The U.S ranks 94th out of 100 on the Tax Attractiveness Index (TAI); is the worst performer of all G8 countries; and of its G20 colleagues, it only managed to out-rank Argentina, South Korea and Indonesia.
Little wonder perhaps that U.S multinationals have found better tax planning opportunities in the index’s top 10 highest ranking countries including, other EU members of the G20 like the Netherlands and Luxembourg; as well as Britain’s overseas territories and crown dependencies.
The TAI may also explain why despite its apparent rhetoric about shutting down tax havens, eliminating tax evasion, increasing tax transparency, making public the beneficial owners of companies and trusts, adopting automatic exchange of information, and other elements of the G8UK Declaration; when it comes to the specifics, the U.S comes up short every time.
The TAI presents a metric of how far behind the U.S lags behind the rest of the world based on the attractiveness of its taxation system. It also affords its policy makers a clear picture of how much work must done at home if the U.S is to get serious about transparency and combating tax evasion and aggressive tax avoidance.
After all according to the index, which assigns rankings between 0 and 1 with high values indicating an attractive tax environment, at 0.2432 the U.S would have to make up at least 0.5 points to fall within competitive range of those countries within the top 10 percentile of the TAI.
Given that the index is based on an analysis of, among other things, statutory corporate tax rates, dividend and capital gains taxation, double tax treaty networks, anti-avoidance legislation and the statutory personal income tax rate; it all makes for some of the heaviest kind of legislative and political lifting that few political parties are prepared undertake.
In fact, you can almost sympathize with successive U.S leaders faced with the mammoth task of making the country a more attractive tax domicile; with the ‘pulling power’ to not only retain its own multinationals but also attract others. This is especially so when some will rightly argue that tax is not the single driver of investment. Of course, others will counter that in a protracted global recession and with the increasing growth of ‘stateless’ income, tax has become the most important preoccupation for multinationals, governments and consumers.
Faced with this, it must be tempting to wonder privately if its even worth the bother.Especially when you are at the bottom of the pile, suggesting that perhaps this is not your country’s desired area of ‘specialisation’. Easier still, when your ‘exiled’ companies continue to find safe and profitable harbour higher up the list.
Far better perhaps to allow others to get on with what they are obviously good at, given the growing appetite for this type of expertise from those who might otherwise be saddled with the same ‘unattractiveness’ plaguing those inhabiting the bottom rung of the index.
The full TAI is here.
A final point.
According to the TAI, although countries which are perceived as engaging in ‘harmful tax competition’ by the OECD based on its 2000 and 2009 blacklists reach significantly higher index values than others, these countries have been removed from the OECD list although they continue to offer extremely attractive tax environments.