An interesting aside: the Unilateral Kingdom (it might as well be as far as the BEPS project is concerned) was named recently as one of the countries that has provided support to the Platform for Collaboration on Tax. How ironic. That's a little like saying Brazil has contributed to a workshop on tax simplification for developing countries.
Nevertheless, the fact that such initiatives exist for the promotion of international collaboration on tax shows how important it is for everyone to be pulling in the same direction if the desired outcomes are to be achieved. It's a shame, therefore, that the PCT is a joint venture of a group of plurilateral non-governmental organizations, including the OECD, the IMF, the World Bank, and the UN, rather than the governmental ones that need to do the actual collaborating.
Still, if nothing else comes out of the OECD's digital tax work, at least we'll have a new acronym to add to the rich lexicon of abbreviations in the world of taxation, courtesy, by the looks of things, of the European Union – GAFA, or Google, Amazon, Facebook, and Airbnb, those companies most in the sights of the digital taxers. It has a certain ring to it I suppose. A little too close to "gaffe" for comfort perhaps...?
The push to solve the tax challenges of the digital economy, and the wider BEPS project in general, are well intentioned. But perhaps striving for a perfect global tax system is an impossible dream from policy makers. This isn't to say that governments shouldn't get together to try to improve tax rules. But even the most favorable tax systems have flaws, and Estonia is a good example.
By all accounts, as tax regimes go, you're not going to find much better than Estonia's apart from offshore. Estonia's economic transformation in the 1990s and 2000s has been attributed largely to the tax reforms put in place around that time. Indeed, according to a recent Tax Foundation report, Estonia's tax regime was the most competitive in the world, on account of its relatively low corporate tax, well-structured individual income tax, well-designed territorial tax system, and property taxation based on land value rather than real estate value. Estonia's tax system was even endorsed by the International Monetary Fund in its latest review of the nation's economy, an organization normally heard nowadays to bemoan heavy labor taxes, narrow taxes bases, multiple value-added tax rates and exemptions, and inefficient administration, among other things.
But even Estonia's tax regime isn't without blemish. According to a recent European Commission report, the corporate tax system encourages BEPS. And in the OECD's opinion, a recent measure reducing tax on distributed dividends discriminates against small firms and complicates the tax system. Sometimes, you just can't win!
But I suppose this is the crux of the problem that the OECD and others are trying to solve. How can countries collect an appropriate level of taxation from all categories of taxpayer without creating a set of new problems in the form of unintended legal and economic consequences? Or, to put it another way, pluck as many feathers from the goose without the goose noticing too much? The answer has eluded most governments until now, and, even if progress is being made with BEPS, it will probably remain just out of reach.
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.
European Union hasty
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