A “Copernican Revolution”

By Global Tax Weekly

Quote of the week probably should go to Italian Prime Minister Matteo Renzi, who has called for a “Copernican Revolution” for the Italian tax system. In case you’re not up to speed with your renaissance geniuses, he was the early 16th century mathematician and astronomer who shook the very foundations of the religious orthodoxy by concluding that the earth and the other planets of the system orbited around the sun, rather than the other way around. Just how Copernican theory relates to taxation I’m not sure. But I do get Renzi’s drift. Italy’s tax system has become so uncompetitive and unattractive that a paradigm shift in thinking is needed to turn things around. To kick off the revolution, Renzi has proposed a fairly deep corporate tax cut, which would reduce Italy’s total tax rate from the low 30s to the mid-20s, and thus closer to the world average. His claim that this would make Italy one of the most competitive nations in Europe in tax terms is stretching things a bit however. The UK, for example, has given its competitors food for thought with its recent announcement that the country will have a corporate tax rate of 18 percent by 2020. There are also a number of other EU member states with corporate tax rates well below 20 percent, including Ireland, Cyprus, Bulgaria, and Latvia. Surely the revolution shouldn’t just stop at cutting corporate tax. If PwC’s Paying Taxes Index is a reliable indicator of a national tax system’s user-friendliness, this would have to be just the start: Italy has the 144th-best business tax system in the world; in comparison, the UK is 16th, Ireland is 6th, Cyprus is 50th, and Latvia is 24th. Copernicus helped to change humanity’s thinking about the earth’s place in the heavens. Renzi though might have to move heaven and earth to accomplish his goals.

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