TAX HARMONISATION

The Government is considering legal action against the European Commission over Gibraltar 's company tax laws. The threat follows a Commission decision this afternoon outlawing government plans for sweeping reforms of Gibraltar 's company tax rules. The changes planned by the UK government  abolishing the current 35% corporate tax rates in Gibraltar and bringing in new taxes capped at 15% of profits  breach EU rules on state aid, according to competition Commissioner Mario Monti. He said the changes would give Gibraltar-registered companies an unfair advantage over UK-based companies which face a 30% main rate of corporation tax  twice the maximum level now planned for the Rock. Mr Monti launched an investigation last October after London formally applied for clearance to change Gibraltar 's corporate tax arrangements. Under the Government's plans, companies registered there would be subject to a "payroll tax" of £3,000 per employee and a "business property occupation tax". The combined tax take under the new system would be capped at 15% of profits or £500,000, whichever is the lower, replacing the current 35% general tax on company profits. Only Gibraltar 's utility companies  telecoms, water, sewage, electricity and fuel  would continue to be taxed at a 35% flat rate. The Government expressed disappointment at the decision, particularly as the proposed tax changes for Gibraltar had already been approved by EU finance ministers. A spokesman said: "We will study this judgment very carefully. The Commission say lower corporate tax in Gibraltar amounts to state aid, but we are convinced that Gibraltar can establish a different tax from the UK and still remain within the EU's state aid rules. " Gibraltar is not part of the UK for this or any other purpose, and going to the European Court of Justice is one of the options we will be looking at." Gibraltar 's Chief Minister Peter Caruana has already pledged to fight the Commission decision in court to win the Rock's right to change its tax laws. (The Scotsman 30 Mar 2004 )

The Council adopted the so-called 'tax package' of three measures to tackle  harmful tax competition and eliminate some of the remaining tax distortions  in the Internal Market that was established by the Council on 1 December  1997 (see IP/03/787).  Speaking afterwards, Taxation Commissioner Frits Bolkestein commented "The  agreement today demonstrates that in the end, the European Union gets to where it wants to be". The tax package consists of:  a proposal for a Council Directive to ensure effective taxation of interest  income from cross-border investment of savings which is paid to individuals  within the EU.  A Code of Conduct for business taxation, and  the Commission's March 1998 proposal for a Council Directive to eliminate  withholding taxes on payments of interest and royalties made between  associated companies of different Member States. ( Brussels , 4th June 2003 )

The 15 European Union member states are expected on 18 February to agree a milestone directive on common energy tax levels in current as well as future member states, reports the Danish newspaper Politiken. The directive means that consumers and business will have to pay a larger share of the environmental costs associated with energy consumption and production. Common energy tax rules have been under discussion within the European Union since 1997, when the European Commission put forward its first draft for a directive, and the Commission's final draft is expected to be adopted at a meeting of EU finance ministers on Tuesday. The energy tax directive will come into force from 2004, but it contains numerous transition arrangements, reports Politiken. Member states may apply a level of zero taxation for energy products and electricity used for agricultural and horticultural work, and also in forestry. Member states which have special problems with regards to implementing the new minimum tax will be granted an extension until 2007. (EUobserver.com 17.02.2003)  European Finance Ministers have been unable to agree on a minimum level of tax on energy. The spokesman for the Ecofin council said that the next meeting on the matter had been put off until March, but that there would be bilateral discussions between now and then. The idea of imposing a minimum tax on energy has been on the agenda since 1997, and it was agreed in principle at the Barcelona summit last year. Taxes are to be harmonised on diesel, gas, electricity and oil. [Handelsblatt, 18th February 2003]

The European Commission set itself on a collision course with Gibraltar, announcing that it would investigate Gibraltar's proposed new corporate taxation system on the astonishing grounds that it constituted unfair State aid to 'a part of the UK'. The Commission is able to do this because it is the UK which has had to submit Gibraltar's new system to Brussels for approval, the Rock being a colony of the UK. The Commission's press release said: 'The European Commission has today launched a formal State aid investigation into the planned reform of Gibraltar's company taxation laws. The reform would abolish taxation of company profits and replace it with a payroll tax (a fixed tax per employee) and a business property occupation tax. At this stage, the Commission has not been able to rule out the possibility that the new system would grant State aid to certain enterprises and has doubts that such aid would be compatible with the EU rules. 'This is the first time that an entire corporate tax system has been notified to the Commission for approval under the State aid rules. 'The UK proposals aim to reform the taxation of company profits in Gibraltar. The whole of the Gibraltar economy (except utility companies) seems to be granted an advantage compared with companies in the United Kingdom in general. The main rate of corporation tax in the United Kingdom is 30% of profits, whilst under the reform, the maximum rate of taxation in Gibraltar is 15%.' Gibraltar's Chief Minister Peter Caruana found out about the Commission's move from the the press release (another calculated insult) and immediately went to tell the House of Assembly. Consideration of the merits of the Gibraltar tax proposals was one thing, Mr Caruana told the House, but what was unexpected was the questioning of whether Gibraltar is entitled to have a different tax system to the rest of the UK at all. He thinks this argument, known as regional selectivity, will pit the Commission into confrontation with many member states. "Furthermore, specifically in the case of Gibraltar the argument is misconceived because Gibraltar is not part of the UK, for EU purposes or otherwise," he added. Nothing could be more calculated than the Commission's stance to inflame anti-British and anti-EU sentiment in Gibraltar in advance of the referendum due to be held shortly on British/Spanish proposals for the jurisdiction's future, and the news probably ensures even greater unanimity among Gibraltar's beleaguered citizens against the process envisaged by London and Madrid. . (TAX-NEWS.COM 18 October 2002)

Plans that would have increased beer and wine prices in Germany and Spain - and reduced them in the United Kingdom - have been shelved after provoking internal opposition within the European Commission. Activities already initiated within the Commission's single market directorate are aimed to align duties across the EU, and would rise beer duties by almost 20 per cent in Germany and Spain in 2003, while reducing them in the UK. (EUobserver 09.09.2002)

Ministers are set to close another loophole that has enabled multinational companies to limit their tax exposure through the use of overseas subsidiaries. The Treasury is looking at far-reaching changes that would involve ditching the existing capital gains regime for companies. Gains and losses on capital assets would be taxed each year in the same way as income profits. Property investment companies could be hit by the changes suggested by the government, according to tax experts. Under its mooted regime for capital gains, the Treasury says profits and losses would be taxed according to the amounts recognised in company accounts and based on market valuations. UK accounting standards do not require property investment companies to take gains on the revaluation of assets through their profit and loss statements. But international accounting standards, which most European Union listed companies are due to adopt in 2005, may require property investment companies to take the revaluations through their income statements. Mr Cussons said: "The position of investment property companies may change adversely when international accounting standards become mandatory for companies listed in the EU in 2005." Analysts said the Treasury's outline proposals could be the death knell for the UK property industry. "If you were taxed on unrealised gains, you wouldn't continue," said Simon Melliss, finance director at Hammerson, a UK property company. "You would either produce historical cost accounts only or you would move offshore." The Association of British Insurers said life assurance policyholders could lose out if the mooted regime were applied to their industry. (FT.com site; Aug 08, 2002)

The Treasury this week attacked EU plans for a single system for calculating corporate tax across the EU. The Treasury fears that the system would be a first step to the upward harmonisation of corporate tax in Britain. A Treasury spokesman said, "we won't support any action at the EU level that would threaten jobs and the competitiveness of UK business" (Guardian, 1 May). Tax Commissioner Frits Bolkestein first made his gradual harmonisation plan explicit in February 2001, saying "taxes should be raised on a similar basis. Then we will see what happens to tax rates." (Frankfurter Allgemeine Zeitung, 22 February 2001).

The EU 'Tax Misery' Index

In return for limited energy market opening the French have secured a commitment to energy tax harmonisation. The Presidency report "Asks the Council, in parallel with the agreement on the opening of the energy markets, to reach an agreement on the adoption of the energy tax directive by December 2002". The Summit also explicitly tied energy liberalisation to progress towards energy tax harmonisation: "It is necessary to agree an appropriate framework for energy tax at European level, in parallel with progress in agreeing the realisation of the internal market for energy." (Barcelona Summit on 15-16 March 2002)

"I know about the proposals for a unified tax base for corporation tax in the EU. There are also plans (not yet published) for a similar unified basis for income tax in the EU too. For years now I have been warning that these 'harmonisations' would come to pass. They illustrate with perfect clarity the method that the European Commission and France/Germany uses to get its way." "The corporation tax proposal will be introduced as a single market initiative subject to QMV. The UK veto on tax changes will therefore be side-stepped. The matter of the proposals has been settled by the large companies represented in the European Round Table, and by the chief tax advisers/administrators represented by the European Committee of Fiscal Bodies (CFEE), and with the committee that brings together the delegates from the EU member states' taxing authorities. This is how regulations/laws will henceforth be made in the UK. It is also how they have been made for the past 30 odd years, did we but open our eyes to see it." "There is emerging the EU tax inspectorate - which will be a semi-police organisation capable of enforcement. Its shadow is already present in the Cross-Borders Mergers directive dating from the early 1990s. In that, the EU tax official has a great deal of discretion as to whether he accepts a tax computation based on the directive's regulations. Such discretion is deadly for honest and impartial administration. All anyone needs do to check the veracity of this last statement is to ask Torquil Dick-Erikson how much a local tax inspector can be bought for in Italy. Old Hector's been put up for sale. And we'll be paying the price again and again until we get out of the EU." (e-mail, cjka – tax consultant 18 Mar 2002)

Under a proposal, likely to leave a bad taste with seven member states, the European Union is to adopt minimum excise duty rates for wine and beer. Seven member states will have to charge excise duty on wine for the first time and France is set to face a four fold increase on its current rates. (Euobserver.com 22/2/02)

 Wim Duisenberg predicted this week that the euro would lead to harmonisation of taxes within the Eurozone. He warned that this would include all forms of tax, including income taxes. He said, "pressure will arise to come to a greater harmonisation for example of indirect taxes, of excise taxes, of income taxes" (FT, 24 January 2002). Taxes in the Eurozone are a sixth higher than in Britain. If taxes in Britain were harmonised up to Eurozone levels, it would cost every household an extra £160 a month. ("NO" Campaign bulletin 25/1/02)

The United Nations is gearing up for what could be yet another explosively controversial international conference, this time over charges the organization wants to create a powerful worldwide tax bureaucracy. Supporters see the International Conference on Financing for Development, set for Monterrey, Mexico, from March 18-22, as a chance for world governments to address a wide range of financial issues related to global development. "This is scary. They're talking about establishing an extra layer of government at the world level," said Veronique de Rugy, an analyst at the Washington-based Cato Institute. "Their goal is an international tax cartel … that would work to keep taxes high." The controversy centers in part around a proposal to create something called the International Tax Organization. The organization would help nations collect and disseminate information on tax policies and, opponents insist, assess its own taxes, help governments tax emigrant citizens working in other countries and even compel member states to share tax data. Critics are particularly worried the United States, which could normally be counted on to quickly and loudly reject any thoughts of a world taxing authority, might be more open to sign on to a deal in the post-Sept. 11 political climate. "This is a problem because it meshes completely with what the EU and OECD [Organization for European Cooperation and Development] has been trying to do for some time," said Dan Mitchell, of the Heritage Foundation think tank in Washington. High-tax countries like France have long lamented their loss of human and financial resources to lower-taxed nations like the United States. An international tax agency would thus work to reduce such "tax competition" between nations. That doesn't sound right to low-tax advocates. They fear decreased "tax competition" would only force foreign nationals working in the United States to pay higher taxes to their native governments or, even more disturbing, compel the United States to raise its own tax rates. "What the U.N. is trying to do is act on behalf of high-tax nations who refuse to face the facts of the global economy," de Rugy argued. "They want to force low-tax countries to increase their taxes." Skeptics, meanwhile, just hope the United States and other like-minded nations aren't going to be dealt cards from a stacked deck. (Fox News 9/1/02) 

THE prospect of British taxes being raised and collected by Brussels moved a step closer yesterday when Germany’s finance minister heralded the introduction of the euro as a major step towards a Europe-wide tax system. In a move which fuelled fears of "euro-creep" - that the single currency would bring greater political and economic integration in its wake - Hans Eichel said he could imagine the development of a centralised European tax system to rival, and supersede, the tax regimes in individual countries. Mr Eichel also claimed the euro would become a "parallel currency" in Britain, mirroring the pound and gradually growing in strength as more people used it. The Tories seized on Mr Eichel’s remarks to claim he had revealed the true agenda behind the introduction of the euro - political and economic union within Europe. In an interview with the German magazine Der Spiegel, Mr Eichel said: "In the longer term, I can imagine a Europe tax. It strengthens spending discipline in Brussels if responsibility for expenditure and income is put together. But if there were a Europe tax, national taxes would have to be lowered commensurably. We cannot pile up administrative layer on top of administrative layer and tax upon tax. Europe would not become a growth and prosperity project like that." Peter Duncan, the Conservative MP for Galloway and Upper Nithsdale, said Mr Eichel was saying what many europhile politicians were scared to admit. "This is probably more honesty than we have heard from many of Europe’s politicians," he said. "Many like Tony Blair continue to deny its implications for common taxation while advocating the euro at the same time. (The Scotsman 29 Dec 2001)

Council Directive 2001/44/EC of 15 June 2001 amending Directive 76/308/EEC http://europa.eu.int/eur-lex/en/lif/dat/2001/en_301L0044.html and http://www.inlandrevenue.gov.uk/international/eu.htm This is a new EU directive for automatic executive assistance between EU states in the recovery of, inter alia, taxes on income and capital. The directive appears to be so badly written that it: is retrospective without limit gives no guarantees of valid or acceptable procedures in the foreign country allows foreign countries to violate bilateral agreements between the UK and the foreign country allows foreign countries to make claims against UK citizens in the language of the foreign country, thus often precluding any defence is automatically enforced and allows no appeal in the UK This directive has to be implemented in the UK before 30 June, 2002 The Inland Revenue Foreign Intelligence Section anticipates that it will form part of the 2002 Finance Act. (Accounting Web 7/12/01) See web site for how this works against people working abroad in the EU.

When compiling his budget Gordon Brown has to ask permission from Brussels to do many of the things he wants. In his pre-budget statement he said he wants to raise the limit, or abolish completely the stamp duty on buildings in certain areas. Permission has to be obtained first. Also, he wants to exempt from fuel duty certain clean fuels such as hydrogen, landfill gas and methanol but has to get permission from Brussels. (Financial Times 28/11/01)

The 15 separate taxation systems are "impediments for cross-frontier activity with the single market", said Fritz Bolkestein, EU commissioner for the single market, on Tuesday. According to Mr Bolkestein, one of the problems is that small and medium-sized companies will be detained from cross-frontier activities by the costs and risks presented by the difference in taxation systems. Another risk is that mother and daughter companies may risk double taxation within the EU. And finally, the difference in systems opens opportunities for tax evasions. According to Mr Bolkestein, the solution for all these problems would be the harmonisation of the basis for taxation in all 15 EU member states. But Mr Bolkestein knows very well that he is handling an explosive matter. According to the existing treaties, decisions on taxation issues can only be taken unanimously. But, adds Die Welt, according to the Nice Treaty, it would be possible for a group of EU states to reinforce co-operation on issues, if agreement cannot be reached between all 15 member states. (EUobserver.com 23/10/01) 

"As a UK resident who works in Norway until this year I have not had to pay the social part of the Norwegian tax (equivalent to our National Insurance) because of course I get nothing from them - no state pension, free health care, unemployment or other benefits. However the EU is apparently not very happy about this and would like to see some sort of uniformity of tax collection even with countries that are outside the EU but inside EFTA. Therefore as of the beginning of this year I am now laible to pay an additional 7% tax in Norway." (EU pressure on Norway - Eurofaq posting 11 Aug 2001)

The European Union wants to take control of duty levels on alcohol, by introducing maximum and minimum tax levels, in a move to remove barriers to the creation of a single European market and reduce smuggling. In Sweden, this will lead to a dramatic fall in the price of alcohol. (EUobserver.com 15/10/01) 

In a thinly-veiled reference to Britain, Mr Jospin emphasised the need to "stamp out behaviour detrimental to the general European interest". He argued: "It is not acceptable for certain member states to practice unfair tax competition in order to attract international investment and the off-shore headquarters of European firms... Ultimately, the corporate tax system as a whole will have to be harmonised" (Daily Telegraph, 29 May 2001).

The European Commission has presented a comprehensive strategy for the EU's future taxation policy. Increased tax co-ordination would help Member States to meet these objectives. But while a large measure of harmonisation is necessary in the VAT and excises fields, in other tax fields tax co-ordination does not imply tax harmonisation. To achieve progress, the Commission intends to be more pro-active in taking legal action where Member States' national tax rules or practices do not comply with the Treaty. One of the important questions that the study will raise will be providing companies with the option of a single set of corporate tax base rules which would be applicable on an EU-wide basis. The Communication will also examine the very different levels of vehicle tax in Member States. The Commission proposed a Directive introducing significant revisions to the rates and structure of excise duties on manufactured tobacco in March this year (see IP/01/368). The Commission intends to work intensively to bring about the changes that it proposed under its VAT legislative strategy in June 2000 (see IP/00/615) in order to bring about a pragmatic improvement in the VAT system. An action programme has been put in place under that strategy which focuses on simplification, modernisation and more uniform application of present arrangements. The route of closer co-operation between sub-groups of like-minded Member States should also be considered where appropriate. The Commission suggests that this "enhanced co-operation" approach could in particular be considered in the field of environmental and energy taxation, where a majority of Member States have indicated a strong desire for co-ordinated action. (europa.eu.int web site 27/5/01)

The Luxembourg Prime Minister Jean-Claude Juncker would like to see a European Union taxation of citizens introduced in order to make people more aware of EU affairs, he said in a speech in Brussels on Tuesday. (EUobserver.com 15/5/01)

GORDON BROWN will stage a pre-election confrontation with the European Commission today by warning Brussels that it has "no business" interfering in British economic policy. The Chancellor will demand changes to the EU economic guidelines which called on Britain to impose a cap on public spending. He will use the monthly meeting of European finance ministers to criticise the draft set of rules which the Treasury claims has unfairly singled out Britain. He was incensed by the EU call to limit future public expenditure to forecasts in his March Budget, which predict that state spending in 2003 will total 37.3 per cent of GDP. Mr Brown fears that the EU is seeking to dictate British tax and spending policy. Treasury sources said it represented a "worrying departure" and the first time it has sought to intervene in an EU member's internal affairs. (Daily Telegraph 7 May 2001)

The Government of Belgium will put the issue of EU taxes on the agenda of the EU Laeken Summit in December, according to the Belgian finance minister Didier Reynders. The minister wants the European Union to be given powers to levy taxes, to help finance its policies and confirms Belgium will take the issue up during the six month rotating EU presidency, which it takes over in July, reports the Financial Times. His statement, coming just a day after Belgian Prime Minister Guy Verhofsdadt exposed ambitious plans for EU reforms and endorsed the federalist vision expressed by German Chancellor Gerhard Schröder, is set to worry member states, especially the United Kingdom, Sweden and Denmark, with a eurosceptic public fearing integrationist moves. Last week, Tony Blair urged the Belgian Government to tone down its ambitions on EU taxation, as he worries discussions on putting taxation under EU control might irritate the British electors ahead of the planned June election. Moreover, Tony Blair fears talks on EU economic policy and common taxation might undermine chances for the Euro-referendum he intends to hold in the next two years following his re-election to have a positive result. Belgian finance minister Didier Reynders said it was normal, at this stage of integration, that EU leaders discuss a new level of taxation to help finance the EU. The EU taxes would not replace national, regional or local taxes, but would be added to them, stated Didier Reynolds. (EUobserver.com 4/5/01)

Situations Vacant advertisement in the Guardian, "The European Commission currently seeks to recruit specialists in the field of taxation and customs. Over 100 staff are sought, in five categories of administration, to be based in Brussels or Luxembourg.....you will be making a real contribution to the unification and development of Europe....as the European Union becomes involved in more and more policy areas" (Guardian February 2001)

"The European Commission currently seeks to recruit specialists in the field of taxation and customs. Over 100 staff are sought, in five categories of administration, to be based in Brussels or Luxembourg.....you will be making a real contribution to the unification and development of Europe....as the European Union becomes involved in more and more policy areas" (Advertisement in Guardian, February 2001)

For the second time in two months the European Commission has rebuked the Chancellor of the Exchequer for his public expenditure plans. The Commission's Broad Economic Policy Guidelines calls for public spending to be capped at 37.3 per cent of next year's national income. This corresponds to the Chancellor's current predictions, but Gordon Brown has made it clear that if economic growth slows, spending will not be cut. The Commission believes it should be. § The Treasury has attacked the proposal arguing that public spending "is entirely a matter for individual states. We believe the Commission has over-reached itself." In an interview given on BBC Radio Four's Today programme (26 April 2001) Mr Brown insisted that Britain would retain control of its own public spending and taxation policies. He said, "I'm not prepared for the EC to give us lectures about what the level of public spending should be in this country." It is laughable that the Government refuses to acknowledge (a) that euro members are necessarily subject to EU legal limits on tax / spend policies, and (b) the euro has always been intended to act as a catalyst for tax harmonisation. ("No" campaign bulletin 26/4/01)

European Finance Ministers met in Malmo, Sweden, to discuss taxation proposals. According to an official press release, it was agreed that "ministers will deal with priorities of the coming years, such as combating damaging tax competition, the European Commission's new strategy on VAT, energy taxation, the Commission's proposal relating to the taxation of tobacco products and excises. In this context, the ministers will discuss the creation of a standing high level group to co-ordinate the Council's work" (Ecofin meeting, Malmo, 20 April 2001).

European Union governments are close to imposing a tax on music and software downloaded on the Internet from outside Europe by EU citizens, EU Financial Services Commissioner Frits Bolkestein said. The proposal, which could spark a clash with the U.S., would set a value-added tax on all ``digital'' products sold to EU customers. Currently EU businesses levy that tax, while their non- European rivals are exempt. The 15 governments are working on a compromise to share the tax revenues, so that ``we are nearing an agreement,'' Bolkestein said at a meeting of EU finance ministers. ``It may take another couple of months.'' (April 20, 2001 Bloomberg) http://www.politechbot.com/p-00965.html

EUROPEAN officials are pressing EU governments not to cut petrol taxes as world oil prices rise, in case they are seen to be "capitulating" to the producers. The disclosure will add to fears of widespread fuel price increases. Shell yesterday raised the price of petrol by 1p a litre. Far from seeing forecourt prices fall, the commissioners want other EU countries to push taxes up to British levels, and have cautioned that tax cuts could be illegal under EU law. Their advice, contained in a document to be presented to energy ministers next month, has been seized on by the Tories as evidence that yet more sovereignty is being quietly transferred to Brussels. Francis Maude, the shadow foreign secretary, said: "Just when we need flexibility over energy taxes, the EU comes out with this bombshell. How many people in Britain know that it was partly illegal to cut oil taxes? So much for Tony Blair standing up for Britain." (Daily Telegraph 19/4/01)

TONY BLAIR faces a new drive by the European Union to harmonise taxes on commerce and individuals in member states, leaked EU documents reveal. Threat: Tony Blair will use the British veto if the EU forces tax co-ordination A permanent unit of Brussels officials will be established in an effort to iron out national differences in taxation regimes, threatening Britain's reputation for the lightest business taxes in the EU. The plans are disclosed in papers forwarded to a summit of finance ministers this week in Sweden, to be attended by Gordon Brown. The documents recommend that "tax co-ordination" be made an EU priority and that the unit be set up in the European Commission to recommend changes in areas where national taxation policies are deemed to lead to unfair competition or hamper economic growth. Areas listed as "priorities" include the taxation of internet commerce, personal pensions and energy. It states: "Tax issues have assumed increased importance within the community in recent years. This holds for both indirect and direct taxation." The paper makes clear that the aim is to target countries using lower taxes to attract investment, in addition to making purely technical changes. It says that an "important feature of future work" will be "the fight against harmful tax competition". (Sunday Telegraph 15/4/01)

THE European Commission is planning to impose a minimum rate of duty on cigarettes and tobacco sold in its 15 member states in an attempt to stamp out tobacco smuggling. Brussels is planning to bring all EU countries into line by 2002. The minimum rate, about 80p on a packet of 20 cigarettes, is expected to help to even out the differences in tobacco tax. If approved, it will almost certainly mean higher prices in five EU member states — Spain, Greece, Italy, Portugal and Luxembourg — and provide less incentive for Britons to cross the channel to load up with cheaper tobacco.Variations in prices across Europe are said to have cost governments within the EU billions of pounds in lost revenues. Tobacco manufacturers attacked the minimum tax proposals, claiming that the higher prices would only encourage cross-border smuggling from eastern Europe. David Davies, vice-president of corporate affairs for Philip Morris Europe, described the plan as "simply unrealistic". (The Times Friday March 16 2001)

BELGIAN Prime Minister Guy Verhofstadt has risked stirring up a huge row with the EU's more reluctant members by calling for a directly- levied European charge to be slapped on all Union taxpayers. In an interview with European Voice, Verhofstadt said the current system of financing the EU through national contributions has serious disadvantages as member states get bogged down in endless arguments about how much each pays and how much each gets back. "The best solution is that you have a direct contribution of every citizen to the European Union," said the prime minister. "Like everyone pays their local and national taxes, you should have a direct financing system for the EU." (European Voice 3/2/01) ) A tax paid directly to the EU by the citizens would strengthen transparency and democratic control, according to EU Budget Commissioner Michaela Schreyer. In an interview with Danish paper Poltikien, she supports the idea, which was first suggested by Belgian Prime Minister, Guy Verhofstadt. Schreyer will not say definitely what the EU is going to tax, but says that it will not be an EU income tax, as the tax systems of the member countries differ too much to allow this. She suggests a tax on interest from savings placed in another EU country, as this source of income is not taxed to-day. According to Schreyer, the issue will be on the agenda of the Belgian Presidency in the autumn of 2002 in order to be ready before the revision of the Treaty in 2004. (EUobserver.com 22/3/01)

Taxpayers could have a right to silence and a right against self-incrimination in cases featuring civil VAT penalties if a recent ruling stands, warns KPMG. The VAT and Duties Tribunal decided in December last year that tax evasion should be judged as a criminal and not a civil offence in light of the Human Rights Act. Under current rules, guilty businesses can avoid a criminal record by incurring the cash penalties involved in a civil case. But under this preliminary ruling, tax evasion should be seen as a criminal offence so that the accused can have the fair hearing granted to them under human rights legislation. Now KPMG is warning that taxpayers will have to be afforded certain rights, such as the right to silence, and this could have an impact on how inquiries are made. Investigating officers will have to advise taxpayers of their rights, and will be unable to draw adverse inferences if someone exercises them. Customs is considering an appeal against the decision. The department said the ruling would upset the great many businesses that support the current legislation. (AccountingWEB 16 Jan 2001)

Today in the European Parliament, Labour MEPs demanded the scrapping of the UK veto on VAT, the full harmonisation of VAT and an end to the current VAT system which preserves the UK zero rates on food, books and children`s clothes. (Conservative European Economics spokesman, 14/12/00)

I draw your attention to a sleight of hand which the Blairies are about to allow through in the Nice Treaty. It is an extension to Art 93 which includes, for the first time, an ostensible provision, allowing the harmonisation of direct taxes in the EU. CONFER 4800/00 erd/KF/mc 11 ANNEX II DQPG EN ANNEX II TAX PROVISIONS ARTICLE 93 TEC 1. The Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, shall adopt: - provisions for the harmonisation of the laws and regulations of the Member States concerning turnover taxes, excise duties and other forms of indirect taxation; - provisions concerning the approximation of the laws and regulations of the Member States on direct taxation; to the extent that such provisions are necessary to ensure the establishment and the functioning of the internal market. (Eurofaq posting CJKA 10/12/00)

Tax harmonisation between countries is both unnecessary and potentially damaging, according to a study about to be published by the Centre for Economic Policy Research, an influential European think-tank. Prof Baldwin and Prof Krugman, however, argue that a more economically integrated EU does not require a harmonised tax system. It is often argued that tax harmonisation is necessary to prevent a "race to the bottom", in which countries compete to attract investment by offering ever lower tax rates, as Ireland has done with great success. If taxes were harmonised, the formerly high-tax countries might be worse off, because they would lose tax revenue, and the formerly low-tax countries would be no better off, because there would be no incentive for companies to move there. (Financial Times; Nov 29, 2000)

BRITISH taxpayers will be forced to bail out countries suffering economic problems because of their membership of the European single currency, under an EU reform to be accepted by Tony Blair at this week's Nice Summit. Treasury officials confirmed yesterday that an article in the draft treaty would surrender the national veto over such aid packages, and would mean that Britain would have to contribute even if it remains outside the euro. Gordon Brown quietly agreed in principle to the provision at a meeting of finance ministers last Monday. The reform is a major amendment of the system established under the 1991 Maastricht Treaty and undermines repeated claims that a single currency would not involve large fiscal transfers between countries signing up to monetary union. The fund under discussion at Nice was originally intended to cover only natural disasters, such as fIoods.. However, the new provision has been drafted with deliberate vagueness to include any situation where a member state "is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control". Treasury officials in Brussels conceded that the clause could now cover a situation in which a state was struck by an economic crisis related to its euro membership. (Sunday Telegraph 3/11/00)

Tony Lynne, Head of Indirect Tax at KPMG said: 'The fact that three disappointed EU governments will have to change the relevant law in this area (VAT on bridge tolls) is another telling indication of how European Court decisions are increasingly influencing tax law in all Member States. The Court is a bigger driver towards tax harmonisation than anything proposed by the European Commission. VAT has always been a European tax but this is becoming equally the case for direct taxes as well.' (KPMG web site)

The French Presidency of the European Union, which is overseeing the Inter-Governmental Conference, this week published its draft of the Treaty which will be agreed at the summit at Nice on 7 December 2000. The French draft includes proposals to end the national veto on aspects of taxation and social security policy. (Times, 8 November 2000). Support for tax harmonisation continues to grow. This week the vice-president of the European Commission, Loyola de Palacio, called for harmonised fuel taxes, and the Dutch Finance Minister, Gerrit Zalm, called for harmonisation of pension tax systems.(No-euro bulletin 9/11/00) The item was not approved at the Nice Summit.

The EU Committee on Economic and Monetary Affairs on Taxation reforms in the Member States says: "The EU Code of Conduct group on business taxation (Primarolo group) has identified over 280 special regimes relating to the tax systems of EU Member States and their dependent territories, more than 60 of which were qualified as "harmful" to fair competition, because they apply a lower-than-normal tax rate to particular businesses establishing on their territory or constitute a comprehensive tax haven. Without eradication of integral tax havens (like the Channel Islands) and tax havens for certain businesses (like corporate headquarters in Belgium), progress towards fairer corporate taxation in the Member States will be nearly impossible." PAGE 8: para 11 "urges Member States to swiftly bring their taxation systems in line with the EU Code of Conduct on business taxation;" para 12 clearly states that the removal of "special regimes" will require "introduction of a minimum statutory corporate tax rate across the EU" with standardised accounting and rules for depreciation. PAGES 12 & 13: attempt to address the problem of how to tax capital which is mobile when the burden of tax on labour is increasing since it is static. It also suggests taxation on capital appreciation on land on a per annum basis rather than as a tax on profit at sale. (GLW Posting 8/10/00)

The European Commission blamed an handful of EU member states of putting "their own particular interests" ahead of efforts to harmonize fuel taxes across the European Union. Commission energy spokesman Gilles Gantelet said "a vast majority" of member states expressed strong support for keeping existing fuel taxes intact, at an EU transport ministers' meeting Wednesday in Luxembourg. But he added: "We are disappointed that a number of delegations appear to give priority to their own particular interests." The absence of fuel tax harmonization, coupled with the ability of just one EU member state to veto any EU-wide tax policy, "is clearly leading to a deadlock," Gantelet told a daily EU press briefing. Faced with a rash of disruptive truckers' protests, France, the Netherlands and Italy this month cut taxes on diesel fuel. Others such as Britain and Belgium refused to do so, making other concessions instead. EU Energy Commissioner Loyola de Palacio, who attended the Luxembourg meeting, is likewise opposed to lowering fuel taxes, and favors a more harmonized fuel-tax policy for the entire European Union. (BRUSSELS, Sept 21, 2000)

A £30 annual tax on every phone line in the European Union is being considered by officials in Brussels. The tax would apply to 200million phone lines, whether they are used for a phone, fax or computer. It would also include mobile phones. The plan, which would raise around £6 billion annually, will be discussed at an EU summit in France in December. Currently, the EU raises revenue by taking part of the 15 member states' VAT receipts. There are 23million mobiles and 30million conventional lines in Britain. Another proposal is an EU-wide airport tax of £10 per passenger. (London Metro Monday 11th September 2000) Financial autonomy of the EC is discussed on the web site : http://europa.eu.int/comm/budget/en/agenda2000/ownresources/html/annex2/index.htm

AN OPEC FOR TAX-HUNGRY POLITICIANS. Fearful that international competition will make costly welfare states unsustainable, politicians from industrial countries are diligently working to set up a cartel of high-tax nations. The latest gambit from the high taxers is a breathtakingly brash effort to compel low-tax nations to act as collectors for their more greedy brethren. If this plot succeeds, international investment will suffer and worldwide growth will slow. The European Union and the Organisation for Economic Cooperation and Development are the champions of this scheme. The EU has identified 66 "anti-competitive" corporate tax provisions and continues it's campaign for member nations to "harmonise" tax policies. Having failed to impose an EU-wide tax on savings, the bureaucrats in Brussels are now bent on outlawing financial privacy. Indeed, the OECD released yet another report, "Progress in Identifying and Eliminating Harmful tax Practices", which lists so-called tax havens. It warns them that the will face sanctions if they do not acquiesce to various demands from high-tax nations. The OECD's work is particularly dangerous to global commerce. Cartels, by their very nature, only succeed if consumers have no alternatives. For instance, if conducted unilaterally, the EU's crusade to protect high-tax member nations is doomed to failure; jobs, talent and capital will migrate out of the EU to jurisdictions with a less hostile attitude toward private sector wealth creation. Much to the chagrin of politicians, however, even an OECD-wide cartel would not do the trick. There are plenty of nations, particularly in the Caribbean and South Pacific that would welcome the new business that would come their way if the OECD nations created a tax oligopoly. If tax-hungry lawmakers want their cartel to work, they will have to stop leakage to these non-OECD jurisdictions. This is why the OECD has decided to resuscitate imperialism. In a startling move that tramples sovereignty and makes a mockery of international law, the OECD is trying to force low-tax regimes to collect taxes for confiscatory regimes. In effect, low-tax nations will be threatened with sanctions - ranging from ostracism to financial protectionism - if they object to vassal status. Many of the so-called tax havens are unlikely to knuckle under to the OECD's pressure. Moreover, even if most of them do capitulate, that will increase business and profitability for those who refuse - making them even less likely to join the cartel. (Wall Street Journal (Europe) 29 june 2000)

On February 28th, Mr Brown agreed a confidentiality deal that allows Brussels to frame the circumstances in which a country can change it's internal mix of tax and spending. This deal would subject the most important areas of British economic policy to minute scrutiny by the Economic & Monetary Affairs Directorate in Brussels. Tax cuts can be allowed as part of a package of reform but the EU will decide if they approve of the reform. (Daily Telegraph 23/5/00)

Mario Monti, the EU Competition Commissioner, has asked his department to launch an investigation into instances of unfair business taxation in the EU. He said he wanted to use the instruments available to the competition department "to ban cases of damaging tax competition". This will be seen as a big extension of the Commission’s interference in EU member states’ sovereignty over tax matters. (FT 22/2/00)

Michel Barnier, EU Commissioner for reform, has proposed that national vetoes on "all areas of policy", including taxation, should be abolished to enable the EU to be enlarged. Speaking in a "personal capacity", he said: "What's the point of creating an economic world power if we deny it the means to co-ordinate fiscal and social policy?" (Daily Telegraph, 15 June 2000). Pedro Solbes, Commissioner for EMU, made a similar call for tax harmonisation. (Guardian, 15 June 2000).

The European Commission has announced a new offensive on tax harmonisation. By autumn of this year, a report is to be submitted to the Commission, on the basis of which it will make recommendations for harmonising taxes in the EU. Already, the Commission’s stooges in national parliaments are claiming that the measure will not lead to "complete" harmonisation: they seem oblivious to the fact that it is not the degree of tax harmonisation which is objectionable but the principle of it – a principle which used to be considered a bedrock of democracy, and which used to be formulated in the well-known slogan, "No taxation without representation." France is said to give wholehearted support to the principle of moving towards harmonised taxes, although not of income tax. For the time being, it is determined to find a political solution to the tax on savings ("withholding tax") which it wishes to see imposed at a harmonised level across the EU, including in Britain. [Handelsblatt, 31st May 2000]

On Wednesday 24 May the European Commission issued a report, Public Finances in EMU - 2000, on the taxation policies of Member States and proposed new guidelines for tax policy in the future. The new report proposes to ensure even tighter fiscal discipline by encouraging Member States to avoid ill-timed tax cuts. The report proposes that: If the national budget of a Member State is not in balance or in surplus "over the medium term", the Member State can only reduce taxes if it reduces spending to compensate.- Member States should not cut taxes while their economies are growing quickly.- Levels of government debt and their long-term budgetary position should also affect decisions on tax policy.- Tax reductions should promote employment, investment and growth. The report is not binding on Member States, as Government officials were at pains to emphasise. But according to the report, a meeting of EU finance ministers on 28 February 2000, attended by Gordon Brown, "broadly endorsed" the four new criteria. Pedro Solbes, EU Commissioner for EMU, said: "It is not an obligation, but a kind of political commitment." The Commission's report has opened a new flank in the tax harmonisation battle. Until now the Commission has advocated the harmonisation of tax rates, for example via the Withholding Tax, to prevent "unfair tax competition". Now it is proposing to influence basic decisions on raising and spending of tax revenue. (Today, 24 May 2000).

Financial Times carries a report on the EU's first attempts to get control of the expenditures of governments. Pedro Solbes, Commissioner for Economic and Financial Affairs, is leading the campaign. He said the time had come to "upgrade" the EU's stability and growth pact, which aims to keep national budgets close to balance, and strengthen the role of tax and public spending policies in supporting employment. Mr Solbes wants a peer review system in which EU member states can learn from each other and adopt best practice in tax, spending and pensions policies. He is fortunate to be pushing at an open door. His strategy for improving public finances was backed by the weekend informal meeting of finance ministers in Lisbon. Last month's special European summit on competitiveness and employment set a deadline of spring next year for the Commission and member states to report on how public finances could contribute to growth and employment. .... The Commission will look at targetting tax cuts to ease the burdens imposed by governments on labour; focussing public spending more on infrastructure investment and education and training, and at ways of assuring the long-term sustainability of public sector finances, considering Europe's rapidly ageing population. (FT 12/4/00)

Germany spends more on welfare than on any other industrialised nation, including the generous Scandinavians. State and private spending on welfare is just under 28% of GDP, above Sweden's 27%. Astonishingly, the United States' "real" spending on welfare is 24.5%, although 7.8% of this is privately funded as opposed to 0.8% in Germany. [Die Welt, 7th February 2000]

The government is to alter the structure of air passenger duty to take account of objections from Brussels, with changes to be introduced in the next budget. The European Commission objected to the existing tax because, while passengers on UK domestic flights have to pay £10, the return tickets are exempt. This meant return trips within the UK were not given the same tax treatment as return journeys from elsewhere within the European Union. (FT 10/11/99)

Francis Maude claimed that the Treasury's approach to a proposed European Union directive proves that Labour is willing to transfer tax powers to Brussels. The shadow Chancellor criticised ministers for a U-turn over what he said were plans to impose European-wide minimum levels on energy products, including gas, petrol, electricity and other fuels. A Treasury Spokesman said the government was now broadly in favour of the directive, subject to a permanent exemption for domestic fuel. Mr Maude said "this is tax harmonisation by stealth." (Daily Telegraph 28/10/99)

Britain has had the fastest rising tax burden of any country in the industrial world since Labour took office, and probably also the greatest increase in fiscal complexity. The latest figures from the OECD in Paris show Labour raised the tax burden on the productive economy from 35.4 to 37.6% of GDP during its first year in power, with further increases already baked into the pie. We can only surmise that the Chancellor is either building up a war chest for a burst of give-away spending before the next election, or he is creating a pre-emptive budget surplus to facilitate the transition to Economic and Monetary Union. (Daily Telegraph 16/11/99)

Britain could be forced to accept tax harmonisation as the price of membership of the single currency according to a senior member of Germany's ruling Social Democrats. British MPs were told that Germany would expect the UK to pay a price for admission to a successful Euro. Britain would be under pressure to give ground over the budget rebate and tax rates. (Financial Times 14 January 1999)

The government has ruled out using Britain's veto to oppose proposals for common European taxes. At a meeting of the Cabinet committee on Europe, ministers agreed to dump the threat to veto tax harmonisation because they fear it would turn Britain into a marginal player. Robin Cook, the Foreign Secretary, argued that the United Kingdom should be able to block any controversial proposals through consensus and by winning support from other countries, rather than by confrontation. Ministers are ready to sign up to the proposal to commission a study on the practicalities of unified company tax policy across that EU, a sign that they are not opposed in principle to the idea of harmonisation in this area. (Independent 24 January 1999)

The inland revenue has been told to trim the package of tax breaks for Northern Ireland after discussions with the European commission found that some elements were incompatible with the single market. The Chancellor last year announced 100 percent first-year capital allowances for spending by small and medium-sized businesses on plant and machinery. After talks with Brussels parts of the road haulage business, and some projects in the agriculture and fisheries sector, will now be added to those businesses already excluded. (Financial Times 9 July 1999)

A report by Lombard Street Research says the key reason for poor performance in Europe was inflexible labour markets and high taxes. The amount of taxes raised in the UK would have to rise by 20% if they were to be harmonised to the average EU level. (Daily Telegraph 19 February 1999)

IR35 proposals from the Inland Revenue bring our contracting side more into line with Germany's. More harmonisation by the back door. Freelance computer programmers who normally operate as a private company so that their overheads are a tax-deductible expense are to be taxed at source in future. Anyone who works through an agency (commonplace) or direct "supply of services of X to client" basis - they will be considered as an employee, but PAYE will be deducted at source even if they are trading via a limited company. These proposals will either hit entrepreneurs by taking a large tax bite out of their earnings, or force up contractor rates to the detriment of British business. Either way the British economy loses. (Eurofaq posting 7/6/99). The Government's IR35 proposals introduced by Dawn Primarolo, who chairs the EU Tax Harmonisation committee, could lead to a £705 million tax loss rather than the Revenue's predicted £300 million tax gain according to the Professional Contractor Group's (PCG) own regulatory impact assessment. Using the Government's own figures, the PCG carried out an in-depth analysis of the losses and gains which would be accrued by the Revenue if the Government introduces its proposals. The variance in the Revenue's and PCG's figures is accounted for by the fact that the Government's assessment did not take into account the number of people who would move overseas; losses in corporation tax and VAT; increased compliance costs; reduced income and behavioural changes. (Press Notice; 30th October 1999 PCG )

The introduction of the UK government's IR35 legislation has caused a massive reduction in flexibility within the IT labour market. A survey of more than 1,200 silicon.com readers published today found that 24 per cent of IT contractors are in the process of leaving the UK to find work overseas, while 18 per cent have left contracting to find permanent work. Matthew Brown, managing director at the Professional Contractors Group said although his company has seen fewer contractors go abroad - around 15 per cent - he had seen similar numbers go permanent. " The rest of Europe has been restrained by an inflexible workforce and now the UK is seeing the same." (Silicon.com TV News Network 4/9/00)

The European Union faces a long period of horse-trading over which national tax breaks to abolish, following a significant increase in the complaints submitted to an official inquiry led by Dawn Primarolo. The inquiry is an important part of EU efforts to stamp out harmful tax competition between member states. But tax advisers fear continued uncertainty over which tax breaks will survive. It could make it increasingly difficult for the 15 EU member states to attract inward investment from companies locating in Europe. The list of tax breaks being investigated has jumped to more than 200. 'There has to be a chance that the whole thing will end up in the long grass', said one tax lawyer close to the investigative group. Large multinational companies seeking a European base are being advised to consider non-EU members such as Switzerland. (Financial Times six May 1999). Euro-zone governments have been put into a dilemma; now they are bereft of control over interest rates they are told to use taxes to control inflation, or recession. But they are also being pressurised to harmonise taxes. The result must be stalemate, or worse - Ed.

It was disclosed that the EU committee considering tax harmonisation is looking at twice the number previously thought. Last year it was reported that the group was considering 85 measures, including scrapping some tax reliefs that benefit Britain. But it is now known that the group is considering another hundred issues. The Treasury has refused confirm the figure which was found on the Dutch Finance Ministry's web site. The Shadow Chancellor said it is outrageous that the government is engaged in secret negotiations to harmonise our taxes with Europe and the only way that the British people can find out about it is from the Dutch Finance Ministry. (Daily Telegraph 24 May 1999)

There are 11 tax treatments that are under treat from the Code of Conduct Group chaired by Dawn Primarolo. Free depreciation and balancing charges on ships; Special depreciation for tourist premises; International business companies; Exemption for non-resident companies; Exempt insurance companies; Tax holidays for industrial undertakings; International loan business; Offshore banking business; Fund management; Exempt public companies; Film industry tax credits; There are 7 Guernsey/Alderney measures under threat and 4 Jersey ones. Mainland UK has 13 under the cosh. (Eurofaq posting C Arkell 28/6/99)

The EU has added some of Gordon Brown's flagship measures, designed boost Britain's productivity, to the list of British taxes it wants to harmonise. The tax breaks, 100% capital allowances for scientific research and 40% first-year capital allowances for small companies, were announced with great fanfare in the Budget. The third tax break the EU has in its sites is important to private client stockbrokers and other investment managers in the City. It applies to non-residents who deal in investments in the UK through an independent agent. The news will add to Mr Brown's embarrassment over tax harmonisation as he signed up to the principle in 1997 and it now seems the EU's ambition to end harmful tax competition extend to some of the Chancellor's most cherished policies. And EU committee is scrutinising eight British tax breaks. The four other areas under threat are enterprise zones, special measures for the film industry, 100% first-year capital allowances for small companies in Northern Ireland and roll over relief for balancing charges arising out of the disposal of ships. (Daily Telegraph 16 June 1999)

The Inland Revenue has confirmed that the plans for extending Capital Allowances in Northern Ireland have been scuppered by the EC. The proposals, which were announced with such a fanfare in the Budget, have fallen foul of EC competition law and have been seriously emasculated. Now the planned 100 per cent first year allowance will not be available for vehicles used in freight haulage businesses or machinery and plant for use in the agricultural and fisheries sectors. Since both of these are sizeable sectors in Northern Ireland, the restrictions come as an unwelcome blow at a time when the Government is struggling to keep the peace process alive. (Accounting Web 16/9/99)

Government incentives allow companies based in three European Union countries to pay barely half the official rate of tax on their earnings. Portugal, Austria and Belgium show the sharpest divergence between a statutory rate of corporate tax and the average percentage in fact paid by groups based there, according to research carried out at the University of Maastricht. They found that in the 15 EU countries the corporate sector in 1990-96 paid 26.9 per cent tax on its profits, nearly 10 percentage points below the average of the taxation rates officially applied to them. (Financial Times 29 April 1999)

On the Dawn Primarolo secret EU tax group Chancellor Gordon Brown has ensured that never again will tax incentives be introduced in Britain without prior approval from Brussels. Existing tax breaks will go and new ones will be prohibited. It will no longer be possible to adapt tax incentives to the needs of the British economy. (Press Release Graham Mather MP 28/5/99)

RWE, the German energy and industrial group, has threatened to transfer some of its business operations abroad in protest at the German government's tax reforms. It was the second warning in less than a week from a large German company and underlines the scale of disenchantment amongst business leaders with the government's tax promises. Allianz's chief executive suggested his Munich based insurance group might form a Europe-wide holding company and move its headquarters out of Germany. He said the heavier tax burden would force the company to reconsider its planned investment in a lignite mining project near Dusseldorf. (Financial Times One of March 1999) and the

Article 6 of Protocol 3 to the UK's 1972 accession to the Treaty of Rome has a very restrictive definition of who is a Manxman, Guernsey or Jersey person. For example: On page 11 of "A Guide to the Constitution of Guernsey (1994)" it says: "The Protocol definition of a Guernsey Person is such that it applies only to a very small proportion of the resident population." (possibly fewer than 20%). This definition also applies to Jersey and the Isle of Man... The European Parliament is calling for the EU to be given new powers to raise its own taxes directly from the electorate so as to end budget disputes between member states and to make community taxes easier to understand. (ref.: Daily Telegraph 11 March 1999). The idea is that every "Citizen of the European Union" will pay taxes directly to Brussels. This could possibly include that high percentage of the Isle of Man, Jersey and Guernsey residents who are excluded by Article 6 of Protocol 3. (Letter from Campaign for an Independent Guernsey in IOM Examiner, 30 April 1999)

The insurance premium tax was increased in the budget from 4% to 5%. This seems to be a tax harmonisation move because in most European countries it is about 10%. (Financial Times 25 March 1999)

In a move to discourage home ownership the Chancellor increased stamp duty on homes in the Budget-Ed. It is now 3% on high value homes, in Italy it is 8%, in Ireland 9%.(D Telegraph 24/4/98) Relief on mortgage interest is being phased out in 2000 (Budget March 1999). The budget increase in stamp duty would have little effect on the property market, possible future rises to bring Britain's stamp duty in line with the European rate of 5% would affect the market badly. (The Times 10 March 1999)

The French parliament adopted a budget for 1999 which includes a "poison pill" intended to prevent French entrepreneurs relocating to other European countries in search of a tax friendly environment. In the absence of European tax co-ordination, the new budget is aimed at preventing individuals escaping French jurisdiction. Any holder of more than 25% of a French company who wants to move abroad will have to pay a 26% capital gains tax, as if the company was sold. In 1981 when the Socialist government created special taxes for the very wealthy, the richest left, but today people with medium sized fortunes, from £1m to £10m, are willing to leave. (FT 19/12/98)

UNICE the EU industry federation accused governments of damaging EU competitiveness by allowing the overall tax bill on business to creep higher. Recent initiatives to co-ordinate taxation would be used to level the tax burden higher. Also, tax obstacles to cross-border business activities and investment are the most glaring gaps in the operation of the single market. Investors will sun Europe in favour of less expensive locations. (FT 6/11/98)

The EC is to hire management to trawl through the tax systems of Britain and the other EU states to identify areas of harmful tax competition. It will initially concentrate on tax breaks awarded to inward investors. Britain and Ireland have won huge inward investment projects. (D Telegraph 10/12/98). Dawn Primarolo, chairman of the EU Code of Conduct Group and a Treasury minister, will hire the consultants. A rare example of a minister arranging to investigate herself. (Times 10/12/98)

"Our British colleagues have asked us not to use the word (tax) 'harmonisation' but 'co-ordination'. Don't be afraid that I could say anything that might be misunderstood on the island. We must, step by step, carry out a major reform. "Europe is a task which has been set for us by history, and by the millions who died on the battlefields." (Oskar Lafontaine, address to Social Democrats, 9/12/98.)

We are supposed to take the assurances of Blair and Brown that the British veto will be used to halt further EU tax harmonisation at face value. However they abandoned the veto when the notorious EC's Code of Conduct on Company Taxation was being negotiated in autumn 1997. The UK managed to restrict the scope of the Code to business taxation. "The Commission agreed to remove personal taxation from the scope of the Code, but made it clear that it would seek to draw up a similar code to deal with personal tax at some stage in the future." Dawn Primarolo was appointed in May 1998 for a two-year term as the first chairman of the committee that is overseeing its implementation throughout the member states' separate tax jurisdictions.

Brown has made much of the need to curb 'tax avoidance'. He instructed the Inland Revenue to produce a General Anti-Avoidance Rule (GAAR) which will apply initially to business taxation in the UK, but will later be extended to personal taxes. This is not, however, in any way an UK or New Labour initiative. The EU Treaty already requires member states "to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation .......". And just as the Code of Conduct threatens us with an EU personal tax code, so the draft Directive on withholding taxes threatens us with similar 'harmonisation' of EU taxes on pensions and insurance-packaged benefits - preamble (9): "the problems relating to the taxation of pensions and insurance benefits will .......... be the subject of separate consideration leading, where appropriate, to specific legislative initiatives". Blair and Brown - so voluble in their 'defence' of our veto rights - have been astoundingly silent on this explosive subject.

Hard on the heels of the Withholding Tax Directive came, in July this year, a proposal to improve tax efficiency in the EU through a crackdown on non-payers of tax. Angela Cunningham reported on this for Taxation [13.8.98, p.517]. "The new legislation would cover direct taxes and fines and penalties as well as the EU's traditional own resources [VAT and excise duties]. The enforcement legislation of the member states requesting assistance would be directly recognised and automatically treated as the law of the requested Member State". This would deal the final blow, as far as Europe is concerned, to the rule of non-enforcement of foreign taxes, "There is a well recognised rule, which has been enforced for at least 200 years or thereabouts, under which these courts will not the collect taxes of foreign states". HM Customs and Excise are reported [The Tax Journal 6.7.98, p.5] to be considering how to introduce civil penalties without doing so in primary legislation, in order to comply with the requirements of the Commission's forthcoming tax enforcement regulations. (Eurofaq posting Christopher Arkell 7/12/98)

The government's freedom to use taxation as a tool of industrial policy is likely to be severely circumscribed by the support for an end to unfair tax competition between European countries. This could mean support for the film industry will have to be reversed, Airbus will be affected, reductions in the tax burden of the shipping industry, etc. (FT 30/11/98)

John Prescott, Deputy Prime Minister, proposed a tax break for shipowners to appear in the next budget. It will replace conventional corporation tax with a tonnage tax. This would reduce the level of tax on an individual shipowner but if more ships were attracted to the British flag the Treasury's tax take would increase. Maersk, a Danish company, said it would put four container vessels on the UK register. (FT 17/12/98)

Commissioner Mario Monti made it clear that he wanted to press ahead with a directive on taxing pension schemes at the earliest possible opportunity. (FT 6/11/98)

Tax breaks benefiting particular regions or sectors of business fall within the EU's state aid rules, the Commission clarified. The Commission can order a member state to recover aid paid in breach of EU law. (Week in Europe 12/1/98)

The New European Way - Economic Reform in the Framework of EMU. A Paper by the Party of European Socialists - EcoFin Group. Tax policy co-ordination. Taxation should not distort economic decisions with regard to labour, capital and services. In the last decade evidence from the EU has shown a disproportionate increase in the fiscal burden on immobile factors, especially labour, coupled with a reduction on the burden on immobile (sic) factors, especially capital.... We welcome the political agreement reached among member states on the fiscal package as a first step in the right direction. EMU will intensify the potential for tax competition. Therefore, further efforts have to be undertaken to avoid harmful tax competition among the member states. The ECB should take into account the need for growth and not just stopping inflation, when it sets monetary policy. (Document signed by Gordon Brown, Chancellor of the Exchequer, PES web site Nov 1998). Tony Blair is supporting higher public spending to create jobs - even if this means breaching the strict interpretation of the EMU stability pact to underpin the single currency. (D Telegraph 19/11/98)

The President of the European Parliament has proposed to abolish the complex system for raising revenue for the EU with an income and wealth tax. This would put an end to the debate about national contributions. (S Telegraph 25/10/98)

The UK and Ireland pay less in taxes and social security levies than other EU countries as a proportion of GDP, Eurostat reported. Taxes and social contributions amounted to 35.9% of GDP in the UK in 1997. The EU average was 42.6%. The highest proportions were paid in Sweden (54.1%) and Denmark (53.1%). The general trend was of rising taxes, offset by falling social levies. (Week In Europe CEC 1/10/98)

Sweden has a very high rate of personal income tax. Tax starts at about £500 of earnings at the rate of 38% and rises to 55%. The combination of high taxes and compressed pay differentials has reduced the incentive to invest in higher education. Fewer people graduate from university in the 1990s than in the 1970s. (European 7/9/98)

AUSTRIA began its first presidency of the European Union with a pledge to push for greater harmonisation of taxes in Europe before next year's arrival of the single currency. Rudolf Edlinger, the Finance Minister, said: "The single currency will speed up the need for tax harmonisation." Austria is keen that EU partners with lower taxes, such as Britain, should not be able to undercut it in the battle to attract investment. Austria has some of the highest taxes on labour in the EU. Its corporate tax, too, is higher than that of many of its neighbours at 34 per cent. Mr Edlinger admitted that some low-tax countries could suffer from harmonisation. (Telegraph 2 July 1998)

The French Prime Minister says, "we must progress in tax harmonisation just as we must in social harmonisation..(Eurofacts 6/11/98)

Britain's mortgage industry could face a new attack from Brussels bureaucrats that would lead to the introduction of regulation more strict than any thing threatened by the UK government. The European Commission is working on proposals for EU-wide statutory regulation of mortgages with a new directorate that would overrule anything put in place by the Treasury. The European Mortgage Federation, the trade body for lenders across Europe, warns that the European mortgage market is far less competitive than the UK is. In some areas the markets are so heavily regulated innovation has been halted and mortgages made very costly. If there is harmonisation, Spain and France would want it at their level, where there is one type of product. European lenders would not to let UK lenders into the market without full regulation as they would find it difficult to compete. (Daily Telegraph 21/10/99)

The average American only has a couple of more weeks to work for Uncle Sam and, as of April 27, will have earned enough money this year to satisfy his or her federal income tax burden. "Tax Freedom Day," as proclaimed by a group known as the Tax Foundation, will occur two days earlier than last year and four days earlier than in 2000. (CNSNews.com April 10, 2002)

Tax freedom day is the day you stop working for the state and can keep your earnings for yourself.

Based on earnings of Ffr1.5m a year. (The European 20/4/98) * The Euro-tax starts at 13%, averages 19% and rises to a maximum marginal rate of 45% (E Voice 23/7/98) .

Tax freedom day is set to come later every year as a result of the Chancellor's latest expenditure plans. Figures calculated by the Adam Smith Institute (on a different basis to the European figures above) give UK tax freedom day in 1999 as May 29. By 2001 it will be June 2. (D Telegraph 8/8/98) Tax rises since New Labour came to power mean people will have to work an average of two days extra a year just pay their tax bills. Tax freedom day falls on May the 27th this year. The situation is much worse countries that joined the Euro. In the Euro zone, tax freedom day is about June 21st. (Daily Telegraph 4 April 1999). 'Independence Day', the day on which people stop working for Government and start working for themselves. In 2000, Independence Day this year falls on 30 May. Three years ago it fell 5 days earlier, on May 25. (Centre for Policy Studies 7/00) Tax freedom day has moved to 10 June in 2001. (Daily Telegraph 25/5/01)

A German employee on average earnings pays twice as much in tax and social security contributions as an average British employee, according to the latest survey by management consultants William M Mercer. An average British employee pays £5,297 in tax and social security contributions, compared to £6,771 in France, £7,506 in Italy and £11,371 in Germany.( BfS Briefing 30/6/00)

Employment costs for the major EU countries vary considerably.

Employee tax and social security charges as a percentage of a salary above £23,660 a year are:

On a salary below £23,660 the UK National Insurance charge is 10%. (Eurofacts 12/9/97)

Corporate tax rates in Europe are as follows:

(S Telegraph 19/4/98)

The Economic and Social Committee says there is a real risk that differences in taxation and social legislation could be used as surreptitious means for countries to compete unfairly against one another by for example a lack of a harmonised approach to taxation of income and capital. The European Parliament calls for decisive action to be taken to combat tax variations. It recommends a minimum tax rate to be levied on all income in the EU. (Eurofacts 24/10/98)

The EU is urgently hoping to harmonise taxation because it realises that under EMU there will be tax competition between member states. It also wants to shift the burden of tax from labour to capital. Capital will become more mobile with a common currency so tax will be a deciding factor where companies locate. Individuals with high earning capacity will move to low tax regimes. The EU wants to introduce the notion of fiscal citizenship to suppress differences between tax residency and non residency. It wants a moratorium on tax perks to encourage multinational investment. There would be peer review where other governments could judge if a country's tax rates are harmful to the EU as a whole. The proposals will inevitably lead to a single tax authority and the harmonisation of taxation. Britain opposes ceding the national veto over tax harmonisation. (The Independent 12/9/97). The Prime Minister's chief press secretary said there was not a cat-in-hell's chance of Britain losing its veto over tax policy. Finland, supported by France and Germany, plans to table a formal proposal to modify the Treaty of Amsterdam to allow majority voting on tax matters. (D Telegraph 4/12/98)

In March 1996 the Commission issued a document, entitled Taxation in the European Union, Report on the Development of Tax Systems [Com(96)546 final 22.10.1996]. In this document, the Commission argued that labour was too highly taxed in comparison with capital and other bases of taxation; that this contributed to high levels of unemployment in parts of the EU; that Member States were engaging in harmful tax competition; and that this was harming the Single Market, and therefore the very stability of the EU itself. Specific remedies were proposed; joint cross-border tax audits to counter tax evasion and avoidance; minimum levels of withholding tax of interest payments to individuals to shift the burden of tax from labour to capital; environmental taxes, to do the same; and much greater co-ordination and harmonisation, not only of tax rates (a minimum level of corporation tax set at 30% (from 1999 the UK standard rate will be 30%) and the abolition of UK-style imputation credits, such as ACT). (Eurocritic Journal/ C Arkell 7/98). ACT for pension funds was abolished in the 1998 Budget. The withholding tax on savings is referred to below -Ed. The Chancellor's recent moves to abolish Advance Corporation Tax were reported to mean four quarterly corporation tax payments a year for a British company. The book "Tax: Strategic Corporate Tax Planning" (CBI/Price Waterhouse(1989)) confirmed that France and Germany both operated a four-times-a-year payment system. (Eurofaq posting 3/2/99 B Mooney)

The only public source of all tax information published by the European Commission is the" Inventory of Taxes Levied on the (12) Member States of the European Union" giving the taxes as at 1994 (767 pages) and the supplement (149 pages) for Finland, Sweden and Austria. The following tables give the wide variety of taxes and rates levied. There are in addition many excise duties for alcohol, vehicles, entertainment, gambling, local taxes, social security, etc. Harmonisation of all these taxes would be an enormous task but one which the officials in Brussels would undoubtedly relish. The UK would obviously have to introduce taxes on gifts, savings, wealth, property and possibly even a tax on pornographic films and videos, as do the French, so as to achieve harmonisation. We would also be under pressure to increase many of our tax rates so as not to appear to be competing unfairly. For example income tax to 60%, corporation tax to 45%, VAT to 25%, death duties to 90%. Some tax comparisons are on the Geneva web site:http://www.geneva.ch/vat.htm -Ed

INCOME TAX

CORPORATION TAX

(Updated from FT 5/5/00)

Venice is dying as companies leave. Driven by high tides and cheap factory space on the mainland. The EC is to accelerate the trend. The authorities decided to encourage businesses to stay by exempting them from social security contributions. Commissioner Van Miert warned that the recipients of the tax breaks would have to repay the aid, including interest. (European 4/5/98)

The Irish are under intense pressure to raise their company tax rate above 10%. The EU Commission says it will treat the tax regime as state aid. This implies a threat to reduce budgetary transfers. It also means any change in the rate will have to have permission from Commissioner Van Miert. The Irish deny that their low tax rate has attracted EU firms because 60% of foreign investment has been of US origin and corporation tax accounts for a third of tax take. The EU is attempting to introduce a voluntary code of conduct to stop predatory use of low tax regimes.( FT 14/10/97). The EU Commission is angry that Boston Scientific Corporation will spend GBP35.5m on expanding its Irish operation. The company closed its Belgium plant and moved to Ireland. The Irish Deputy prime Minister said that if the company had not come to Ireland it would have gone to Malaysia.(FT11/11/97). The EC has the power to force the Irish to raise their tax rates. Under Article 101 of Maastricht, the Commission has the right to propose measures wherever it senses a "distortion of competition" in the common market. EC Council of Ministers need only approve these directives by qualified majority voting. i.e. there is no veto. ( New Alliance ). The EC approved Irish plans to phase in a single rate of corporation tax of 12.5% ending a long running dispute over tax policy. (FT 23/7/98)

For the first time the 15 member states agreed proposals affecting tax. An area considered the sole preserve of national administrations. An agreement to curb harmful tax competition was concluded on the 1 December 1997. This includes a code of conduct on corporation tax; a commitment to an EU-wide withholding tax on non-resident's savings income and easier company cross border payment transfers. Ireland has to phase out its 10% corporation tax rate in five years. (FT 3/12/97)

A German finance minister has asked the EU to stamp out allegedly unfair national tax practices that give foreign financial centres competitive advantages. The UK was, he said, a tax haven which used its tax system as a weapon against Frankfurt. One example was the inability of German banks to get staff to work overtime and weekends when urgent work was required. (FT 23/12/96).

The Government has attacked EU plans to give officials wide-ranging powers on the taxation of alcohol and tobacco. It says they would be a threat to British law making. (FT 13/8/97)

Confidential reports produced by the EU propose the integration of taxation, social policy, policing and immigration. Tax policies would to be harmonised after the launch of the single currency. (Independent 16/1/97)

An EU working party of experts has proposed a new information tax on television, faxes and use of the Internet. The rate would be about GBP1 per hour and charged on the number of bits transmitted. To be effective all communications would have to be logged. A large construction firm stated that such a tax would cost it £1m a year. The tax regime would be unable to distinguish data that had no commercial value. The purpose of the tax is to boost the economy, not hinder it. (Independent 20/1/97). The bit tax has been ruled out as too complex by the Commission. (Telegraph Connected 25/6/98)

The EU's proposals for levying tax on Internet commerce are set out in the paper XXI/98/0359, published 3 April 1998. Suggestions include: 1. The creation of mandatory consumption tax critical fields in systems protocols governing the Internet - for example the Internet payment standards, SET and OTP. This would require the identity and location of the customer to be disclosed in a way that could be audited by the fiscal authorities. 2. The Germans suggest a form of withholding tax at VAT rates levied on payments by credit card for Internet goods and services. Quote: 'there are undoubtedly ways in which the revenue authority could require information, help and audit trails from those concerned with the general facilitation of electronic commerce. These would include the access providers (particularly if in the territory), the telecommunications companies and the secure settlement systems using payment and charge card systems with encryption facilities. (Taxation p.101 29 October 1998).

When the GATT Uruguay international customs duties agreement is fully implemented in 2000 average tariffs on manufactured goods will be 4%. The cost of collecting such duties will exceed the revenue. If the UK withdrew from the EU it would not face a significant tariff barrier, if any. (Independence Issue 29, 1997)