Good for the Latvians

Mostly.  They are, after all, joining the Euro Zone next January, to their long-term detriment.  However, other than that, they clearly have the right idea, much to the chagrin of Euro Zone officialdom (given that chagrin, they’re still drawing Latvia into the fold.  What does that say about the consistency of officialdom’s judgment?).

Here’s why I like the Latvians, so far.

Latvia’s corporate tax rate is just 15%, far lower than the EU average of 23.5%.  Within the euro zone, only Ireland and Cyprus, each at 12.5%, have lower rates.

The problem here isn’t that Latvia’s tax rate is too low, as Euro Zone officialdom insists, it’s that the EU average is too high (never mind conflating the EU with the Euro Zone).  Moreover, officialdom—both Euro Zone’s and EU’s—arrogantly refuse to justify their claimed need for all that money, refuse to explain how all that money is better handled by them and not by the ordinary citizen of the EU/Euro Zone, refuse to justify the things on which they spend all that OPM beyond insulting generalities like “it’s good for everybody.”

Here’s more of why I like the Latvians:

Holding companies—firms that hold stock of other companies—enjoy further benefits in Latvia.  Since the beginning of 2013, their foreign profits earned via dividends and stock sales have been tax free.  Transferring such profits out of country is also not taxed.  Furthermore, as of 2014 Latvian holding companies will no longer have to pay taxes on interest and licensing fees they pay to foreign companies.

Business friendly is the same as jobs friendly, and jobs mean income and opportunity for the common man.  Oh, and revenue for government, whether that revenue is justified or not.

And

Markus Meinzer, an analyst with the Tax Justice Network, has already begun calling Latvia a “Luxembourg for the poor.”

What’s the downside of that, exactly?

Of course, officialdom objects to these things.

[T]he banking systems in both [Ireland and Cyprus] have collapsed—and both have been forced to seek emergency aid money from EU bailout funds.

Never mind that it was the knowledge of the existence of bailouts—at taxpayer expense, to boot—and too much regulation that led to the collapses.  Businesses that can be sure of bailout face no consequence from their decisions, and so no risk—and so make dumb, over-extensive moves.  Over-regulation compounds the problem by artificially constraining the range of moves allowed—constraints that the market can apply much more efficiently, much more broadly, much more flexibly, and much more promptly.

And

…money with shady origins keeps appearing.  In April 2012, the United Nations Security Council determined that Latvia’s Parex Bank (which has since changed its name to Reverta) assisted military officers from the Ivory Coast in circumventing international sanctions.

Of course, this has nothing to do with tax law or being business friendly.  Enforcing existing law against money laundering would handle this nicely.  To the extent the specific charge is true (if the UN says it, it’s automatically open to question), that’s a violation of such existing law; Latvia’s tax treatments are wholly irrelevant.

The Euro Zone needs a whole lot more tax havens within it—perhaps as many as 17 more.  It’s not the governments’ money, after all, and the governments for the most part don’t need it as much as the people do.

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