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naming and shaming is part of the zeitgeist

Kitty Miv, Editor
20 December, 2017

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.

Never underestimate the power of negative publicity. Especially in the age of social media. Words of bad deeds can travel at the speed of light these days, and if, as an individual, a company, or even a country, you are on the wrong end of a public relations backlash, you may have no choice but to appease your accusers.

Multinational companies are increasingly worried about the reputational impact of negative exposure of their tax affairs in the media. Indeed, last year, Taxand surveyed chief financial officers and tax finance directors across Europe, Asia, and the Americas and found that 91 percent of respondents felt media scrutiny of their tax planning activities had a negative impact on their public standing compared with 51 percent in 2011 and 77 percent in 2015.

Although Facebook didn't explicitly say so, it seems likely that the increasingly negative perceptions of the tax affairs of large internet companies played some part in its decision to significantly restructure its tax affairs so that it will pay more tax in countries where its users are based, instead of in Ireland.

Yes, to name and shame seems to have become very much part of the zeitgeist. But this is nothing really new. Some tax authorities have been at it for years. It has almost become an integral part of their tax enforcement arsenals.

Indeed, it has become commonplace for whole countries – groups of countries in fact – to stand in righteous judgment over their peers, in the belief that the "uncooperative" will become cooperative, and mend their unsavory tax ways. And in the process, it may help deflect people's attention from shortcomings that lay much closer to home.

The naming and shaming method of choice seems to be the tax blacklist. EU member states have them. And now the EU itself has one. Curiously, the OECD used to have one, but by 2009 it had considered all territories which were once on it to be suitably chastised and penitent enough to be given a second chance. It begs the question: if the OECD had a blacklist now, which jurisdictions would be on it? The same ones as are on the EU's? It's impossible to say, but I suspect not.

While countries seemed to be on the same page when the BEPS project was first fathomed, there seems to have been a breakdown of the international consensus on how to mount challenges to those not towing the line.

South Korea's reputation took something of a hit recently amid corruption scandals. And now the Government is attempting to make amends by taking a tough line on large, powerful corporations that dominate Korea's economy – the likes of Samsung, LG, Lotte, SK, and Hyundai, known as the chaebol.

One of the ways in which they will be punished is through a corporate tax hike for companies earning over a certain amount of income. Which could be an ill-advised move given the recent intensification of corporate tax rate competition. But, even though one non-governmental organization predicted last week that the race to the bottom would make zero percent corporate taxes common by the 2050s, it's worth pointing out that it isn't all one-way traffic at present. Indeed, some countries have announced increases in corporate tax in recent weeks, including Turkey (albeit temporarily), Ecuador, and Taiwan. Admittedly, these have been outnumbered by the number of reductions announced over the last few months, but perhaps the so-called race to the bottom is being exaggerated. A race to the middle might be more accurate, given that many corporate taxes are being cut by countries with high rates in the first place, like France, Belgium, and the United States.

Back to the former topic, and if we're talking about reputations then the United Kingdom has certainly seen its stock fall recently. But if we look closer, this crisis of confidence and certainty is not just the fault of the Brexit vote. On closer examination, it probably has deeper roots. Seemingly, it was the financial turmoil of 2008 to 2010 when the wheels began to wobble, and they haven't never been quite straight since. I'm talking about a huge budget deficit which has been trickier than expected to manage; a succession of coalitions or weak governments; fragmentation of powers to the constituent countries of the UK; and a twisting, turning tax policy, which has kept taxpayers on their toes for the past seven years.

All of these factors affect taxpayers to some extent. But the last, of course, has had the greatest impact. Therefore, current Chancellor Philip Hammond's commitment to ease back on the tax policy throttle and give taxpayers longer to absorb changes in tax legislation and regulations seems like a sensible move, and has been welcomed by the business community. Indeed, you don't earn the nickname "Spreadsheet Phil" by bedazzling the nation with fiscal surprises. Which is probably just what the country doesn't need right now.

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 consultative

Kitty's Execrations

European Union wagging the dog

South Korea contrary

Ciao

Kitty


Tags: Euro | Government | Asia


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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