the normal order of things is being shaken up on a regular basis
Kitty Miv, Editor
31 October, 2016
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.
Global competitive rankings, like the latest Doing Business Index from the World Bank, often throw up some surprising results. New Zealand usually performs well in such surveys, but who'd have thought that it is literally the best place in the world to set up and run a company from a regulatory, administrative, and tax point of view – better even than low-tax Singapore, according to Doing Business 2017?
Or, perhaps even more startling, that Denmark – yes, high-tax, high-spend Denmark – the object of derision from the right and praise from the left, during the US presidential election campaign, is the fourth best place to operate a firm, exceeding laissez-faire Hong Kong as a business location? Similarly, Sweden's brand of social democracy is often criticized as overbearing and fiscally unsustainable. Yet, Sweden is just behind the United States in ninth place.
If these results seem scarcely credible, it is probably because we are looking at them through a tax-focussed lens. And Doing Business shows there are a whole host of other considerations that go into the mix when investors decide where to set up a business. New Zealand's top score is attributable to several non-tax factors, including simple company formation and property registration procedures, hassle-free construction permit processes, strong minority investor protections, and the ease with which credit can be obtained. Sweden also scores quite highly in most of these categories, excelling particularly in the "getting electricity" segment of the index. It doesn't fair as well when it comes to getting credit or paying taxes though.
The opposite also holds true; there are countries you'd think would be occupying the top spots in the league table but are only fair-to-middling, like Switzerland. Doing Business tells us that Switzerland's taxes are not overly difficult to comply with, but it's not a great place to start a business in a hurry, or to get credit. Dealing with construction permits is also difficult, and protecting minority shareholders virtually impossible.
On the other hand, some of the findings are not so surprising for those who follow international tax developments. For instance, it doesn't come as a huge shock to find France down in 29th place. But, given the index includes 190 jurisdictions, this still isn't a disastrous score. And I'm sure the fact that France finished ahead of Switzerland in the table – two countries with something of tense relationship around tax and banking secrecy rules, as illustrated by the French tax authority's recent request for an unusually large amount of data from UBS – wasn't entirely lost on the French Government.
Indeed, we are living in an era where the normal order of things is being shaken up on a regular basis. Think Brexit, Trump versus Clinton, and, perhaps the most unexpected event of all, India passing GST. We can now add to that list Wallonia's entrance onto the world diplomatic stage.
When you think about it, perhaps the most surprising thing about Wallonia's part in delaying the eagerly anticipated free trade agreement between the European Union and Canada (CETA) is that something similar hasn't happened before. The EU has negotiated several complex trade agreements in its history, so it makes you wonder why the Walloons and their French-speaking regional allies chose this moment to make their voices heard. Whatever the reason, it doesn't bode well for future trade negotiations involving the EU, as European Council President Donald Tusk has already warned. As if getting a consensus among 28 countries wasn't difficult enough, the EU will cease to function at all if the EU's sub-national governments insist on having a say on things as well.
If I was a member of the UK's Brexit negotiating team (assuming there is one), I'd be very worried indeed by this development. But how realistic is it that Brexit negotiations will be completed in the two years permitted by Article 50 anyway? FTAs are rarely completed so briskly. The CETA negotiations took five years to complete. The EU's FTA with Vietnam well over three years, and its FTA with Singapore four-and-a-half.
It's almost impossible to predict what the outcome of Brexit will be, or how long things will take to resolve. But whatever happens, there's bound to be more surprises along the way.
Still, with the UK seemingly intent on leaving the EU, at least it won't have to get its head around the common consolidated corporate tax base (CCCTB), proposals for which were released in repackaged form by the European Commission last week. The main difference between the "new" CCCTB plan and the old one is that it will be rolled out in two stages: the common tax base for companies first, and the consolidation bit later. However, this is a tacit acknowledgement by the Commission that the CCCTB will difficult, if not impossible, to deliver. This is because the legislation will need to be agreed by all member states, and, because of the way revenues are apportioned under the proposal, some of those member states, particularly the small ones, stand to lose out heavily. One of them is Ireland, which, according to a 2015 Chartered Accountants Ireland study, could see a 90 percent reduction in its corporate tax share under the CCCTB.
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.
New Zealand the business
European Union eroding
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