The EU is an enemy of fair taxation

Chair of the No2EU trade union information group and former RMT President Alex Gordon explains how the EU’s treaties enshrine rules to let companies dodge their fair share of tax. This article was first published in the Morning Star 18/11/2013.

It is a fundamental function of states to levy taxes on economic activities within their borders.

Any government that does not control its own tax policy is not sovereign – it’s a historical feature of colonised or subjugated nations that they do not control their own taxation.

The struggle for progressive taxation, taxing income rather than sales, was at the root of the democratic revolutionary movements that emerged in the 18th century. The great republican revolutionary Tom Paine developed and popularised the concept of progressive “income tax.”

The American war of independence was fought under the slogan No Taxation Without Representation. Karl Marx in his 1875 Critique of the Gotha Programme wrote that a future communist society would “inscribe on its banners ‘from each according to his ability, to each according to his needs’.”

But the European Union is undermining its member states’ control over their own taxation. This is a serious attack on democracy.

A new report, Tax Evasion and the Crisis in Greece, points out that outstanding tax debt in 2010 was 89.5 per cent of annual net tax revenue. The OECD average was 13.5 per cent.

This illustrates why the IMF, EU and European Central Bank “troika” which is monitoring Greek compliance with EU austerity before releasing the next €1 billion (£840 million) tranche of its €110bn “bailout,” clearly doesn’t believe Greek Prime Minister Antonis Samaras’s projections for improved Greek tax revenues in 2014.

Heroic promises of improved tax collection and clampdowns on tax evasion are belied by the reality of continued disintegration of the Greek state.

Declining numbers of Greek workers with jobs pay income tax, while small businesses evade tax and shipping magnates and corporations legally avoid tax under EU rules designed for this purpose.

EU austerity has also eroded Greece’s revenue from indirect taxation by destroying domestic economic demand. The latest official figures estimate that Greece’s economy shrank by 7.1 per cent in 2011 and 6.4 per cent in 2012, while a further 4.2 per cent contraction is forecast this year. By January 2013 monthly indirect tax-take was over €300m short of its predicted target.

Yet Greece’s experience is being exported as an inevitable consequence of the EU’s own fundamental rules. The so-called “free movement of capital,” implemented in Britain in 1979 when Margaret Thatcher abolished exchange controls as one of her first acts of government, and its corollary “freedom of establishment” principle entitle firms to move their income to the country where they choose to pay tax.

This right is enshrined in the 1957 Treaty of Rome – article 43 specifies freedom of establishment and article 56 free movement of capital – and all subsequent EU treaties up to and including articles 49 and 63 of the 2009 Lisbon Treaty.

The 1992 Maastricht Treaty extended free movement of capital to countries outside the EU, such as tax havens in the Cayman Islands or Jersey.

This is how Britain’s largely foreign-owned water companies such as Thames Water, which in 2011 made a £550m profit, manage to pay no tax at all.

Despite average yearly profits of 30 per cent Britain’s privatised water companies have reduced their tax liabilities to practically zero through accountancy tricks developed as a consequence of the EU’s own fundamental rules.

The EU’s “free movement” of capital is regressive and drives a race to the bottom in state taxation by placing increased burdens on lower-income groups unable to avoid tax by moving income abroad.

As in Greece, “free movement” strangles the ability of weaker states to finance public services and investment through general taxation.

Private capital has fled Greece since the 2010 “bailout” to be stashed in German banks and Mayfair properties owned through “tax-efficient” vehicles registered in Jersey, Monaco and the Caymans.

Seemingly at the other end of the scale is Ireland, held up by the troika as the “good pupil” of EU austerity.

In December 1997 Irish finance minister Charlie McCreevy, who was later an EU competition commissioner and is now a director of Ryanair, introduced the new Irish corporation tax policy which cut rates from 32 per cent in 1998 to 12.5 per cent by 2003.

Ireland’s low corporation tax policy aimed at attracting foreign firms is viewed enviously by, among others, Alex Salmond and George Osborne. Britain’s Chancellor slashed corporation tax from 28 per cent to 24 per cent in April 2013. It’s due to fall to 21 per cent from April 2014 and down to 20 per cent in 2015.

But Ireland’s experience is that foreign firms repatriate a substantial portion of profits, which consequently neither count as domestic income nor as part of the tax base.

Google, registered in Dublin for tax purposes, earned £11bn in Britain between 2006 and 2011 but paid just £10m in tax – a rate of less than 0.1 per cent.

Amazon, based in Luxembourg, paid £1.8m in tax in 2011 despite sales of £3.35bn, around 0.05 per cent.

Britain loses £121bn per year through arrangements of this sort. That’s equivalent to a fifth of the government’s entire income and roughly the same as the public deficit, which let’s recall served as Osborne’s much-trumpeted justification for unleashing austerity in his October 2010 Comprehensive Spending Review.

It is curious that tax justice campaigners concentrate so much on abuse of tax rules and so little on the tax injustice enshrined by the EU.

The European Commission is now developing a formula for an “optional” Common Consolidated Corporate Tax Base across the EU. Corporate tax however in EU jargon remains an ersatz “national competence.”

Meanwhile EU member states are bound hand and foot by EU rules that enshrine the freedom of capital to move across borders to evade national rules. There can be no tax justice without the right of states to control corporations making profits from economic activity within their borders.

EU fundamental rules not only enshrine free movement of capital, they ensure the bankruptcy of welfare states and the removal from democratic control of taxation policies. Tax justice is incompatible with EU membership.

For more analysis: 

CPThe Communist Party: The EU and Popular Sovereignty

 

 

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