Osborne’s Domicile plan will fall foul of Europe

Posted on

I wrote earlier this week that George Osborne's domicile plan could be illegal. I happen to think that right, but some have objected that Parliament can legislate that black is white if it wants and there's nothing we can do about it.

Not true. We're in the EU and the European Court of Justice has a massive influence on domestic tax policy.

Under an EU Directive (alright on Business Taxation - but these things are still influential) it's been ruled that harmful tax practices include:

1. An effective level of taxation which is significantly lower than the general level of taxation in the country concerned;
2. Tax benefits reserved for non-residents;
3. Tax incentives for activities which are isolated from the domestic economy and therefore have no impact on the national tax base;
4. Granting of tax advantages even in the absence of any real economic activity;
5. The basis of profit determination for companies in a multinational group departs from internationally accepted rules, in particular those approved by the OECD;
6. Lack of transparency.

Think about this for a moment. The planned domicile rule from George Osborne breaches 1, 3, 4, and 5. Those claiming to be non-domiciled claim a form of non-residence, so this also breaches 2. And Osborne promises not to make enquiries about non-doms offshore affairs as a result of his new status, so meaning these will be opaque, breaching 6.

It doesn't look good does it?

And don't think it won't happen. It was only in August that the Italians suggested a challenge might be on the cards for the UK's domicile laws. As the Guardian reported:

Italy could turn to the European Union to try to strike down British law under which "a more or less fictitious residence in London allows you not to pay taxes in your own country", said Vincenzo Visco, the government's tax chief.

If I was the Tories I wouldn't be hanging my hat on this plan.