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Where Else Would a Russian Take her Money?

Kitty Miv, Editor
25 April, 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.

Countries that increase taxes don't normally get rewarded in this column, but Cyprus deserves a gong for buckling down to the task in hand and pushing through a series of tax hikes which were part of the "bail-out" or "bail-in," depending on how you look at it. Of course, that EUR10bn is a fairly good carrot, and they won't get it unless they do what Mummy Brussels says. The Parliament has yet to authorize the whole deal, and it looks as if this will only be achieved if the opposition (the communists who got them in this mess in the first place) abstains. The President's right-wing coalition doesn't have a majority in the house. There's no doubt that many people are suffering a lot: the case of the orphans left behind after a deadly air disaster six years ago is particularly sad, since their compensation money was being held on trust in the Bank of Cyprus and looks to be lost along with other deposits exceeding EUR100,000. But generally, the hysteria over the "wrecking" of Cyprus's economy is probably overdone; most people seem to be displaying a remarkable sense of national purpose, and getting on with life. The island still has low tax rates, all of its tax treaties, its English language, a well-educated work-force, and its climate. Where else would a Russian take her money?

The OECD has given the Democrats' ritual hate-object the Cayman Islands a clean bill of health in its "Phase II" inspection of the jurisdiction's actual information exchange process. This is the more challenging one, looking at how things happen on the ground, and few countries pass it first time. Cayman also announced this week that it was negotiating a Model 1 IGA with the US Treasury in order to implement FATCA. All this is relatively easy for the islands given that they are in so to speak the carriage trade, patronized by banks and hedge funds rather than by London taxi-drivers or even Belgian dentists. The islands are relatively inaccessible, very wealthy and extremely expensive to do business with.

Singapore also got good grades from the OECD after its inspection, and like the Cayman Islands has perhaps benefited from the nature of its business, which has tended not to attract the seamier types of transaction and bank account. Singapore is of course a by-word for commerce-driven efficiency, but it is also a caring society, at least for its own citizens, although the balance sheet is more mixed for the large population of "guest-workers." Certainly the Government has done little wrong in terms of its economic strategies over time, with strong support for SMEs, low taxation and avoidance of debt. The Chinese don't seem to like debt, or perhaps it's just that they are so business-minded: Singapore, like Hong Kong and Mainland China, has substantial cash reserves. They are a bit hard to count, in the case of Singapore, because they are scattered around a number of institutions, but they certainly add up to some hundreds of billions of dollars. It's hard to see much that can go wrong for Singapore in the immediate future; again like Hong Kong, it is a magnet for the flows of assets and business activity that are being driven out of Europe and to a lesser extent the USA by restrictive legislation and economic paralysis.

Another stolen tax disc! This time it's a different German "Land" or state, but the same Switzerland. Well, not quite the same, because on the previous occasions the Swiss merely had to point to the deal they were cooking up with Germany; now that the deal is definitively dead after having been voted down in the Upper House and having failed to survive a reconciliation process between the two houses, the Swiss are saying that they won't apply standard exchange of information procedures in respect of stolen goods. I don't know what the OECD will have to say about that. None of the tax treaties or TIEAs I have read contain wording to deal with such a situation, and "competent authorities," the usual middlemen in cross-border tax affairs, won't much enjoy being characterized as fences. What will happen in Germany is hard to call: previously there was a rush of confessions when people thought that their golden nest-eggs in Switzerland or Liechtenstein were about to be raided by the tax authority. Now, I suppose, if someone believes that the Swiss mean what they say, there is a case for keeping stumm and simply denying everything when they come for you. That's if the money is still there. After all these years of discs, agreements, treaties and what have you, I ask myself if I would have left money in a Swiss bank account? Not that I have any. Singapore denies having received any of this flight money, with a prim expression on its face to which my old nanny would have responded: "looks as if butter wouldn't melt in its mouth."

If Hungary doesn't want to be a law-abiding member of the European Union then it should leave, in my opinion. The last year has seen a succession of blatantly un-communautaire actions on the part of Viktor Orbán, many of them worryingly autocratic, and several of them provoking complaints from the European Commission ending in references to the ECJ. The latest outrage, in anticipation of fines which the Commission is likely to levy on Hungary, is a law which would finance the fines by collecting a matching levy from taxpayers. The Commission says that this is unlawful in itself, and it seems calculated to whip up anti-EU sentiment on the part of voters. Let's hope it boomerangs. For sure that's what they must be hoping in Brussels!

I don't know whether to laugh or cry at the news that India's Finance Minister is urging the great and good of the Indian tax establishment to improve relationships with taxpayers. He is correct, of course, but it will take more than words to put right what is wrong with the CBDT. "Not fit for purpose" would be a fair summing-up of the incoherent, directionless organization, although if you want to bend over backwards to be kind, you could say that it is more the victim of the politicians than the agent of the chaos that is enveloping the fiscal landscape. The latest act in what respected newspaper the Economic Times calls a "soap opera" is what looks to be the final abandonment of the Direct Tax Code as an instrument of major tax reform. After having been published, revised and postponed more times than I can remember, it now seems as if it is going to be used as a grand gesture to offer inducements to voters ahead of an expected early election. Although some elements of the Code as originally conceived have been included in recent budgets, including the GAAR, the planned reorganization of corporate tax rates may have been abandoned for the duration. And as for the Goods and Services Tax – don't even ask!

 

Kitty's Encomiums and Execrations

Methodology: each week (this is the 49th) three countries are given encomiums and 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 has a neutral ranking, 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..

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:

Cayman Islands gets a pass mark

Cyprus bloody but unbowed

Singapore in clover

And Kitty's Execrations:

Germany on the fence

Hungary out of line

India always hopeful

Ciao

Kitty

 


Tags: Euro


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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