Country Rankings - Estonia
Mar 27, 2018 Estonia: praiseworthyThe push to solve the tax challenges of the digital economy, and the wider BEPS project in general, are well intentioned. But perhaps striving for a perfect global tax system is an impossible dream from policy makers. This isn't to say that governments shouldn't get together to try to improve tax rules. But even the most favorable tax systems have flaws, and Estonia is a good example. By all accounts, as tax regimes go, you're not going to find much better than Estonia's apart from offshore. Estonia's economic transformation in the 1990s and 2000s has been attributed largely to the tax reforms put in place around that time. Indeed, according to a recent Tax Foundation report, Estonia's tax regime was the most competitive in the world, on account of its relatively low corporate tax, well-structured individual income tax, well-designed territorial tax system, and property taxation based on land value rather than real estate value. Estonia's tax system was even endorsed by the International Monetary Fund in its latest review of the nation's economy, an organization normally heard nowadays to bemoan heavy labor taxes, narrow taxes bases, multiple value-added tax rates and exemptions, and inefficient administration, among other things. But even Estonia's tax regime isn't without blemish. According to a recent European Commission report, the corporate tax system encourages BEPS. And in the OECD's opinion, a recent measure reducing tax on distributed dividends discriminates against small firms and complicates the tax system. Sometimes, you just can't win! But I suppose this is the crux of the problem that the OECD and others are trying to solve. How can countries collect an appropriate level of taxation from all categories of taxpayer without creating a set of new problems in the form of unintended legal and economic consequences? Or, to put it another way, pluck as many feathers from the goose without the goose noticing too much? The answer has eluded most governments until now, and, even if progress is being made with BEPS, it will probably remain just out of reach.
Apr 04, 2017 Estonia: sensibleOn a similar note, the proposed European financial transactions tax (FTT), which was in the news again recently, is also a tax with a very noble cause at its heart. But like the DPT, it's an idea that isn't really catching on. Quite the opposite in fact. The European Commission estimates that the tax would raise something like EUR35bn a year, which, in theory, could be spent on all sorts of good causes. And it represents at least some recompense for the tens of billions of euros of public money spent on propping up ailing financial institutions at the height of the financial crisis, while also showing the public that European governments are serious about reining in the banks and investment houses. However, there are numerous analyses – and not just from the finance industry – suggesting that the FTT's flaws may considerably outweigh any benefits. The European Council's own legal advisers have warned the EU that as originally drafted by the European Commission, the FTT would break a host of the EU's own laws, not to mention customary international law, and would therefore be open to numerous legal challenges. Furthermore, studies on the economic impact of the FTT conclude that it would not only drive up costs in the pension industry and reduce returns for savers, but also increase the cost of government borrowing at a time when heavily indebted eurozone countries need this least. The fact that only 11 member states could be persuaded to sign up to the project in the first place says a lot about the FTT. And the prospect that this group could soon be reduced to less than the nine needed to steer the tax through under the "enhanced cooperation" legislative mechanism says even more! Perhaps the kindest thing to do would be to put the FTT out of its misery, and start again from scratch. But who to execrate or congratulate? Ay two of Belgium, Slovakia, and Slovenia could hammer the final nail in the coffin. But I think an encomium should go to Estonia, for making the bold move to abandon the sinking ship first.
Oct 25, 2016 Estonia: flatEstonia's tax system is frequently lauded internationally – and particularly by those on the right politically in the United States – as the very model of a modern and efficient, pro-business, low-tax corporate tax regime. It's all about being flat, you see. Not just topographically, but also fiscally. In one example, on a brief visit to Tallinn en-route to a NATO conference back in 2006, President George W Bush expressed wonderment to be in a country "that has been able to effect a flat tax in such a positive way." More recently, Estonia was the inspiration behind former Republican presidential candidate Ted Cruz's own flat tax plan. Indeed, according to the Tax Foundation, Estonia has the most competitive tax system in the world. However, appearances can be deceptive, and Estonia's 20 percent flat tax doesn't tell the whole story. Why, if the country is uber-competitive on tax, is Estonia only 30th in PwC's latest Paying Taxes Index? According to PwC, when all these taxes are added up, Estonia has the ninth-highest total tax rate on the average medium-sized company in the 32-nation EU/EFTA bloc, with an overall tax rate nudging 50 percent. In fact, as is the case in many countries, it seems that Estonia's corporate tax advantage is almost entirely offset by a huge tax "wedge" on labor. It just goes to show that companies have to look beyond mere headline corporate tax rates when pondering where to invest.
Apr 18, 2013 Estonia: mistreat ChinaOne country which is conspicuous by its absence from the TPP talks is of course China. Although there are ongoing negotiations between the Middle Kingdom and various other countries, and China has FTAs with a scattering of other countries, notably including ASEAN and New Zealand, on the whole it is lagging. And it considers itself as an injured party in trade affairs, complaining this week about the level of "dumping" and "counter-vailing" measures it is subject to, particular emanating from the USA. A lot of the problem revolves around the designation of China as a "non-market economy" (NME). For anyone who, like me, finds it extraordinary that China should still be regarded as an NME, a word of explanation is in order: an NME is a country in which the State subsidizes enterprises or indulges in other non-market behaviour, despite WTO rules against it. So, an NME is allowed to cheat, if you will; but the other side of the coin is that for an aggrieved counter-party, the burden of proof is lower in anti-dumping proceedings. China's accession agreement to the WTO allows it to retain NME status only until 2015; but the change is not in China's gift, and both the USA and the EU persist in regarding China as an NME, despite frequent requests from China for them to treat it as a market economy.