The robots are already here
Kitty Miv, Editor
01 May, 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.
If you're worried what the future holds as we draw nearer to an era of artificial intelligence – more automation, and fewer humans running the show – then you'd better worry about it a bit more. The robots are already here, and they might be processing your tax return right now.
At least, that could be the case if you live in the United Kingdom, where HM Revenue and Customs made the rather startling revelation earlier this month that it has been using artificial intelligence since 2015, and it has processed 10 million transactions already. Creepier still if this is the sort of stuff gives you the willies, HMRC's Chief Digital & Information Officer said that the tax office uses "robots" to undertake a multitude of albeit mundane administrative tasks! Robots!
Now, I don't think we're talking your classic "Metal Mickey"-type automaton here, sitting at a desk once occupied by a person, diligently punching numbers into a computer at an unsettling speed. By robot, I guess HMRC means a complex computer code, silently doing its work deep in a rack of servers at some secure facility somewhere. At least, I hope that's what HMRC's statement meant.
Either way, like it or not, automation is here to stay, including in the area of tax administration, and it's only going to become more prevalent the way things are going. In another recent example, Italy was authorized by the European Union to undertake real-time VAT reporting, which entails mandatory electronic reporting obligations on all taxable persons except for certain small businesses. And last year, it emerged that the Chinese Government plans to use blockchain technology to collect tax and issue electronic invoices.
We often dwell on the potential dangers posed by a world driven by algorithms. After all, code is ultimately created by humans, with all their individual flaws and foibles. But in terms of tax administration and compliance, there are surely benefits to automation. For taxpayers in a country like Italy, for example, which has garnered something of a reputation for lacking the culture of compliance that exists elsewhere in Europe, there would be fewer opportunities for taxpayers to, shall we say, take liberties with their tax obligations. This could allow the Government to narrow the tax gap and address its acute fiscal problems.
But it would be not only the Government that benefits. Tax compliance and administration in a digital environment should be less cumbersome, and less prone to error. Taxpayers should, therefore, save thousands of hours attempting to comply with complex tax regimes like Italy's, as well as face a much-reduced risk of being fined for mistakes, unintentionally committed or otherwise.
And it's not just taxpayers that buckle under the strain of complex tax codes. Tax authorities often struggle too. The US Internal Revenue Service is a classic example, as Congress throws the agency an ever-increasing number of balls to juggle, seemingly while tying one arm behind its back with budget cuts. If HMRC's experience, computerizing certain high-volume administrative processes could free up substantial resources to be used in areas where the IRS is seen to be failing, particularly in its taxpayer-facing functions.
Potentially therefore, automation is a win-win-win scenario. Until, that is, Metal Mickey decides to go rogue. And there's no telling what will happen then.
Staying on a technology-related theme, I now turn to the subject of special tax regimes for income from intellectual property, usually known as IP or patent boxes. Such tax incentives have proliferated in the past few years, but are they all they're cracked up to be? If the unenthusiastic take-up of Ireland's new Knowledge Development Box (KDB) is used as a bellwether, the answer is an emphatic no. Of course, this is just one of many examples. However, the disappointing KDB figures revealed by Irish Finance Minister Paschal Donohoe in parliament recently are an indication perhaps that we have reached patent box saturation point, at least in Europe. Not only this, it almost goes without saying that patent boxes must be worth a company's while to claim. So if the process is too long-winded, bureaucratic, expensive, and difficult to comply with, it is hardly going to encourage firms to apply, just for the sake of shaving a few percentage points off their overall tax rate.
The latter point could be especially relevant in Ireland's case. The KDB offers taxpayers an effective rate of tax of 6.25 percent on qualifying IP income. Which, on the face of it, is a very attractive outcome. But maybe the fact that the ordinary rate of corporate tax is already low at 12.5 percent diminishes the value of this incentive somewhat.
However, Donohoe, probably unintentionally, said something very revealing when he told parliament that the low number of KDB applications could be due to the fact that companies have a two-year window in which to make an application "given the large amount of documentation that is necessary." Two years? Perhaps the Revenue Commissioners should think about borrowing one of HMRC's robots.
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.
United Kingdom robotic
Italy real time
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