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political and legislative changes cannot be ruled out

Kitty Miv, Editor
09 January, 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.

That the European Commission insists on transparency from member states in the area of taxation, when the EU's executive arm itself is seen by many as an opaque and undemocratic organ of EU governance, is just one of those contradictions  that often seem to define the EU (non, Jean-Claude?).

One could ask whether the investigations and subsequent conclusions regarding national tax rulings  were conducted in a fully transparent way. So perhaps we should take the claim that there is now full transparency of tax rulings throughout the EU with a pinch of salt. It might make EU corporate taxation more transparent for governments, but it's unlikely to make it so for taxpayers. Given that in a recent survey 80 percent of tax professionals responded that complicated tax laws are hindering business growth in Europe, perhaps the Commission should refocus its efforts.

Across the pond now, and whether you believe the White House's claim that the tax policies of the President Barack Obama administration "saved" the US economy or not depends on which side of the political fence you stand. It would be harder, however, to argue in favor of any assertion that the tax code improved under the Obama's leadership. It is difficult to measure or quantify such things in a simple way, but I'm willing to bet that the majority of taxpayers would say that, at best, the US tax code is just a complex now as when President Obama was sworn in eight years ago. Most would probably reply that the situation has deteriorated.

One of the reasons why the code was left to fester under Obama was that he was, for the most part, at odds with Congress on the matter. But Treasury Secretary Jack Lew hinted recently that comprehensive tax reform would have been difficult anyway, because of the lack of fiscal space, and because difficult political choices would have had to have been made. Indeed, he appears to suggest that the administration chose to take a pragmatic course with regards to taxation, rather than a bold or idealistic one.

All that looks like it is about to change, however, if the results of a recent survey of chief financial officers is to be believed. Deloitte's quarterly CFO survey shows that the majority of respondents expect significant tax policy changes after Obama hands over to Trump later this month, with two-thirds anticipating a substantial corporate tax rate cut. This contrasts sharply with the results of other surveys of this type conducted before the election, which in some cases revealed deep pessimism about the prospect of corporate tax reform among business leaders. So, I suppose the moral of the story is, after a turbulent 2016, traditionally unthinkable political and legislative changes cannot be ruled out.

Despite the shock of Brexit, 2016 turned out to be a good year for Ireland – for the Government and the economy. Last week, Finance Minister Michael Noonan said that the amount of tax collected in 2016 "is at an historic high." Meanwhile, the number of Irish jobs supported by foreign direct investment reached a record of almost 200,000 in 2016, according to the Irish inward investment support agency, IDA Ireland. At 244, the number of investments was also at a record high.

There are a number of reasons why Ireland remains attractive to foreign investors. But the Government's commitment to a low corporate tax is undoubtedly one of them. Another is the country's continued membership of the European Union, with the Irish showing no inclination to follow their neighbors across the water in deciding to leave the EU. However, both of these factors have turned out to be doubled-edged swords in some ways. Ireland's favorable corporate tax regime has placed it firmly in the crosshairs of the OECD and the EU as they bid to tackle BEPS, and changes to the tax framework are likely to be ongoing. And while Ireland has undoubtedly benefited from its EU membership, the EU hasn't always been Ireland's friend, especially in the area of taxation. Indeed, some warn that the repackaged plans for a common consolidated corporate tax base pose a major threat to the Irish corporate tax base, should they ever be introduced. Furthermore, the European Commission's Apple ruling has had a very unsettling effect. Nevertheless, despite its recent economic travails, Ireland has fought its corner robustly on such issues, and there are few indications that this will change this year.

Talking of robustness, one must have a pretty thick skin to be an economist these days. Particularly if you were one of those economic forecasters who pronounced on the future of the UK economy prior to the Brexit vote. Indeed, perhaps we now call it "eggs-it" instead. After all, it seems that many of these predictions were over-egged.

Still, in the defense of the forecasters and analysts, those people who thought that the UK's vote to leave the EU would have had virtually no effect on the UK economy six months later are probably few and far between. And it is remarkable how the UK seems to be taking Brexit in its stride.

Perhaps there has been a delayed response, and after the initial shock and excitement wears off, the pain will begin to be felt. It may be the case that companies and investors are just playing a game of wait and see before they decide to fully commit to the UK for the long-term, or retreat into the perceived safety of the EU. The signals coming out of European businesses are certainly mixed, according to a recent survey by RSM, which showed that significantly more companies view Brexit more as a threat than an opportunity. That said, less than half believe the UK will be a less attractive destination.

Whatever happens, one thing is for sure: 2017 will certainly not lack for interesting developments, so taxpayers should strap in for a potentially bumpy ride!


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

Ireland smiling

United States going boldly

Kitty's Execrations

European Union contradiction

United Kingdom mixed



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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