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if you choose to go self-employed in Italy, God help you

Kitty Miv, Editor
19 February, 2015

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.

Italian Prime Minister Matteo Renzi deserves some credit I suppose for recognizing that the Government, as he put it, scored a spectacular own goal with its Byzantine new self-employment tax regime. The basic premise of this alternative tax system is sound: sole traders, who tend to suffer disproportionately at the hands of complex tax codes, get to pay a fairly low fixed rate of tax in place of the multitude of other taxes they are supposed to account for. However, eligibility depends on convoluted criteria including turnover, profession and even your age (your age?!) I don't pretend to be an expert on rules regarding self-employment in Italy, and some quick research on the web left me none the wiser, really. However, the experience did begin to confirm my suspicions that the rules are complicated, ambiguous and, judging by one account I read, quite scary. Evidently, it's not just a case of telling the tax office that you are self-employed, and then getting on with your job. Multiple registrations and certifications are also required depending on what profession you are engaged in. And the type of work you do could also affect the amount of tax you pay. But don't get it wrong, and definitely don't start trading before you have the appropriate registrations and certifications. Because, says one guide I found, "doing so may incur stiff penalties, which may include a large fine, confiscation of machinery or tools, deportation and even a ban from entering Italy for a number of years." Alarmingly, the contributor to another advice website for expats related that staff in the relevant government offices are often unsure of the rules themselves, and are sometimes loath to give advice in case they get it wrong. So if you choose to go self-employed in Italy, God help you. And if He doesn't understand the rules either, get a good accountant or two.

Well done Bermuda and the Cayman Islands for exposing Ed Miliband's threat to blacklist tax havens with constitutional links to Britain for what it is: a political sound bite. In case you don't know who Ed Miliband is, he's the leader of Britain's Labour Party. And the way the opinion polls are shaping up, he could conceivably end up as Prime Minister after the May 7 general election, albeit in a weak minority or coalition government. So Miliband's comments cannot be written off completely given he could soon get the keys to Number 10. But his offshore barb does betray a certain ignorance of the issue he is attempting to address. Listening to Miliband, you'd think the OECD had never thought about blacklisting a tax haven before. But it's been almost 20 years since the first blacklists were issued, and the overwhelming majority of offshore jurisdictions now meet or exceed international standards on anti-money laundering and tax transparency – which is more than can be said for some "onshore" jurisdictions, as Cayman Finance's Antony Travers pertinently observed in his rebuttal. We can't of course rule out the possibility that the goal posts will move once again and new blacklists will emerge. And the OECD does like a list. But if Miliband thinks he can click his fingers and the OECD will jump, he's being a bit naïve. Or just a politician. There is an election to be fought after all, and as luck would have it, the vilification of fat cat tax dodgers has emerged again as a popular cause.

A record 3,415 people handed in their US passports last year. That's an average of just fewer than 10 renunciations per day. Which, in a country with a population of almost 320m people, is a miniscule amount. I put the latest expatriation statistics into context like this because they tend get a lot of attention, and undeniably the numbers have been rising every year for the last few years. Some anti-government commentators are quick to seize on these figures as evidence of increasing dissatisfaction with the Obama Administration and its heavy-handed tax measures like FATCA. That may well be the case, and I'm certainly no fan of FATCA, nor of President Obama's policies on tax in general. But it's hard to say what the real reasons are for expatriation without asking the people who handed in their passports themselves. There could be any number of motives. So for the first time in a while, I'm going to stick up for the United States. US citizenship remains one of the most prized possessions in the world, and millions of people all over the globe are willing to suffer great hardship to obtain it. This reflects the fact that, in spite of its broken tax code, the American Dream is still eminently possible to achieve if you want it hard enough. To support my argument, here's another stat: in fiscal year 2014, 654,949 people were naturalized as US citizens. They added to the 777,416 people who were naturalized in 2013. In fact, in the last decade, the US has welcomed 6.6m new citizens. It can't be that bad.

Finally, I can't sign off this week without mentioning BEPS, and the G20's latest commitment to support the project in its entirety. Not that there's anything really new to say here. But it is highly ironic that while the G20 praises the OECD's BEPS work to the skies on the one hand, it is undoing it with the other. Not as a collective as such: but several of its constituent member countries are guilty of pre-empting the final BEPS recommendations by introducing new international tax avoidance measures, which is precisely what the OECD hopes to avoid. And according to a new report from EY, this is not happening on a small scale. Its conclusions point to striking national policy shifts on BEPS matters, with 40 percent of respondents to a new survey noting "significant" tax reform activity from their nation's government. More worrying perhaps is that the OECD seems genuinely baffled by this phenomenon, as if it can't believe governments are using the BEPS project as an excuse to dream up new taxes. Still, it's not that surprising things are turning out the way they have. The OECD doesn't have any legal powers. It can only persuade and cajole. It can't force or compel countries to do things. It might be able to push little IOFCs, mere specks on the world map, around. But it looks as if it has bitten off considerably more than it can chew this time.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 144th) 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:

Bermuda wrongly accused

Cayman also accused, wrongly

United States still great

And Kitty's Execrations:

Italy muddled



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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