Lowtax Network

Back To Top

good times are about to roll

Kitty Miv, Editor
16 January, 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.

Coalitions have their merits. However, some people argue that they are a recipe for legislative gridlock, and tend to serve up imperfect compromises to pressing problems. It's true that coalitions can often lead to political stalemates, but some would argue that it is better that a government does nothing, rather than do a succession of things very badly, as those with huge parliamentary majorities, or with a lack of democratic accountability, are sometimes apt to do.

We've seen in recent weeks that, in the area of taxation at least, coalitions can get a surprising amount of work done. Just look at the Netherlands; despite a dizzying array of parties competing for power, and an alphabet soup of party acronyms on any given governing ticket, significant tax reforms have been legislated for, including a corporate tax cut. Ditto Belgium, where the legislature recently signed off major tax changes.

However, more recent developments have highlighted the limitations of coalitions, especially when the parties involved are on different political pages. Denmark's Prime Minister, Lars Lokke Rasmusen, for example, was forced into an embarrassing climb-down last week on tax after a coalition partner decided not to play ball. And in Germany, after September's inconclusive election, and months of fruitless coalition talks, lawmakers look set to unveil an utterly underwhelming grand coalition agreement as far as tax reform is concerned, which likely speaks of the CDU's fiscal conservatism rubbing up against the SPD's urge to splurge the surplus. 

It's easily forgotten that the United Kingdom is also being governed by a coalition, probably because the vote-guaranteeing Democratic Unionist Party is something of a silent partner. There's also a coalition of warring factions of pro- and anti-Brexit Tories, which are now deciding how to position the UK in talks on the next stage of Brexit and specifically on tax and trade.

It's easy to get distracted by the politics and the personalities of the Brexit saga and to forget about the nitty gritty details that will affect the lives of taxpayers on the ground, particularly the thousands of companies trading across the Channel between the UK and Europe. However, we have had a glimpse of what post-Brexit life for traders has in store, in the form of the UK Taxation (Cross-border Trade) Bill, and it's not a pretty sight, especially for small firms.

This presents something of a nightmarish vision whereby the UK pulls out of the EU VAT and customs areas and traders face import VAT, a prospect that holds major cash-flow implications. According to Nicky Morgan, the Chair of the UK's Treasury Committee, over 200,000 businesses could be affected.

Further down the line, taxpayers also face the possibility of a UK VAT system that diverges from the EU regime and all the attendant administrative headaches associated with this. There are suggestions that the UK could shadow the EU VAT regime, to make life easier for businesses. But would the UK go along with the major reforms which are planned for EU VAT over the next few years?

By contrast, across the Atlantic, it seems the good times are about to roll for taxpayers after the enactment of the Tax Cuts and Jobs Act. And not only has the tax reform feel-good factor driven US stocks to their highest values, companies have announced pay rises and other tax perks for employees as a result, such as with the recent announcement from Walmart.

But even here, some companies are seeing short-term fallout. As a result of the cut to the corporate income tax rate to 21 percent, many large multinationals have adjusted the value of their deferred tax assets, resulting in a write down in their profits, typically by billions of dollars. And elements of the TCJA could also prove particularly problematic for banks, many of which have expressed concern about the "BEAT" interest deduction limitation provisions.

What's more, while taxes might be getting lower for many individuals and businesses, they don't seem to be getting much easier, despite earlier promises that taxpayers will be able to file on a postcard. Indeed, as the National Taxpayer Advocate, Nina E Olson, pointed out last week in presenting her latest annual report to Congress, taxpayers are going to need all the help they can get in the coming weeks and months as they adjust to these major changes.

Even the 2008 Economic Stimulus Payment – a relatively minor undertaking compared with changes being brought about by the TCJA – resulted in a 125 percent increase in calls to the Internal Revenue Service's jammed phones lines between 2007 and 2008, according to Olsen. So heaven help you if you expect to seek advice from an IRS agent any time in the next year or two.

Tax reform was supposed to reduce the need for taxpayers to hire help from tax professionals to get their tax returns right. But judging by Olsen's findings, and given that US taxpayers already spend about 8 billion hours a year complying with their taxes, that need has probably never been greater!

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

Belgium consensus

United States feel-good factor

Kitty's Execrations

Denmark climb-down

Germany underwhelming



Tags: Euro | Treasury | Taxation | Trade

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


« Go Back to Blogs

Blog Archive

Event Listings

Listings for the leading worldwide conferences and events in accounting, investment, banking and finance, transfer pricing, corporate taxation and more...
See Event Listings »