Tax Harmonisation - The EU threat
to British Business
New Alliance
DID YOU KNOW that our corporate taxes are
amongst the lowest in the EU, but tax harmonisation now threatens
British business and consumers?
In April 1996, the European Journal highlighted
an Italian newspaper interview. Mario Monti is the EC Commissioner
responsible for the Single Market and tax harmonisation. He described
it as "very important" that the Italian Presidency (of
the EC) had decided to reopen the debate on harmonisation after
years of silence. Under Article 101 of 'Maastricht', the Commission
has the right to propose measures wherever it senses a "distortion
of competition" in the common market. These directives need
only be approved by EC Council of Ministers by qualified majority
voting. i.e. there is no veto.
THREAT TO BRITAIN'S TAX RATES
How is all this relevant to us? Well, for
a start our business tax rates of c.30% (20% for small businesses)
are practically the lowest mainstream rates in the EC1. France's
rate is 41.6%. Germany's rate lies between 43.6% and a whopping
56.6%. Only Sweden & Finland - who have joined very recently
- have lower rates (28%).
Low company taxes2 are one reason why Britain
attracts the lion's share of inward EC investment - to the envy
of our 'partners'.
Then there is our temporary relief from
putting VAT on essentials such as food, books and children's clothing.
The effect of imposing VAT on buying a house could be worsened
by the introduction of VAT on financial services.
In 1992, the EC's Ruding Committee was asked
to report on whether different national tax systems caused "major
distortion of competition". It gave the Commission its verdict
that they did, and proposed a common system of company taxation.3
At that time the EC was going through a little difficulty in getting
further integration accepted - particularly in Denmark and Britain
- so the Commission's stance not to push for action was not a
complete surprise. Tax commentator Martin Lynchehan noted that
this would "not presently be politically advisable".4
Tax harmonisation has long been on the EC
agenda. In 1975, the Commission drafted proposals for a uniform
EC company tax rate between 45-55% together with ending the deductibility
of many business expenses. Although it balked at imposing them
because of Member States' concerns about sovereignty, its 1988
review considered them to be "a crucial measure" that
should be implemented. 5
Euro-apologists claim that the EC has since
moved away from "complete fiscal harmonisation" towards
a mere "approximation" of taxes6, but this is just word-play.
Approximation is just harmonisation in stages. Just as it allows
discriminatory state aid for political reasons, the EC will allow
special tax rules.7 These include soft VAT terms and other tax
breaks to countries subsidised by the EC (such as the Irish Republic).
Some animals are more equal than others in what is supposed to
be a 'single' or 'common' market.
In March 1996, the EC published the findings
of its think tank, the Economic & Social Committee (ESC).8
Although paying lip service to the need to stimulate economic
growth and employment, the ESC claims that it would be logical
to have tax conditions 'equivalent to within a single Member State'.
HARMONISATION MEANS "HIGHER"?
Disturbingly it urged greater harmonisation
of VAT, particularly in addressing the issue of Britain's zero
rating. (Can we trust Chancellor Brown when he says he won't put
VAT on some essential items - but neglects to mention that the
EC can?).
It proposed that company tax havens such
as in the Channel Islands be abolished. Unlike earlier Commission
studies, it cast an eye at personal income, inheritance and wealth
taxes. It proposed further study into the taxation of workers
who are highly skilled and therefore more mobile within the Single
Market.
The ESC's own figures show that the share
of taxes borne by the workforce is lower in the UK than other
members, except Greece and Portugal, who are both well-subsidised
out of our taxes. The implications for tax harmonisation here
are obvious.
The EC Commission & Council already
have powers, by passing a Decision, to tax (or fine) parties other
than member states. (This is referred to as 'impose pecuniary
obligation' in Article. 192 of the Treaty of Rome, carried forward
into Maastricht.). Commission President Jacques Santer has told
the European Parliament that VAT harmonisation is a priority and
that he is going to make full use of the possibilities of 'Maastricht'.9
The recent discrimination against British beef exports for purely
political reasons may be a taste of things to come.
British business must ask questions, as
even a gradual increase in taxation will have a serious effect
on investment and jobs.
German Finance Minister Theo Waigel has
publicly accused Britain of the evil of 'tax poaching' i.e. having
competitive rates! So now the Commission will be running a far
reaching review of our entire tax system. It is time to put the
Government on the spot, as Mr Blair has already given away the
right to regulate Britain's tax laws to the European Commission
- and also powers to introduce Directives deciding personal taxation.10
We should also question the politically
correct Euro-enthusiasts of the Confederation of British Industry
who believe that completing the Single Market is a top priority,
and agree that national tax systems create "distortion".
11
Only by withdrawing from the EC and regaining
our status as an independent nation will save us from the quicksand
of further integration.
