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a little piece of Britain welded to the Spanish mainland

Kitty Miv, Editor
04 September, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. 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.

A bit of a theme this week: how the powerful like to bully the small and the weak. And we start with Spain, which, according to one senior figure in the Spanish Government, is deprived of EUR1bn every year in tax revenue as a result of Gibraltar's low-tax regime. Gibraltar isn't exactly a country. In fact its constitutional status confuses many people. Gibraltar is an Overseas Territory of the United Kingdom, but although Britain is responsible for its defense, foreign affairs and internal security, the Rock is self-governing based on a constitution written in the 1960s. It also has a sort of half-in, half-out relationship with the EU which it entered along with the UK while remaining outside of the common external tariff and EU VAT regimes, something which also probably irritates Spain. Essentially though, Gibraltar is a little piece of Britain welded to the Spanish mainland and has been so since the early 18th century when the Treaty of Utrecht ceded the territory to Britain in perpetuity. Superficially, it is understandable why a relic from the colonial age like this should pique Spanish pride so much, and given that the world has changed considerably in the last 300 years, with Gibraltar's importance as a key military outpost in the British Empire much diminished, I suppose it is not unreasonable for Spain to now ask for it back. However, the way it has asserted its claim has been very unreasonable. Short of actually invading the place, the Spanish Government seems to have done everything in its power to make life uncomfortable for Gibraltarians, like restricting use of Spanish airspace, imposing unnecessarily bureaucratic checks at the border post, levying a border tax (at least, attempting to), and prompting long legal challenges over its tax regime and indeed its right to exist as a separate entity at all. But it is not just the presence of a foreign colony on Spanish soil that so angers Spain. It is the fact that this colony is a tax haven. If you are against tax havens, as most politicians claim to be, including Spanish ones, then you are never going to subscribe to the view that they can actually be a force for good in the world economy. But, just look at the billions of capital poured into London and the wider UK economy through Jersey, Guernsey and the Isle of Man. So instead of spending substantial sums of taxpayers' money trying to usurp Gibraltar and close its finance industry, perhaps Madrid should be looking at this from an entirely different angle. Maybe Gibraltar could be to Spain what Hong Kong is to China, albeit on a smaller scale. One wonders whether the periodic attacks on the Rock are just an attempt by the Spanish Government to deflect attention away from Spain's own problems. But I like to look at it this way: if I were a Brit, would I object so strongly if there was some rocky outcrop, on the Cornish coast say, that was forever Spanish? Actually I think it would be quite interesting. At least there'd be somewhere you could go to get some decent tapas. But then the Spanish don't really have an appetite for fish and chips.

Another country attempting to dictate what its neighbor can and can't do is China (the People's Republic of). It's good news that the People's Republic and Taiwan have resumed bilateral trade talks, but Beijing is still insisting that it has the right to tell Taiwan (officially known as the Republic of China) whether or not it can negotiate and sign its own trade treaties. The status of Taiwan is another confusing one for outsiders, since both places claim to be the real China. Taiwan is where the former nationalist Chinese leadership fled in the 1940s after the communist revolutionaries took power, and almost 70 years later the authorities there still consider themselves to be China's legitimate Government, although, sensibly perhaps, Taiwan dropped its constitutional claim on mainland China in 1992. China of course (we're now talking about the People's Republic) disputes this, arguing that Taiwan is a part of the PRC as its 23rd province. However, as Taiwan has become a notable trading nation in its own right, the rest of the world has long since forgotten the pretence that China and Taiwan are one and the same country. Still, there have been consequences for those, often small, countries that have chosen to align themselves diplomatically and economically with Taiwan, usually in return for money. This in Beijing's eyes is tantamount to a declaration of war, although retribution tends to come in the form of severed trade ties rather than military action. Nevertheless, it is quite a sad fact that largely as a result of intimidation by China (the People's Republic of) only 21 UN member states and the Vatican maintain formal diplomatic relations with Taiwan. I'll never pretend to understand the bitter enmity that exists between these two peoples as a result of the Chinese revolution. But surely, as the terrible events of that period in history move out of living memory, it's time for hatchets to be buried? Economic ties have improved in recent years and presumably the potential for increased trade is fairly significant if amicable relations become the norm. The ideologues in Beijing won't have it of course. Although China is to all intents and purposes a capitalist country, it likes to maintain the illusion that it is a communist state and therefore it probably suits the Party to keep the pressure on what it considers a nation of traitors, even if for nothing more than propaganda purposes. Indeed, Chinese warplanes (from the People's Republic) continue to buzz Taiwanese airspace as I write, in the hope of provoking some sort of reaction.

Now we move from the bullying of smaller nations by their larger neighbors, to the bullying by nations of their taxpayers. And the UK is coming across as a most unpleasant bully in this respect at the moment. I have condemned David Cameron's Government in this blog in the past for giving HM Revenue and Customs powers to take money from people's banks accounts. If you evade taxes, you deserve everything you get, the compliant taxpayer might say. And this is true. But there must be checks and balances in place, and punishing people before they've even had a chance to defend themselves is no way to go. Now the UK is going even further: it wants to apply the "strict liability" standard to establish whether an individual has evaded tax with an offshore bank account. This means that even if there has been no intent to evade tax, but HMRC finds that taxable income has been under-declared, the accused could face an unlimited fine and prison. It's certainly going to make filling out a tax return a stressful experience for some if this becomes law. Some commentators suggest that this is a stepping stone to making offshore bank accounts illegal, and I have to say that the way things are going this is not a completely outlandish conclusion. Let's hope members of parliament are busily reviewing their own tax records to ensure they aren't embarrassed by this rule. Then again, let's hope not!

Singapore on the other hand takes a completely different approach. True, it doesn't have a huge budget deficit to fill like the UK does. But here's a novel concept: as the Inland Revenue Service's latest report shows, Singapore has managed to achieve astonishing rates of tax compliance by actually helping taxpayers to file on time and pay the right amount of tax. It contrasts sharply with the tax compliance situation in the UK, which is becoming akin to sending someone across a minefield wearing a blindfold. It probably helps also that taxpayers in Singapore, where taxes are relatively low, feel they get much better value for money than their counterparts in the UK, with its creaking infrastructure and a national health service seemingly at breaking point. It's reminiscent though of the good cop/bad cop scenes in the movies. The bad cop might have the fun, but the good cop usually gets the prize in the end.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 120th) 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 plus 1, 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 and now it's on plus 1 again.

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:

Singapore good cop

And Kitty's Execrations:

China bullies Taiwan

Spain bullies Gibraltar

United Kingdom bad cop




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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