More referendums ¬– or referenda if you prefer the Latin form – feature in this edition of the Briefing. They are rather like the proverbial London bus. You wait ages for one, and then three come along at once. Unless you’re Swiss of course. They hold a referendum at the drop of a Tyrolean hat.
And talking of hats, it seems that many of the world’s mobile millionaires may be investing in cork hats as they head off Down Under. Interestingly, the “land at the end of the world”, which was once viewed as a suitably remote location to serve only as a dumping ground for criminals, is now seen as an excellent base for doing business in emerging Asian countries such as Hong Kong, Korea, Singapore and Vietnam. The world is truly being turned upside down.
The dramatic slump in stamp duty revenues following George Osborne’s stamp tax hike provides a neat illustration of the Laffer Curve theory that the more an activity is taxed, the less of it is generated. Perhaps it’s time for a rethink Mr Hammond? It is concerning that the forthcoming “non-dom” tax regime changes may have precisely the same impact.
The Apple v EU showdown is beginning to take shape. Apple’s case is that it has been deferring taxes, not avoiding them. If it were to repatriate all those earnings to the US, it would be taxed on them. This does not seem to be a very strong argument, but “The Donald” may just ride to the rescue. As a presidential candidate, Trump promised to implement a 10% repatriation tax specifically to encourage American companies to bring their overseas cash back into the country. If Trump delivers swiftly, Apple could find its hand strengthened.
Finally, there is a welcome report that the UK could be the fastest-growing G7 economy between now and 2050 – if it gets its post-Brexit trade deals right. Let’s all hope we can and do.
My Top Stories of the Month
Ecuador votes to bar politicians from having assets in tax havens
Ecuadoreans voted to bar politicians and civil servants from having assets, companies or capital in tax havens, writes Alessio Perrone in the New Internationalist. Some 55% of the people voted in favour of the ban with 45% against. Ecuador is the first country to hold a national referendum on the issue. The left-wing government pushed for action on the issue of tax havens following the ‘Panama Papers’ scandal. It aims to increase transparency and tax revenue, while also cracking down on corruption and inequality.
“It’s a very ambitious, radical, and exemplary referendum,” said Ecuador’s Foreign Affairs Minister Guillaume Long. He explained that politicians and civil servants “will have one year to bring all their assets back to Ecuador, and if they don’t comply with this within one year they will have to step down – including President and Vice-President. This will be enshrined in electoral law.”
Swiss voters reject tax reforms
Switzerland’s attempts to overhaul its corporate tax regime have suffered a setback after voters decisively rejected reforms to bring the country’s practices in line with international standards, writes Ralph Atkins in the Financial Times. Under the reform plans, the country’s 26 cantons would have continued to compete to offer companies the most favourable tax rates, but multinationals would have paid the same rates as other businesses. The plan was rejected by 59.1% of voters in a referendum.
Ahead of the vote, Switzerland was warned that failure to dismantle practices considered harmful by other countries could result in an international backlash. “Switzerland’s partners expect that it will implement its commitments in a reasonable timeframe,” said Pascal Saint-Amans, head of tax at the Paris-based OECD.
The defeat meant Switzerland will no longer fulfil its promises to abolish special privileges by 2019, said Finance Minister Ueli Maurer. He feared companies would quit Switzerland, or no longer move to the country due to the uncertainty created by the vote. Given the scale of the government’s defeat, he expected it would take at least a year to draw up a revised reform package — with legislative approval following afterwards.
Australia is most popular country for the mobile millionaires
Australia is the world’s most popular country for migrating millionaires, writes Sam Dean in The Daily Telegraph. Around 82,000 millionaires migrated last year, up from 64,000 in 2015, according to global market research group New World Wealth. Of those, an estimated 11,000 millionaires made their way to Australia, putting it on top of the table for the second year in a row. That compared to 10,000 who moved to the US and 3,000 who moved to the UK.
Part of Australia’s appeal to the wealthy is its location, which makes it a good base for doing business in emerging Asian countries such as Hong Kong, Korea, Singapore and Vietnam. It also boasts one of the leading healthcare systems in the world, while it is “relatively immune to the turmoil in the Middle East and the related refugee crisis in Europe,” the report adds. In 2012, Australia launched a new type of visa for wealthy foreigners who are willing to invest millions in the country. New Zealand, Canada and the UAE were among the other countries to experience large inflows of millionaires, while France, Turkey and Brazil were three nations to have lost the most.
UK stamp duty revenues slump
George Osborne’s controversial tax raid on Britain’s most expensive homes has triggered a dramatic slump in stamp duty revenues, writes James Salmon in The Daily Mail. Sales of properties worth more than £1.5 million fell by almost 40% last year, according to analysis of Land Registry figures, causing the total amount of stamp duty collected by the Treasury to fall by around £440 million, from £1.079 billion to a possible £635.7 million. The figures cover the period between April and November last year compared to the same period in 2015. Osborne introduced the reforms in December 2014. Tory MP Jacob Rees-Mogg described Osborne’s “punitive” stamp duty hikes as the “politics of envy”, adding that they have also failed because they have raised less money for the Treasury. A Treasury spokesman said: “Lower transactions in recent months are likely to reflect wider factors in the housing market. The top end of the market is affected by a range of international and economic factors, but overall our reforms have reduced stamp duty for 98% of homes bought.”
Italy offers non-doms la dolce vita with tax breaks
Italy is the latest country to roll out the welcome mat for the international elite — just as the UK is intent on pulling it away, writes Vanessa Houlder in the Financial Times. This month Italy ushered in a new tax regime that will apply to the super-rich of all nationalities who have lived outside the country for at least nine years. The measures exempt foreign income from Italian tax in exchange for the payment of €100,000 a year. And can be used for up to 15 years. To participate, candidates will be expected to buy a property and live in Italy for half the year.
In the UK, however, changes are being made to the “non-domiciled” regime. From April, non-doms living in the UK for more than 15 years will lose some of their tax privileges. Non-doms who have been in the country for 15 of the past 20 years will be deemed resident for income, capital gains and inheritance tax purposes. Some of the legislation emerged in November 2016, but the final details might not come until March, leaving little time for the wealthy with complicated tax arrangements to get their affairs in order.
UK could be fastest-growing G7 economy – if it gets trade deals right
The UK could shake off the near-term impact of Brexit to become the fastest-growing economy in the G7 group of rich countries between now and 2050, writes Katie Allen in The Guardian. According to a report by consultants PwC, the UK’s performance will depend on it setting up strong trading arrangements and remaining open to “talented workers” from around the world. But the brunt of the Brexit impact would be felt by 2020 and the UK would outperform its peers thanks to its relatively large working age population and its flexible economy.
Using models that analyse population trends, investment, education and technological progress, PwC economists expect six of the seven largest economies by 2050 will be emerging markets, led by China. They see the UK economy remaining in the top 10, slipping down one spot from ninth place now to 10th in purchasing power parity (PPP) terms, which adjusts for price differences between countries to provide a measure of the volume of goods and services produced by an economy. France is forecast to drop out of the top 10, to 12th place in 2050, while Germany is forecast to fall from fifth place to ninth. Mexico is the only newcomer to the top 10 in 2050.
In PPP terms, China is already the world’s largest economy and will continue to be so in 2050, by a significant margin, the report said. Emphasising the role of emerging economies in driving growth and taking an increasing share of the global economy, the report also predicted India could have edged past the US into second place by then, with Indonesia rising to fourth place. But the picture is very different when economies are ranked by GDP per person, which is seen as a better gauge of how growth is translating into changes in living standards. By that measure, the US is still the world’s leading economy in 2050 followed by Germany, the UK and Canada. But China and India are closing the income gap with those at the top, according to PwC’s projections.
Apple says EU made “fundamental errors”
Apple has alleged that the European Commission made “fundamental errors” as it ruled last year that the US technology giant owed Ireland €13 billion in unpaid taxes, plus interest, writes Joe Brennan in the Irish Times. EU competition commissioner Margrethe Vestager has warned Ireland that it must claw back the tax from Apple after the 3 January deadline passed. Ireland and Apple agreed to put the money in a holding account while they appealed, but the money still has not been transferred.
The Commission contends that the Irish tax authority gave Apple an unfair and selective advantage in “rulings” in 1991 and 2007 by allowing the company to channel most of its European income through “head office” divisions of two subsidiaries in Ireland, which were non-resident for tax purposes. According to an outline of its application in the Official Journal of the European Union, Apple says its Irish branches carried out only “routine functions” and were not involved in the company’s profit-driving activities. Its products and services are created, designed and engineered in the US, so the bulk of the profits of the units are due in the US.