I'm inherently at heart pro-Europe. As a passport holder of two EU states, and as someone who appreciates the right to movement that it delivers, as well as the dialogue that it has created that has undoubtedly contributed to peace on one of the most historically volatile areas of the world, I find it very hard to be anti-European.
I also have some belief in the value of overall low tariff trade and consistency in regulation. I also approve of a mechanism that reallocates wealth between as well as within countries. There is much about the EU to like.
But that is not to say that it is all right: that is far from true. And here I do not refer to the minor irritations, of which there are many, or the long running sores such as the obvious failures of the common agricultural policy. I do instead refer to the fundamental tents on which the EU was built, because they are wrong.
As Christopher Booker (not someone I usually have much sympathy for) noted in the Telegraph yesterday:
Astonishingly, however, entirely missing from all the outrage [on international tax abuse] is the simple explanation of how and why this racket has come into being. It all stems from the “four freedoms” laid down in the founding treaty of the European Union, especially the freedoms of “capital” and “establishment”, which entitle firms to move all their income to the country where they want their tax base to be, to give them the smallest tax liability. This has completely destroyed the sovereign right of national governments to levy tax in a country where income is earned. Google, Amazon, Apple and the rest can thus quite legally channel all their earnings wherever tax rates are lowest.
Now let's say straight away Booker is not entirely right: the US has a massive international tax problem and it is not in the EU. Africa is being fleeced of the tax due to it and it is not in the EU either. So Booker massively overstates his case, considerably. That does not mean that there is no case to answer because there is.
It is a fact that the freedom of capital movement and the freedom of establishment that the EU provides have been the subject of considerable abuse. Like so much in modern tax, the consequences of these 1950s ideas cannot have been imagined when these supposed rights were established. The same is exactly true of the OECD concept of permanent establishment in its double tax treaties. Put the two together and there is a perfect recipe for abuse. Companies clearly trading in one location (Amazon and Google in the UK) can completely legitimately argue that they are 'elsewhere' for tax and the OECD and EU provide them with cover.
It's not surprising that the CBI has launched a three year pro-EU campaign as a result. The whole EU is structured to provide asymmetric power to capital at cost to the state and the people who live in EU countries.
But does that mean we have to leave the EU? I doubt it as yet, although I have never ruled t out. What it does mean that just as we have to change the paradigm under which the OECD operates so too do we need to change the paradigm under which the EU operates. If all the benefit accrues to capital then quite clearly the EU is not fit for purpose as it is. But that requires reform, not abandonment.
The EU is in part at the root of our tax problems. But more than that, the EU embodies a notion that capital has rights greater than the individual and state enjoys and that it is free despite its amorphous nature to enjoy those rights in any way it pleases. That is a corrupt philosophy and one that has to be reformed. Then we'd be another step on the way to claiming the right to tax capital as we should. But be warned; that will be a long slow process. I have promised I will retire by the time I am 83: that is 28 years away right now. I can see this issue being on the agenda for quite some time into that planning horizon.
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THE EVOLUTION OF THE FREE MOVEMENT OF CAPITAL
http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=2122&context=ilj
Thanks – have scanned and will keep
If a country, or the tax havens involved, are outside the EU, it is possible for a sovereign state to take action to counter the abuse, if the political will is there at a national level, which it frequently isn’t. In the EU there is a supra-national body which makes tackling the problem impossible to resolve.
I, like you, am basically pro-European, but if reform cannot be put on the agenda I am nervous about an in/out referendum where the only options are an unreformed EU andgetting out.
Richard,
as one who is “inherently at heart pro-Europe”, can you outline the ways in which you consider “the fundamental tents on which the EU was built” can be reformed?
The “free movement of capital” within the EU, as you point out, is not some accidental, or temporary aberration. It is the bedrock of the 1957 Treaty of Rome, the Treaty establishing a European Economic Community (EEC) Part 1, Art.3(c): “the abolition, as between Member States, of obstacles to freedom of movement for persons, services and capital;”. It is consolidated in all subsequent treaties including the Treaty of Lisbon, ‘Treaty on the Functioning of the European Union (TFEU): “Art. 26 (2) TFEU states that “the internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured…”
So, there really is a heavyweight legal basis for saying that the freedom of capital movement and of establishment that the EU provides are intended to facilitate precisely the sorts of tax avoidance and corporate abuse that you so actively expose and campaign against.
If one disagrees with the “corrupt philosophy”, as you rightly describe it, that capital has more rights than the individual and the state, then the logical conclusion is to advocate leaving the EU, rather than embarking on the hopeless task of seeking to reform it out of its very constitutional and institutional nature.
Of course, I accept that this is matter of political judgement. However, it surely behoves those such as yourself who argue that the EU can be reformed to give those of us who argue that it is irreformable, some kind of idea of how you think this could be achieved.
This is not a mere ‘debating point’. With every year that passes, the EU accumulates more and more Treaty and case law emphasising the untrammeled rights of corporate capital to avoid tax, to avoid national minimum wage provisions, to oversee national budgets, etc, etc. Current negotiations over the EU-US free trade agreement (Transatlantic Trade and Investment Partnership – TTIP) and the recently signed off Canada-EU trade deal massively expand the freedom of capital over national state legislation. Such trade deals are designed in order to be irreversible and produce an observable ‘legislative chill’, which act as a disincentive on elected governments wishing to curtail free movement of capital.
There is a serious sense in which the best way in which Britain could act as good example (rather than as usual, the most thoroughly neoliberal country in the world) is to leave the EU and thereby to provide a significant counterweight to the ultra-neoliberal advocates of the Single European Market, which in case anyone has forgotten was signed off by PM Margaret Thatcher, whose then-acolyte John Bercow described it as “the Thatcherisation of Europe”.
Your argument is absurd
An organisation based on outmoded ideas can be reformed: it happens all the time
Richard,
Notwithstanding the absurdity of my argument, history does not seem to be on your side. 25 years of talk about so-called ‘Social Europe’ has ended with record unemployment rates, plunging wages and EU-imposed austerity.
Can you give any examples of the kind of organisational reform that you have in mind? I mean, I assume there must be one and you’re not just blowing hot air.
We have not had social Europe. That died in the 70s. We have had neoliberal capital Europe. That’s why we have a crisis. The free movement of capital haschelped make that crisis.
Reforms? The common consolidated tax base would start.
As would the EU savings tax directive reforms
The problem is free movement of capital without tax harmonisation. I will be charitable to the founding fathers of the EU and assume that enshrining the former, but not the latter, as a fundamental tenet of the EU was initially because they didn’t foresee that large coprorations would game the system. By the time this became apparent, presumably vested interests lobbied successfully against reform.
The implications of an immediate withdrawal from the EU are severe.
For that reason a vote to leave will mean at least a two-year period of negotiation, after an article-50 notification of intent to leave, to settle major problems such as trading agreements.
Probably the UK will apply to join other organisation which have treaties with the EU already.
The problems do not end there, as many EU laws have a basis in other international organisations which will also need applying in UK law as things change.
Certainly, however much the “get-out” people want that, getting out without the above will mean a large amount of economic upset.
Dear Richard Murphy
Have you ever state that you would have liked the UK to give up sterling and adopt the euro?
Not that I can ever recall
I have always had a belief in multiple currencies and never single ones
If you can find me saying otherwise I’ll be very surprised, I admit, although when i was running a business I did see micro attractions to the euro
I suspect in 1957 most of the capital movement was used to finance industry and trade. (although I recall Harold Wilson blaming the ‘Gnomes of Zurich’ for a run on the pound. Zurich was not, of course, part of the old EEC)
Today most capital movement is probably best described as speculation. Or is that too simple?
It’s spot on
Why do you bring the US and Africa into it? Booker never mentioned them. You seem to share a mutual friend’s penchant for bringing irrelevancies in order to muddy the discussion.
I pointed out that Booker’s argument was selective as to his evidence
That’s entirely reasonable
Too many people on ‘the left’ have blindly shut down all criticisms of the EU just because some on ‘the right’ don’t like it for the wrong reasons. It’s taken too long for many to admit that there are deep flaws at the heart of it, but refreshing that it’s happening. We have the viscous impoverishment of Greece in the name of the ‘Euro Project’, we have the undermining of sovereignty in areas way outside the democratic mandate of the EU (of which taxation is one).
I support the free movement of people. I believe that trading together in a single market should be good for us all, and that some additional regulation is a price worth paying for that. I think that co-operation between the members is part of why the continent has not conspired to try and tear the world apart recently. I don’t know if the EU is the right framework under which we should move forward (and, by ‘we’ I mean all the nations, not just the UK) but I do welcome the arrival of a wider range of viewpoints to the discussion. The prevalence of a populist xenophobic anti-EU agenda should not bar people from criticising it because it serves the elite, or exceeds it’s mandate, or is undemocratic, or whatever other concerns people have. It bothers me that every time I express a concern about the EU I have to reassure everyone that I have no problem with having a Lithuanian living next door.
I don’t really want the same tax system that you do, but I do believe that if a majority in the UK want it then are parliament should be empowered to enact it.
(As an aside, was the theory behind VAT that it would generate taxation in the state of sale, making the state of profit less important? Are some of the problems we have due to the fact that, for various reasons, many of the transactions fall outside the scope of VAT. Leaving aside questions of incidence, is part of the problem thus that the EU mechanism to mitigate against the effects of establishment issues has failed to keep up?)
I am uncertain as to what you actually trying say here. You move on very quickly indeed from tax to Freedom of Establishment to moving Capital, as does Christopher Booker, as do your commentators (although Alex Gordon’s analysis is excellent).
What you, Booker and all others don’t do is explain how the European dimension, particularly Freedom of Establishment, has addded anything into the Tax mix that the OECD model, particularly concerning Permanent Establishments, does not.
Likewise I am not seeing how the free movement of Capital is increasing tax avoidance. It does not “allow companies do locate revenues where they wish” as Booker claims; a combination of the PE rules and modern technology achieves that.
Finally, you say that Booker “massively overstates his case, considerably” yet appear to support every one of his contentions. Am I wrong here too?
I say the problem is real, but not for all the reasons Booker states
Ok, leaving Christopher Booker aside (what a nice thought!), I’m still not seeing how Europe might be at the route of our tax problems, how it adds anything to avoidance that isn’t already there through the OECD concept of PEs and technology.
It is important because our nation’s relationship with the EU and EEA is possibly the defining theme of the next 5 years and taxing rights will play a very big part in that.
It is the right to incorporate where you will that assists these other abuses
But corporates can establish subsidiaries for commercial and avoidance purposes anywhere in the world; theEU hasn’t altered that. Additionally, much of the avoidance you have been highlighting has involved the use, or absence, of permanent establishments, which by their nature do not involve incorporating. Technology has also afforded businesses the opportunity to book sales where sales are not really being made. Again, the EU isn’t really impacting on that.
So to answer your intital question (it was after all an open question): no, the EU is not at the root of our tax problems. It is certainly the source of Tax Competition between nation states and has served to undermine nation states’ effective charging rights, in the way the EU is undermining states’ effective rights in all competances. That though is, as Alex Gordon demonstrated, absolutely axiomatic with Union, from 1957 onwards. You are either a good european who accepts this as the price of Union or you are a dissenter.
And I disagree
And almost all informed people would
And I would add tax competition is an oxymoron unless you propose that states should fail
In that case the premise of the idea is wrong and the EU was founded on a false premise, as I suggested
Richard,
once again, and at the risk of piling absurdity on absurdity, if you believe that the EU was “founded on a false premise”, why do then you believe it is reformable?
Concretely, I don’t see how the reforms you wish to see (a common consolidated tax base, or EU savings tax directive reforms) will be accomplished within the EU.
I’m sure that it hasn’t escaped your notice, that complete control over national taxation and budgetary powers of eurozone members vested in EU institutions under the heading of Banking Union is precisely what last month’s EU summit discussed.
The European Central Bank (ECB) in Frankfurt, which controls monetary policy in the euro, will in future also supervise big private banks. From next year ECB will control over 130 banks in the 18 eurozone states with the task to wipe out risky businesses and non-performing loans, as the ECB is now obsessed by the realisation of the existential need to reduce the ballooning financial risk embodied in the toxic debt mountain in the European banking sector.
The new powers were described by German Finance Minister Wolfgang Schäuble as “an important step towards creating a legal framework that will allow the ECB to press ahead with setting up operations for banking regulation”.
If you want to see what ECB solutions to financial insolvency looks like, study the strict conditions imposed on ‘bail out’ countries such as Greece, or ‘bail in’ Cyprus. These include mass privatisation, abolition of trade union rights, pay cuts, vicious government spending cuts, raiding savings accounts and massive structural adjustment in favour of monopoly capital.
It seems to me that the outcomes you desire, of a fairer, more redistributive, taxation regime could only be achieved outside of the EU, who’s institutions are devoid of democratic content.
The EU wishes for a CCCTB and a revised EU STD
Clearly it is capable of reform
It is the captured states – captured by the Pin stripe Mafia – who block reform
I am against the EU’s commitment to “free” trade. All “free” trade has done in many cases is wreck domestic economies. In fact, those that have put up the most protections against “free” trade, notably China, are the one’s that have done better economically.
Who does it benefit more to allow a corporation to fine a country for not allowing access to its markets? How does it benefit a country to not allow it to protect what it considers crucial markets?
I notice corporations are not shy of using state protectionism in order to preserve its intellectual property rights.
In certain circumstances, protectionism can have negative consequences, but in most cases, it is merely a country exercising its own democratic self-determination.