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asteroid-by-asteroid reporting

Kitty Miv, Editor
06 February, 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.

Oh, where to start this week?

Maybe the revelation that Germany is more secretive than Guernsey, that the United States is more secretive than Bermuda (according to the Tax Justice Network's Financial Secrecy Index)? Not much of a shock; the IOFCs having been banging on about this for some time.

Or how about Adolf Hitler's 1926 tax return perhaps, which is apparently up for sale? I think I'll pass on that.

How about the news that investors are gearing up to exploit mineral rich asteroids, of which there are an estimated 12,000 within 45 million kilometers of Earth? Yes, that's more like it!

According to American astrophysicist Neil DeGrasse Tyson, there is a veritable treasure trove up there which will make the world's first trillionaire out of the person who manages to pull off a successful asteroid mining operation.

However, it does make you wonder what the world's tax authorities will make of all this. After all, they're still trying to wrap their heads around a global economy which has gone digital and effectively stateless.

We can't even tell who has the right to tax what down here on terra firma right now. How exactly jurisdiction will be claimed over a lump of rock floating tens of millions of miles above the planet doesn't bear thinking about!

Certainly, we're getting used to instances of extra-territorial taxation. But soon we could be grappling with extra-terrestrial taxation. I look forward to reading the OECD's guidance on asteroid-by-asteroid reporting.

To more mundane and earthly matters now – India's 2018 Budget. And, by contrast, this development barely registered a blip of the excitement scale. But it is still worth mentioning for a number of reasons. Not least because Finance Minister Arun Jaitley has managed to upset pretty much everybody with some unpopular – some observers say misguided – measures. I thought it was in the politician's DNA that, as a minimum, they at least attempt to please some of the people, some of time, so this could be considered something of a rate feat.

For a Government that has prioritized foreign investment and improving its "doing business" ratings, this is a strange Budget indeed. Investors have immediately seized upon the proposal to reintroduce a tax on long-term capital gains, which was replaced by a securities transactions tax back in 2004. However, the latter tax remains in place, increasing the prospect of cascading taxation for investors in Indian equities. Worse still, as drafted, the tax will apply retrospectively for foreign investors. Whether this is by accident (a drafting error has been suggested), or by design, nobody is quite sure yet.

What seems more certain is that, with this Budget, the Government threatens to undermine the progress it has made towards improving its tax and regulatory framework since coming to power in 2014, with the introduction of GST among the most important reforms of recent times. This progress is reflected in the just-released Doing Business Index by the World Bank, which places India 100th in a league table of 190 jurisdictions. A lowly score you might think for such a major economy. Yet, this is a substantial improvement on last year's ranking of 130th. It would be a shame therefore, if 100th place was the best investors could expect.

I mentioned earlier how digitization has become the tax authority's enemy. But it can also be a very useful friend (or should that read "fiend"?). that governments and tax authorities are increasingly eyeing the potential of technology in an information-rich environment to transform tax collection and enforcement. And given that more and more businesses are in the business of information – described by some as the new currency – they could become enormously powerful allies to tax authorities in the not-too-distant future.

To an extent, this is already happening. For example, Airbnb is effectively doing the job of hundreds of city and municipal revenue departments by collecting and remitting tourism and accommodation taxes. And information held by financial institutions on their clients and passed on to tax authorities is playing a huge role in automatic information exchange programs like FATCA and the Common Reporting Standard.

But in reality, the surface of this potential has probably barely been scratched. As French Prime Minister Edouard Philippe suggested in parliament last week while outlining some of the Government's tax enforcement plans, if tax and other authorities are unable to exploit information in the era of "data mining" to uphold the lawthen something is wrong. The irony is, however, that the more automated that taxation becomes, the less important the authorities will become. In effect, by pursuing big data, the taxman could be doing himself out of a job.

Now, as I approach the tail end of this week's entry, a tale of the tail wagging the dog. Two tails, to be precise.

Amid the usual noise surrounding the Brexit negotiations, another couple of news stories caught my eye recently. And they suggest that the Channel Islands of Guernsey and Jersey are facing the prospect of Brexit with far more confidence, and a greater level of preparation, than their mother country. Indeed, the UK finance sector is said to be learning from Guernsey, according to the island's investment promotion agency, while the recent decision by Canadian energy firm Serinus to redomicile in Jersey was an important vote of confidence in a jurisdiction which not so long ago was facing an existential crisis as a result of the UK's decision to leave the EU.

Of course, things aren't exactly what they appear at first glance. The Channel Islands have similar, but largely unique, relationships with the EU, in that they aren't member states but belong to the customs union. However, neither belongs to the VAT area, and both have harmonized elements of their legislation with EU law. Therefore, they've had had long experience of dealing with the bloc as third countries.

Interestingly, perhaps these developments show that there are options for the UK beyond the much-discussed Norwegian and Swiss Brexit models. The Channel Island model perhaps?

The EU has long been paranoid that Brexit would lead to the emergence of a large tax haven on its doorstep. But perhaps those claims aren't as fanciful as they seem.

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 Encomiums

Guernsey prepared

Jersey confident

Kitty's Execrations

India retro



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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