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Guest Post: Where Taxes Are So Low, Some People Might Actually Pay…

Tyler Durden's picture




 

From Simon Black of Sovereign Man

Where Taxes Are So Low, Some People Might Actually Pay…

Do you remember those days, 25+ years ago, when the Olympic games
were an extension of the Cold War? We heard stories about these Soviet
athletes who were groomed, practically from birth, to become champion
athletes, taken from their families at a young age to live and train
nonstop for the glory of the Communist Party.

RUSU1827 193x300 Where taxes are so low, some people might actually pay...Bulgarians historically excelled at summer sports like boxing,
wrestling, track & field, and rowing, and today I worked out at a
gym that used to house the country’s up-and-coming athletes during
Soviet rule.  It’s in a neighborhood of old Soviet-era apartment
buildings, all built in that concrete shoebox style that defined
Communist architecture.

Such neighborhoods are a constant reminder of the days when they
allowed their society to descend into a totalitarian police state. A lot
of Bulgarians I’ve encountered seem embarrassed by these Communist
remains, brushing the entire period off as ‘experiments in socialism.’

They’re looking to the future now, and they’re cautiously optimistic.

When you survey the various countries in the former Soviet bloc, it’s
a truly mixed bag. East Germany, for example, enjoys a lavish economy
after being successfully reunited over 20-years ago thanks to an
incredible amount of aid and support from the West.

Slovakia has spent the last two decades creating a manufacturing
powerhouse for the rest of Europe, and its citizens today enjoy a much
higher standard of living than before.

Estonia built a very successful knowledge and services economy by
establishing a limited, low-tax, business-friendly government. When Mart
Laar took over as Prime Minister after Estonia’s independence in the
1990s, the only economic text he had ever read was Milton Friedman’s
Free to Choose. It’s fortunate for his country that it wasn’t Keynes.

Belarus descended even further into totalitarianism; Aleksandr
Lukashenko, the country’s first democratically elected president since
the fall of the Soviet Union, has remained in power ever since,
effectively seizing dictatorial control over every aspect of the economy
and society.

Ukraine continues to vacillate between revolution, corrupt cronyism,
and economic collapse… yet the country still has a lot of potential
thanks to its resource wealth and talented young work force.

Bulgaria, from where I write this letter, is an interesting case. As
the poorest member of the EU, there is a lot of opportunity at face
value. Labor is dirt cheap. Property is dirt cheap. Living costs are a
joke. English is widely spoken and is, in fact, more prevalent than
Russian in the capital city.

More importantly, the government is finally beginning to privatize
some of its state-owned companies, as well as make some
business-friendly decisions related to taxes.

Now, this is not a part of the world where tax compliance is
particularly strong. The immediate post-Soviet years turned the entire
region into a veritable Deadwood, and devoid of any functioning tax
authority, people got used to dealing in all cash and keeping 100% of
their earnings.

Several governments, including Russia, Ukraine, and Bulgaria, have
tried to make compliance easy by slashing tax rates. At just a 10% flat
rate for corporate, individual, and capital gains, and just 5% on
dividends, taxes in Bulgaria are now so low that some people might
actually pay.

For foreigners, it’s a boon. Bulgaria has an extensive network of tax
treaties with countries across Western Europe, Canada, and the United
States which ensure foreign-owned Bulgarian companies are only subject
to the 10% rate.  Using this ‘tax rate arbitrage,’ multinationals keep a
large part of their earnings offshore in lower tax jurisdictions.

At present, a number of multinationals have set up overseas
headquarters and manufacturing facilities in Ireland to take advantage
of that country’s low tax rate of 12.5%.  Given Ireland’s pending
bankruptcy, however, the government is under pressure to raise this
rate… and I expect that this will drive a number of companies to move
operations to Bulgaria.

Given the country’s low tax rates, cheap minimum wage of just
$185/month, and business-friendly policies, Bulgaria is a reasonable
alternative for companies that want to stay within the EU’s customs
union. Bulgaria is, after all, an EU member… though they likely
fabricated their financial statements to gain entry in the same way that
Greece did.

Simply put, Ireland’s decline will be Bulgaria’s gain, and the influx
of foreign investment will be of great benefit to this economy and
asset prices.

Meanwhile, entrepreneurs and investors looking to capitalize on
offshore tax treaty advantages, cheap talent, and a cost effective
European base may want to consider Bulgaria for their needs.

 

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Tue, 07/05/2011 - 12:48 | 1426797 ZeroPower
ZeroPower's picture

Ireland offered tax havens (for decades now) as well. Look what happened.

Tue, 07/05/2011 - 13:00 | 1426855 blueRidgeBoy
blueRidgeBoy's picture

as I understand it, Ireland's problem was with private (bank) debt, not sovereign debt, at least until the government bailed out the banks.  If that's the case, then I don't see your point. 

Tue, 07/05/2011 - 13:09 | 1426904 idea_hamster
idea_hamster's picture

...and so it will be in Sophia, when all that hot money flows in.  Soon, we may talk about the "Bulgarian miracle" but I wouldn't count on it lasting -- and with the half-life of economic phenomena falling, I doubt it will take more than 18 months to see cracks in the surface.

Tue, 07/05/2011 - 14:17 | 1427218 Ahmeexnal
Ahmeexnal's picture

Bulgarian yoghurt bubble.

Tue, 07/05/2011 - 15:14 | 1427403 Lord Koos
Lord Koos's picture

Bulgaria will get a lot of investment until corporations eventually find cheaper whores to fuck... they always do.

Tue, 07/05/2011 - 17:54 | 1427869 ZeroPower
ZeroPower's picture

lol you dont see my point...

 

Author is saying come invest in this country cause of uber-low tax rates and like $2/day wages (wtf..dont buy that) and he fails to understand the basically no tax environment is what makes MNCs take advantage of a country and give back almost nothing in return. When Intel was at the height of their workforces in Ireland, you know how many employed were local Irish? <2%.

So no, this doesnt exactly help the country's people.

Tue, 07/05/2011 - 12:54 | 1426822 DoChenRollingBearing
DoChenRollingBearing's picture

Wow, who would have thought that Bulgaria would be a great place to invest...

This piece shows that it is important to keep up with what goes on almost everywhere.  I read about Mongolia over the weekend, and now Bulgaria.

These low tax countries may get it...  I wish them well.

Tue, 07/05/2011 - 13:10 | 1426914 Popo
Popo's picture

Ah there's a sucker born every minute.   Don't go wearing a shirt you might miss.

Tue, 07/05/2011 - 14:14 | 1427201 DoChenRollingBearing
DoChenRollingBearing's picture

Point taken.  The Balkans are known for having a tough business environment.  Thanks for reminding me (us) that low taxes are not enough.

Tue, 07/05/2011 - 12:55 | 1426824 JW n FL
JW n FL's picture

Dont Worry!! when "We the People" are done catching up watching all those old Jerry Springer episodes that they missed.. they are going to straighten out those Lobby Whores in Washington D.C. as well as the AAA Rated Corporate Pimps that Washington answers too! Soon America will be a Free Country again with fair Taxes!

 

http://www.youtube.com/watch?v=5P6xepEPVxg

 

2 weeks for the Countries paper money to be worth Nothing! Total Safety!

Tue, 07/05/2011 - 13:53 | 1427107 j0nx
j0nx's picture

Get the fuck out of here. Only the blacks have any spine whatsoever for rioting and they are only interested in flash mobbing 7-11's and beating unsuspecting white people who are unlucky enough to happen by on their way out the door, all the while avoiding hate crimes charges if/when they are caught. I DARE a white person to do 1/10 of what's been going on in the black community for the past 6 months and avoid hate crimes charges for it. Americans are pansies and if you are waiting for them to rebel against the lobby whores and corporate pimps then you've got a long wait son. They would rather drink beer and watch Jersey Shore. Don't hate me because I bring the truth.

Tue, 07/05/2011 - 15:05 | 1427383 boiltherich
boiltherich's picture

Are you intentionally forgetting Stonewall? 

Tue, 07/05/2011 - 12:56 | 1426825 Piranhanoia
Piranhanoia's picture

Profit at the expense of a nation. That has worked so well until now. Do you have a short on Bulgaria pending? It really sounds like a vulture eying road kill.  Or a squid report to get everyone to bet the way they aren't.

Tue, 07/05/2011 - 13:09 | 1426905 GeneMarchbanks
GeneMarchbanks's picture

Do you have a short on Bulgaria pending?

Probably. An opportunist. By 'cheap talent' I think he meant the teenage girls. A real d-bag.

Tue, 07/05/2011 - 12:56 | 1426830 TradingJoe
TradingJoe's picture

Sure! If you are willing (and able) to spend a fortune on "security" aka BRIBES then sure move over there and start your "own" business :))))!

Tue, 07/05/2011 - 12:59 | 1426848 Ivanovich
Ivanovich's picture

Exactly.  I'm sure that, along with Russian language, the concept of the "krisha" is alive and well in Bulgaria.

Tue, 07/05/2011 - 12:58 | 1426842 equity_momo
equity_momo's picture

I shall refute your points about Bulgaria in one word Simon : Bulgaria.

 

Tue, 07/05/2011 - 13:07 | 1426894 williambanzai7
williambanzai7's picture

Having been there, I would tend to agree with your thesis.

Tue, 07/05/2011 - 13:22 | 1426969 Ghordius
Ghordius's picture

+1 They have the tax part right, though: simple taxing system, Flat. If Germany would adopt a system like that it would buy the world with spare change.

Tue, 07/05/2011 - 13:10 | 1426910 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

But, unlike Greece, they don't have a shit-ton of leechfuckery paid for with unrealistically-cheap credit, right?

Tue, 07/05/2011 - 13:21 | 1426964 scratch_and_sniff
scratch_and_sniff's picture

I used to ski in Bulgaria, nice people, cheap drink and food, cheap everything. A bit like Poland, they were meant to be taking Irelands business away too eventually, never happened. A few factories went to Poland, mainly labour intensive manufacturing roles that are easily shifted; i recall a seat belt manufacturer went over and a few others, but they kept some operations here for some reason.

Labour is playing a smaller and smaller part in pricing these days, if they really wanted to make things real cheap they could just farm out to china(For example, China only gets $5 per iPhone sale! that’s $5 out of ~$500)...at the end of the day, a lot of companies have established a well trained talent pool here, a lot of them are in cahoots with the universities in R&D projects etc, and most likely wont want to rock the boat for a 2.5% corporation tax difference…or cheap vodka.

Tue, 07/05/2011 - 15:19 | 1427418 boiltherich
boiltherich's picture

Waterford went to Poland, now anyone who can cut glass the cheapest can get a Waterford label, at least that is how it looks every time I look at crystal in Macy's.

There are some really attractive women and men in Bulgaria, not all are stereotypes, not all take steroids to win gold in the Olympics. 

When I first got ready to leave the USA and took an Irish passport in 2003 I had decided to go to Varna on the Black Sea, I had seen a second story apartment with two beds, huge balcony patio, central town heat (yes they still provide central heating from a city hot water/steam plant) and maid service with a great sea view just blocks from the beach and near a gorgeous beer garden for under $400 per month.  Varna has everything I want, large enough (about 300,000) to have elements of cosmopolitan towns, good transport and alternative artsy scholarly types, but small enough not to be overpriced, overcrowded, and dysfunctional.  The universities provide the energy of youth without being ruined by too many students.  It is on the sea with a large summer influx, and the great cities of the EU are easily available by air, car, or train.  Seemed like a great place to spend a year or a few, might still do it.

 

Tue, 07/05/2011 - 13:27 | 1426989 apberusdisvet
apberusdisvet's picture

Don't all Bulgarian chicks look like Janet Napolitano?

Tue, 07/05/2011 - 15:46 | 1427512 pazmaker
pazmaker's picture

I don't think so

 

see this:   http://bulgarian.ibox.bg/news/id_929769479

Tue, 07/05/2011 - 13:30 | 1427001 VodkaInKrakow
VodkaInKrakow's picture

In other words, the author is advocating for corporations to move to a non-tax complying nation where corruption is routine. Turning the country into the 'Next Ireland'... all because there are some low taxes and it is dirt cheap. Yeah, if you have a dollar account, it is. However, I would love to see the author make it on minimum wage in Bulgaria... probably run screaming home to mommy or begging a friend in The US to send him dollars.

What a loser. People still listen to this trash?

Tue, 07/05/2011 - 14:07 | 1427159 Fat Ass
Fat Ass's picture

Vodka, you have made a great point! Well said.

Tue, 07/05/2011 - 19:37 | 1428115 BigJim
BigJim's picture

So, you'd prefer if Bulgarians got paid more, but no corporations moved there at all? You think THAT would be better for the Bulgarians?

Bulgarians are cheap because they haven't had a huge credit bubble pushing up the prices of RE, and consequently, everything else.

Tue, 07/05/2011 - 13:41 | 1427057 carbonmutant
carbonmutant's picture

 Bulgaria needs more Starbucks if it wants to compete with Ireland... :)

Tue, 07/05/2011 - 13:53 | 1427104 jmc8888
jmc8888's picture

So retarded.  When the value of the money is fixed, in a fixed exchange rate world, and taxes are what they are, then the system is stable and able to be built around it.

But even aside from that.....

Taxes are the very last thing to negotiate.  Because the rest of the system then dictates what the approrpirate levels are. 

We need to overhaul the system, into the American Credit System.  With high tariffs, and no free trade.  The gov't won't have to borrow to pay off debt, thus no debt payments.  We don't need perpetual war.  We don't need the bailouts.  We don't need the HMO's.  We don't need financial services garnering 25 percent-ish of the profit of this nation. 

You put the right structure in place, you'll get more social security, more healthcare, more services, more infrastructure (real infrastrucutre), more public works, more manhattan projects, with LESS taxes.  Imagine that.

But let's first change the system, throw out the bad, and THEN talk about tax rates.

No need to put the cart before the horse (or talk about how differential free market spreads anything real but an imbalance to another market by creating a lower floor from which to suck someone else's business...that's called a bullshit rat race that only benefits the corporatocry at the expense of the people of this nation [after someone undercuts IT] and in the meantime those that lose because it is initially switched to this low tax haven).

Glass-Steagall

Tue, 07/05/2011 - 13:59 | 1427127 hackettlad
hackettlad's picture

Seriously, if you think low taxes alone are sufficient for long term investor interest, think again.  The reason why Bulgaria could never be a substitute for Ireland is the highly skilled and qualified Irish work force whose qualifications are respected and trusted, its centuries old linkages with the UK with whose major professions (medicine, engineering, law and accounting) Ireland is on a par with and the fact that the Irish speak English as a native language.  Irish business infrastructure is far more trusted than any that exists in Eastern Europe or major corps such as Diageo or WPP or Google or Dell would not have their European operations based there.  Yes, Ireland is in a financial mess caused by a comnsumption/debt fuelled real estate bubble but its inherent strengths remain.  Bulgaria is no competition except for those companies seeking cheap unskilled labour and easy tax breaks.

Tue, 07/05/2011 - 16:11 | 1427404 epwpixieq-1
epwpixieq-1's picture

" The reason why Bulgaria could never be a substitute for Ireland is the highly skilled and qualified Irish work force" - I would be very conscious with such statements and would mention only one thing, IMO ( International Mathematics Olympiad ). Just research for yourself and see where are the best Irish high school kids where are the Bulgarians. Just ti give you a hint, Bulgaria was the only small country (8 million people) the between 1992 and 2006 that was consistently ( on average ) in the first 4 in the world in this competition, the rest were China, Russia, USA. At that time Ireland was lingering between 60 and 70 place, out of 80-100 countries. Just to be fair, I have to mention, lately, the eduction system in Bulgaria started to loose its strength, due to the economical issues, decreased discipline in the schools and smart people leaving to work and live in the more developed countries in Europe.

Some stat for your knowledge:

http://imo.math.ca/results/TCBY.html

http://official.imo2011.nl/results.aspx

 

 

 

Tue, 07/05/2011 - 19:09 | 1428040 hackettlad
hackettlad's picture

LOL, dude the IMO is a geek fest.  I went to a school where one of my cohort won a Gold medal there - and he was an uber geek.  I can't think of many people in the business community or the investment community who put much value on the International Maths Olympiad as a "qualification" - though I know plenty who would rate an Irish solicitor, chartered accountant, barrister, doctor or architect head and shoulders above a Bulgarian one.  Get real - there's no competition in the real world.

Tue, 07/05/2011 - 21:56 | 1428405 goat
goat's picture

Ireland may claim to be native speakers of English, but that doesnt mean other English speakers can undertsand a damn thing they say.

Tue, 07/05/2011 - 14:24 | 1427195 Rynak
Rynak's picture

.....where people cannot buy what you produce, and you make sure to keep it that way.

Tue, 07/05/2011 - 14:15 | 1427208 toto
toto's picture

Has any of you tried to live outside the fence in bulgaria?

You cant even pee without having to bribe someone-literally.

It is the first (and probably last) time i saw traffic lights controled by a person placed over the crossroad.

Tue, 07/05/2011 - 14:17 | 1427216 narnia
narnia's picture

if a state in the US:  stopped providing public education, nullified 99% of the federal register including all drug laws, dropped medicaid & state welfare programs, got out of virtually everything but a police force dedicated to violent crime & a court system for real crime & grievances, didn't put up with illegal immigration...  and, in return, eliminated all property & sales taxes and just had a fee based government...  it would quickly become the most prosperous state.  

Tue, 07/05/2011 - 15:26 | 1427438 boiltherich
boiltherich's picture

Most prosperous for about 100 people.  You just described Mexico. 

Tue, 07/05/2011 - 15:32 | 1427464 Buckaroo Banzai
Buckaroo Banzai's picture

WRONG. Mexico has drug laws, which it pretends, sort of, to enforce. Mainly for our "benefit".

Tue, 07/05/2011 - 16:28 | 1427624 narnia
narnia's picture

i'm actually modeling a state constitution on the US constitution as intended.

Tue, 07/05/2011 - 14:25 | 1427243 Sudden Debt
Sudden Debt's picture

I've been there already quite a few times because we started a factory over there.

The cities are pretty modern and are economicly booming.

But the countryside... 1940...

their infrastructure is a bitch. Even with a offroad truck it's hell.

the education level on the country side: zero

without the european euro's it would all turn back into farmland.

If you start a factory over there and sell the goods locally, you only need to pay for the raw materials. The work is paid back by the union.

And this is a massive carousel.

We started the factory over there and a trade company who buys from the factory and sells it back to us in Europe.

Even China can't deliver it that cheap.

 

Tue, 07/05/2011 - 14:39 | 1427284 Rynak
Rynak's picture

If you start a factory over there and sell the goods locally, you only need to pay for the raw materials. The work is paid back by the union.

Clever. Avoids it being called socialism while ultimately doing exactly the same: Sponsor unsustainably low wages.

All those "economic wonders" would collapse in no time, if it weren't running on debt.

Tue, 07/05/2011 - 15:00 | 1427364 Caravaggio
Caravaggio's picture

Pure garbage. Two "simons" below the usual debilism.

Tue, 07/05/2011 - 15:10 | 1427394 USKiwi
USKiwi's picture

I just worked out how much tax I paid back to the NZ government in taxes this past year as is it refund season and I paid a total of 14.2% of my total income back to the government.

The absolute lowest I was ever able to pay in the US after factoring in SS, medicare, etc. was 22% in a state without income tax.

I have no idea why people think this place is some sort of socialist paradise.  I am more free of government involvement in my life here than I ever was in the US.

Tue, 07/05/2011 - 15:36 | 1427483 pazmaker
pazmaker's picture

Wish I could join you!!   I was a foreign exchange student and lived in central america for awhile, I had roommate from NZ and lost touch with him, but from all the picutres and stories it seemed like a beautiful place.

Tue, 07/05/2011 - 15:28 | 1427444 Buckaroo Banzai
Buckaroo Banzai's picture

The Russians have an old saying: If you see a Bulgarian in the street, beat him. He will know the reason why.

Tue, 07/05/2011 - 16:30 | 1427625 epwpixieq-1
epwpixieq-1's picture

Probably because Russians have adopted, as their native, the Old Church Slavonic alphabet that was first created for the Slavic people of Bulgaria about 1100 years ago:

http://en.wikipedia.org/wiki/Cyrillic_alphabet

http://en.wikipedia.org/wiki/Saints_Cyril_and_Methodius

Tue, 07/05/2011 - 17:09 | 1427787 shinyindallas
shinyindallas's picture

I spent a month in Bulgaria. Everyone tried to rip-off the "dumb american". A taxi driver wanted me to give him change for a xeroxed $100 bill. The list goes on. It is the worst of the east european countries. The Ukraine is far and away better. I had a waitress chase me down the street in Kiev one time because she thought her tip was so large it was a mistake. (My friend and I tipped her 20 dollars because she was so nice to us and the meal was so good.) The Ukraine and Russia in my experience are more honest. Bulgaria is a pit.

Tue, 07/05/2011 - 20:59 | 1428263 BorisSDT
BorisSDT's picture

I agree, mostly but property values are not dirt cheap. They are way over priced in Sofia. How about annual rent at 3-5% of purchase price in a place where mortgages are north of 12%.

Nevertheless always happy to meet another Bulgaria fan and generally agree with getting the fuck out of the west!

http://www.singledudetravel.com/2011/01/intro-to-bulgaria/

http://www.singledudetravel.com/2011/06/now-is-the-time-to-move-abroad/

Do NOT follow this link or you will be banned from the site!