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what goes around, comes around

Kitty Miv, Editor
30 December, 2015

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.

There is a New Year tradition in Scotland known as "first footing." First footers (being the first to visit after the midnight bells have rung) bring gifts – one perhaps being a lump of coal to signify keeping the house warm. Nowadays, that lump of coal will much less likely come from a British mine.

On December 18, the United Kingdom's last deep seam coal mine closed. But is this closure due to a reduction in UK coal power stations, in support of the Government's greener fuel policies? The short answer: No.

According to the mine manager, it cost GBP43 (USD63.8) to dig out a tonne of coal at the mine, compared with around GBP30 a tonne in Russia and Colombia. Consequently, it became more economical to import coal from thousands of miles away than to source it from the newly closed mine just seven miles down the road.

I'm all in favor of the global economy and the competition it brings. However, I do question just how logical – and ecologically damaging, in terms of additional emissions – this closure really is for the UK, for a number of a reasons. First, there is the lost corporate income tax revenue from the mine. Second, there is the lost income tax and social security contributions. Third, other local businesses will see less footfall, and possibly closure, which will result in lower or no profits and even lower tax revenues from the local economy.

Such deals – being the result of increasing globalization – are concerning for many advanced economies. But with the UK tax code already laden with allowances, reductions, benefits, and exemptions, perhaps it would have made more sense – in terms of costs and benefits – for the Government to have provided support to a mine that has another 10-15 years' coal in its seams.

Meanwhile, in the US, with the holiday season approaching, the now customary Senate and Congress dash to pull together a tax-and-spend package – including striking a deal on tax extenders – began in earnest, to bring a deal that the President would pass in time for Christmas. And, with all that passed, again the usual suspects from both sides reiterated the need for tax reform.

However, much like in Australia (as highlighted in this column last week), it is questionable just how much, if any, progress can be made on tax reform in the US in the near future. Much will depend on the results of next year's presidential elections of course. And the response so far to the OECD's final BEPS recommendations is fueling concerns that meaningful reform is currently impossible given the discord between the GOP and the Democrats, as well as due to internal schisms.

The European Union meanwhile has no such doubts on how to respond to BEPS, even if some of its member states do. Its bureaucratic machine is steaming full ahead (albeit not fueled by British coal!) to implement the BEPS recommendations. Amid all this, some sympathy must be shared for the US; it feels the EU is gunning for a crackdown on those US companies that are seen to be exploiting various loopholes and deals brokered with EU member states. I say some sympathy, considering the US has lumbered foreign financial institutions and tax authorities with FATCA, with all its burgeoning cost implications. The phrase "what goes around, comes around" springs to mind…

With many nations jumping on the BEPS bandwagon (such as the UK, Australia, New Zealand, France, and Mexico), we'll see if this is incentive enough for opposite sides in the US tax reform debate to band together and actually do something about the US's uncompetitive tax code. I won't hold my breath, though.

It will also be interesting to see just how long the likes of Hong Kong, Singapore, the United Arab Emirates and other world financial centers can hold out against the seemingly unstoppable reach of the BEPS project. Will any territory be left untouched? One can but dream.

Now, I'm no human rights expert, but I'm surprised there hasn't been wider protest against the recent moves by the US legislature to revoke, deny, or limit a US citizen's passport for owing  more than USD50,000 in tax. Similar actions have been proposed for those leaving to fight in Syria.

The UN's 1954 Convention relating to the Status of Stateless Persons and the 1961 Convention on the Reduction of Statelessness guarantee "stateless people" a right to identity, travel documents, and administrative assistance. There remains the question: Is it legal to revoke or confiscate a passport while the individual is abroad such that they become "stateless"?

This, of course, could restrict errant taxpayers from traveling to any country where a passport is required for entry, effectively imprisoning them in their country or region of residence and restricting their right to claim citizenship there. After FATCA, let's hope this does not signal the start of another trend that diminishes the rights of taxpayers worldwide.



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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