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not all doom and gloom for companies

Kitty Miv, Editor
15 February, 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.

With a Republican Congress, and a Republican (of sorts) in the White house, opponents of FATCA have probably never had a better opportunity to have the controversial law repealed. Indeed, the anti-FATCA lobbying campaign is already beginning to shift up a gear in Washington DC.

For his part, President Trump has been silent on the matter. But observers suggest that his anti-big government, power-to-the-people, "America first" message places him firmly in the anti-FATCA camp. What's more, we can hardly expect a savvy businessman like Trump to accept a law that has cost billions to implement but will yield relatively small returns.

We can only speculate about FATCA's future. However, obligations on US citizens to report foreign financial interests do not begin and end with this controversial law; there's also FBAR, and a multitude of other forms that must be submitted to the IRS bearing information about such items as foreign gifts and inheritances, and interests in foreign trusts, companies, and partnerships, among others. Will they be swept away in the tide of tax reform?

To mainly conservative campaigners, FATCA is redolent of an age when individual privacy matters less and less, and governments feel entitled to pry into the activities of their citizens. Repealing it would therefore represent a major victory for their cause. But peel FATCA away and several layers of reporting requirements will remain.

I was somewhat encouraged to learn that Sweden's competition commission has sounded alarm bells over the proposed financial activities tax. For the country has something of a fatal attraction to such taxes.

Citing a recent study by consultancy firm Copenhagen Economics, the Swedish Bankers' Association recently warned that companies would respond to the proposed tax by relocating operations to countries with lower wage costs, most likely the Baltic states, while smaller banks in Sweden would struggle to survive under the new tax regime. This could result in the loss of 16,000 jobs in Sweden's finance sector, of which 7,200 would be banking jobs, it said.

Sweden doesn't have particularly fond memories of financial sectors taxes. Following the introduction of a short-lived financial transactions tax in the 1980s, trading in Swedish equities and other securities plummeted almost immediately. In fact, bond trading fell by 85 percent in the first week, and about 60 percent of the volume of Sweden's most actively traded shares shifted to London.

Sure, the new proposal is a different type of tax. But whether Sweden likes it or not, even in a post-BEPS world, countries continue to compete fiercely with each other on tax. Companies are more mobile than ever. Bank-bashing tax proposals may be popular, but they can also be self-defeating.

Some of the more alarmist economic analyses would have you believe that the South Korean economy is in peril. That there is an over-reliance on exports to key economies like the United States, the EU, and China, an unhealthy concentration of wealth and economic power in a handful of large family-owned conglomerates, and a corruption problem. These things may well be true. However, economically at least, the country is in fairly good shape. Bloomberg ranked South Korea as being the country with the world's most innovative economy in 2016, and its tax system for companies stacks up well against regional competitors, with a headline corporate tax rate of 22 percent. The Government is also striving to improve the tax system, with the intention of boosting domestic consumption and encouraging corporate investment. Within its proposed policy framework for 2017, announced just last month, the South Korean Ministry of Strategy and Finance has announced various tax changes to counteract the continued economic uncertainties, including measures to create jobs and support new growth industries. This includes an extra two percent corporate tax credit for posts created in projects that begin this year, a higher corporate tax credit for new job positions, and an expansion of the research and development tax credit scheme. South Korea has often been in the world news headlines for the wrong reasons lately, but on the tax front it's not all doom and gloom for companies.

To mislay one person's tax records would be careless, and very stressful for the taxpayer concerned. To let, say, 28,000 tax records slip through your butter fingers would be catastrophic. But surely it would be impossible in this age of secure data storage and communication, no? Well, actually, no! Between them, the Canada Revenue Agency and a courier company have managed to achieve just this feat. The trouble is, in the world of digital records this sort of thing can happen. Such cases may be isolated, but there's always the risk that bulk information may fall into the wrong hands en route from one place to another – electronically or otherwise. This incident should serve as (yet another) warning about tax data security as we enter an era of mass information exchange.


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 States no-future FATCA

South Korea in shape

Kitty's Execrations

Sweden short memories

Canada butter fingers



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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