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better to stay put than get lost

Kitty Miv, Editor
23 December, 2016

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.

It was always going to be unrealistic to expect Australia to reconsider its stance on carbon taxation so soon after its bad experience the first time around. Once bitten, twice shy, you might say. It therefore comes as little surprise that restoring a carbon tax or an emissions trading scheme is not part of the federal Government's policy, at least for as long as Malcolm Turnbull is Prime Minister – although, in the often Machiavellian world of Australian politics, the premiership has been something of a revolving door in recent years.

With the role of the United States in global efforts to reduce greenhouse gas (GHG) emissions now subject to some uncertainty, it could be argued that Turnbull is taking a sensible, pragmatic course. The major argument against Australia's former carbon tax was that it was a self-inflicted blow to the country's economy when carbon taxation was very much the exception rather than the norm. Pragmatists might say that increasing the tax burden while the world's largest economy sits on the sidelines, and with little actual proof that carbon taxes are effective, would be foolhardy.

The global carbon tax picture has changed markedly over the last couple of years. China, by far the world's largest producer of GHGs, is fully committed to an emissions trading scheme, and seems to be taking its commitment to the environment seriously. And a consensus emerged in the build-up to last year's Paris climate conference that carbon pricing is the way to go to combat climate change. It is notable for example that Canada is forging ahead with a national carbon tax (minus Saskatchewan) even though its southern neighbor is unlikely to do likewise for the foreseeable future, potentially driving up the cost of doing business and putting it at a competitive disadvantage with the US.

In general, governments are continuing to move quickly in the area of taxation in the era of BEPS. Yet, a survey conducted by financial advisory firm Grant Thornton earlier this year found that the OECD BEPS project has had little impact on the way companies plan their tax affairs. As many as 78 percent of businesses have not changed their business's approach to taxation, the survey, published in September, found, despite more than 80 countries having agreed to adopt at least the minimum elements of the BEPS Action Plan at that point.

Why should this be the case, when companies around the world are experiencing an unprecedented level of change and uncertainty? Well, the key word it seems is uncertainty. When you are uncertain of the right way to go to get to your preferred destination, and someone keeps redrawing the map at almost every step, it is probably better to stay put, rather than get yourself completely lost. Better still, why not follow in the footsteps of those before you that have worked out the path of least resistance. As Francesca Lagerberg, Global Leader of Tax Services at Grant Thornton International, concluded, "a number of companies will be reluctant to be the first mover in this area and may be looking to see what others are doing in their industry or region. Governments have not yet explained how or even if they will implement BEPS in some countries, so that leads to business caution."

However, multiple other surveys also confirm that even if taxpayers are playing it safe, tax audits are on the increase, and companies are under scrutiny from tax authorities in so many different ways, including, we learned recently, with respect to the mobility of their work forces. It seems that in the current environment, the tax man is determined to leave no stone unturned, and as far as taxpayers are concerned, it could be a case of damned if you do, damned if you don't. But until the BEPS project tails off, and we have something resembling a permanent, coherent international tax structure, companies aren't going to have much choice but to ride out these turbulent times. How long this will take is anyone's guess.

Though international corporate tax rules are in flux, one rule of the commercial universe no doubt still stands: multinationals will gravitate towards those countries where the fiscal conditions are most favorable. Last month, a KPMG survey revealed that many businesses located in Switzerland fear that the country will lose its competitive edge after the implementation of corporate tax reforms designed to assuage the concerns of the EU on harmful tax practices. The Netherlands, which has often been described rather unflatteringly as a tax haven, is also concerned about its tax competitiveness after committing to abolish special corporate tax regimes in response to BEPS.

So, which countries are benefitting from this shift in sentiment? Perhaps it is too early to say, and we might have to wait a while before the corporate investment map is fully withdrawn. The United Kingdom, having slashed corporate tax, could be emerging as an early front runner.

Earlier this year, KPMG concluded after a survey of over 100 senior corporate decision makers that recent tax policies have made the UK a more attractive location for businesses, with the country "now seen as much more competitive than its European peers [that are] generally viewed as having attractive tax regimes."

The recent decision by McDonald's to pay tax on its non-US royalties in the UK instead of Luxembourg could be viewed as a ringing endorsement of these policies, given that the company probably explored many options for the restructuring of this part of its business. Certainly, judging by the company's statement, there are obvious operational reasons for this shift. But considering the uncertainty surrounding Brexit, does this move also represent a vote of no-confidence in Luxembourg, and the EU in general? Maybe it knows something we don't!


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

United Kingdom endorsed

Kitty's Execrations

Australia stubborn



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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