The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Brexit: the end to austerity

Unlocking the benefits of leaving the EU

By Bob Lyddon

Bob is the author of The UK’s liabilities to the financial mechanisms of the European Union for the Bruges Group, and the Brexit Papers for Global Britain –

23rd June 2017
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The current Government led by Theresa May has noticeably failed to bake any “Brexit dividend” into its policies for the coming 5-year Parliament. This is concerning because it may indicate either that they have not yet figured out the sources and extent of the financial benefits from Brexit, or that they are not going to pursue the negotiations with the EU in order to garner them, or both.


The guideline financial benefit is £50 billion per annum, or £961 million per week: almost three times the “battlebus” figure of £350 million, and approximately the size of the black hole in the Labour Party manifesto pledges for the recent election.


The keys to garnering the difference between the two figures lie in structuring a fair deal on the EU economic migrants already in the UK and on the taxation of corporate profits. “Fair” means fair to the UK population as a whole.


Talk of “a breakthrough” supposedly achieved on the first day of negotiation in the matter of the rights of EU citizens living in the UK must be a concern if this turns out to mean that the status quo is preserved for the 3.6 million citizens of other EU countries now living in the UK, since this heading contains the single largest amount of money connected with these negotiations.


It is vital that real “reciprocity” on this matter is achieved: the same amount of money flowing in both directions and for the same amount of time.


This is not the same as striking a deal that has an equivalence in words but not in figures, applying equally to EU citizens here and UK citizens living elsewhere in the EU. There are only 1.2 million UK citizens so affected, and these bald figures do not reflect either the annual cash value of the services delivered in the UK to EU citizens as compared to those delivered to UK citizens in other Member States, nor the age demographic: for what period will these services need to be provided?


Research based on the UK government’s National Labour Survey and issued by Global Britain indicates that the UK subsidises the public services obtained by each of the EU citizens in the UK by just under £10,000 each per annum. This figure is the difference between (i) their direct and indirect tax payments and national insurance contributions on the one hand and (ii) the costs to the UK state deriving from their usage of public services on the other.


In other words, the annual cash cost to the UK state of the 3.6 million EU citizens currently in the UK is £30 billion per annum. If the trade proposed by the UK government involves the exact same cost per head being spent by other EU Member States on UK citizens, then the annual cash cost on that side would be £10 billion, resulting in a net detriment to the UK under this heading of £20 billion per annum.


There is also the question of demographics: if the average UK citizen involved is a pensioner living in Spain and the average EU citizen in the UK is aged 25, then the cost to the UK will be of far longer duration than the cost to the other EU Member States. Mr Davis’ travelling direct to Spain from the first day of negotiations in Brussels could be taken to indicate that it is exactly this type of UK citizen that constitutes the average, and that the main country with whom a deal needs to be done is Spain.


Whatever has actually transpired so far, the UK government needs to now justify whatever position it has taken in the negotiations by qualifying the computations around which it is proposing a “trade” on this issue, based on:

  • Confirmation of numbers of people involved
  • Age demographic – to indicate for how long the people will be contributing funds and drawing benefits
  • Analysis of usage of public services:

o   in the UK, this would indicate whether the consumption per annum per head is more or less than the £10,500 average

o   in other Member States the figures would need to account for the actual cash value of the public services usage and not assume that the level of the service or the cost are the same as the provision in the UK

  • Analysis of contribution of direct and indirect taxes and national insurance contributions


That analysis will then deliver two figures:

  • Confirmation, or not, of the estimate above that there is a cost to the UK of £30 billion per annum, and for how long that cost will persist;
  • The equivalent figure for the 1.2 million UK citizens living in other EU Member States and for how long that will persist. The assumption made in this article that there is a parity of cost-per-head on both sides is no more than that, although the costs on the UK side are based on research undertaken for Global Britain.


These figures can then be expressed as a Net Present Value, and we can then see what money should flow from other EU Member States to the UK as a lump sum, or in the other direction, for the status quo to be maintained.


There are, of course, other ways of doing it, to ensure reciprocity, but also to cap the liabilities of the rest of the citizenry of the UK. For example, the rights of EU citizens to continue to live here could simply be curtailed as of March 2019, along with their rights to UK benefits and pensions, beyond a single pension transfer payment that buys as many years of entitlement in the state scheme of their home member state as they have paid NI contributions for into the UK scheme:

o   They do not retain an entitlement to the UK state pension;

o   They get as many years’ entitlement in the state system of their home member state as they paid for into the UK scheme.


If this approach were to be adopted, the transfer value of UK citizens’ contributions into the state schemes of other member states must be offset against it and those UK citizens awarded as many years of the entitlement in the UK scheme as they accrued in their host member states while abroad.


Another alternative would be for the 1.2 million UK citizens living elsewhere in the EU to apply for nationality in the member state where they are now living, and to continue to accrue rights in the state system there; when they get foreign nationality, they would surrender their UK passport and the UK would pay over a transfer value to buy them as many years of state pension in their new home country as they had accrued while working here.


Were this to be the arrangement, then the 3.6 million EU citizens would be free to apply for UK nationality, and the UK would have to have a scheme to adjudicate whether those applications are accepted. If they are not, the person would be obliged to return to their home member state, and the transfer value of pension rights would be paid over.


The first key point here is that no-one will have dual nationality. The second key point is that there is always a third-party to the tests of fairness of the arrangements, beyond just the UK government and the individual involved. The third-party is the UK taxpayer, who should not be called upon to subsidise any economic migrant. This has been one of the major failings of the EU from a UK perspective and a main cause of the failure to eliminate the public spending deficit.


After the Eurozone debt crisis of 2011 the UK rose in attraction as a place of employment, and the previous Conservative/LibDem government made great play on the increase in numbers of people employed and the increase in GDP that resulted. Unfortunately, and as the National Labour Survey has shown, these were mainly low-skill/low-wage jobs taken by EU economic migrants, and each such job has cost the country money.


In order to block every breach in the financial dam, the UK’s negotiators need to make sure there is a comprehensive exit on several other issues including:

  • Release from all the contingent liabilities associated with (i) the 2013-2022 Multiannual Financial Framework for the EU Budget and for all preceding budget periods; (ii) the European Central Bank; and (iii) the European Investment Bank – EUR1.3 trillion in all;
  • Buying out the European Investment Bank’s loans into the UK and then offsetting - against the reimbursement to the EIB - the UK’s book of Student Loans to citizens of other EU Member States who have studied in the UK, taken a UK student loan, and returned to their home countries or elsewhere without repaying it;
  • No further payments into the EU Budget after March 2019.


If the EU does not agree to all of the above and to one of the approaches outlined regarding citizens living outside their home EU Member State, the UK’s fallback would be to open the issue of the past – as well as the future - costs of the 3.6 million migrants and their benefits and pensions. If they are to stay in the UK, their home member state should pay that cost in cash every year, with a mechanism to adjust it annually, and make an upfront payment of the retrospective costs that the UK has already shouldered.


For the future we have to have it in our own hands to define our migrant worker regime for workers from anywhere in the world, and the start point can be a fairly easy one:

1.    A maximum six-month visa for seasonal and contract workers, with no access to UK public services: the employer would need to show an insurance policy for healthcare during the worker’s stay in the UK and pay – and show they had paid – the premium upfront;

2.    A work permit for a permanent, salaried position, as long as the salary is on a PAYE basis and is a minimum £50,000 per annum. The person would have full access to UK public services and the direct and indirect taxation and national insurance would certainly be above the £10,500 average consumption of public services.


As for the other elements of the UK’s financial relationship with the EU going forward, these come down to the terms-of-trade.


The two essential elements here are:

  • What replaces our current membership of the customs union and Single Market;
  • How we protect ourselves from predatory tax practices of other EU Member States.


The guiding principle is that it is impossible to remain part of the customs union and Single Market and also preclude predatory tax practices.


To solve the latter issue, the UK needs to rewrite its domestic corporate tax code by drawing up industry templates for cost/income ratios through which HMRC could run the group-wide figures of the likes of Google and Amazon, and the many other companies who benefit from the Freedom of Establishment and the sweeteners embedded in the domestic corporate tax codes of Ireland, Luxembourg and the Netherlands in particular.


Whatever the appearance these companies might present about the extent of their UK business, HMRC would be accorded the right to look through to the substance, and extrapolate the profits of their UK business from the company’s group-level sales and from a template of costs that would apply to a UK company undertaking the same business from a 100% UK base, and not with the activities split between the UK and other EU Member States.


This splitting of activities is underpinned by the implementation of odorous “transfer pricing” that lands the costs in the UK and the profits in Ireland, Luxembourg or the Netherlands. Instead the UK needs a new regime:

  • HMRC can make assumptions about the group’s UK sales from the group’s global Profit&Loss account;
  • Then HMRC can derive their UK costs and their UK pre-tax profits through applying the industry templates for 100% UK-based companies undertaking the same activities;
  • Whatever the company says is the profit of the UK subsidiary, HMRC would then respond with the UK’s official version of their profits, on which they would pay 16-17%, or whatever the standard rate is;
  • HMRC would send the company an Advance Payment Notice for the difference between what is in their own tax return and the UK’s computation, regardless of what tax the company had paid in Ireland, Luxembourg or the Netherlands.


The remaining issue is import/export tariffs. These can be negotiated in the knowledge that the UK exports approximately £280billion of goods and services to the EU now and imports about £360billion, an annual trade deficit of £80billion (Source: Walbrook Economics).


Given this imbalance to the UK’s detriment, the UK should have no qualms about going onto World Trade Organisation terms. If tariffs of on average 10% were applied by other EU Member States to the UK’s exports under these terms, this would amount to a detriment of £28billion per annum. However, the detriments caused by EU membership fees (net £9billion), Freedom of Movement (net £20billion) and Freedom of Establishment (£11billion) total £39billion, and outweigh the tariffs that would be imposed on UK goods and services under WTO rules.


By the same token, if the EU imposed 10% average tariffs on UK goods and services, the UK could do the same in return. In that case HMRC would receive £36billion in customs revenues, enough to subsidise all of our EU exports:

  • Assume an export was to be made for £50,000 and the EU tariffs would have raised this to £55,000;
  • The UK government sets up a scheme allowing the UK exporter to still quote a £50,000 all-in price, but composed of a cash price of £45,454 plus 10% EU import duty of £5,454 = £50,000;
  • The UK government reimburses the UK exporter with the £5,454 of duty so the impact of the duty is neutralised;
  • Even if EU governments did the same in return, the UK as a whole would still be better off by £8billion per annum: 10% of the UK’s negative trade balance with the EU.


On top of that the UK would be able to strike trade deals with non-EU member states at lower tariffs than apply now, when they are set at an EU level.


There is, however, one proviso to the above. The UK government should only reimburse EU import duties to UK exporters where the UK goods and services being exported into the EU have a minimum of 70% UK content. There would be an exclusion where goods/service are prepared mainly outside the EU, imported into the UK for finishing, and then re-exported as UK product i.e. as an EU product. This kind of “trade deal shopping” adds little value to the UK. Where the Confederation of British Industry lobbies for continued access to the Single Market, it would be interesting to know how much usage their members are making of the UK as an entrepot to “game” the Single Market rules, as opposed to their investing and creating proper jobs in the UK: the latter deserves UK government support, whilst the former does not.


The main penalties, then, of the UK negotiators failing to reach any kind of agreement with the EU negotiators by March 2019 can be summed up as:

1.    EU import tariffs being imposed on the UK’s exports of goods and services, which, for purposes of illustration, we have put at a detriment of 10% of £260billion, or £26billion;

2.    The necessity of providing public services for 1.2 million UK citizens living in other EU Member States now, at an assumed cost of £10billion per annum based on parity of cost with that the UK bears now for providing public services to the 3.6million citizens of other EU Member States;

3.    Loss of estimated £5billion per annum of grants from EU bodies into the UK.


The total detriments would thus amount to £41billion per annum.


Were the negotiations to fail in that way, the financial benefits to the UK would be:

1.    Imposition of tit-for-tat import duties on EU goods and services, at the same level as imposed by the EU. If that were at 10% and on the current level of EU imports, the UK would book £36billion of import duties;

2.    Cessation of payment of £14billion per annum EU Member Cash Contribution, out of which the £5billion per annum of grants from EU bodies back into the UK are funded;

3.    Cessation of the need to bear the cost of the public services for the 3.6million citizens of other EU Member States currently in the UK, which is £30billion per annum;

4.    New revenue in Corporation Tax on tax-efficient EU business models where profits are currently concentrated in Ireland, Luxembourg and the Netherlands, calculated by the author for Global Britain at £11billion per annum.


The cash benefits amount to £91billion per annum, as contrasted with the cash detriments of £41billion – a net cash benefit of £50 billion per annum.


The difference expressed as a Net Present Value may well be far higher if one were to calculate the relative periods over which public services would need to be provided to EU citizens in the UK compared to UK citizens in the rest of the EU, based on age demographic.


In addition, the failure of negotiations and the UK’s exit from the Treaty of the Functioning of the EU would release the UK from EUR1.3 trillion of contingent financial liabilities. In order to ensure this release, the UK government should buy out all of the European Investment Bank’s loans into the UK:

  • Adjusting the payment in the EIB’s favour for their loss on redeployment of funds, where the EIB has funded its loans at higher interest rates than prevail now (the loans will be set to those higher rates so the UK would earn this adjustment back over the life of the loans);
  • Offsetting the value of the Student Loans to students from other EU Member States.


This last point could be of course be challenged, with the UK’s position being that allowing these students to study here and take out a student loan here were part-and-parcel of the UK’s membership of the EU and should not survive the UK’s withdrawal.


Apart from that, the UK could simply enact the remainder without striking a Brexit deal in negotiation. This should then be the baseline: the negotiation needs to achieve a better outcome for the UK than the result if no negotiation were undertaken at all.


Since the “no negotiation” route can be expected to deliver £50billion per annum cash benefits and release the UK from (i) EUR1.3trillion of contingent liabilities and (ii) a liability to provide public services to EU citizens of a far longer duration than the likely need to take over public service provision for UK citizens currently in other EU countries, the UK negotiating position is straightforward: the above is a minimum outcome and is completely acceptable. The negotiating task is to improve on that, and walk away if that is all that can be achieved.


The walk-away can deliver £50billion per annum cash benefits: 2/3rds of the UK’s public spending deficit and enough to bring austerity to an end, and without Labour’s Land Value Tax and financial conjuring tricks.

By Bob Lyddon

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Robert Oulds
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Monday, 26 June 2017 13:54
Robert Oulds
Tim Congdon, and a report from the Bank of England, see EU migration as a drain on the economy in terms of the resultant lowering ... Read More
Monday, 26 June 2017 13:55
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Brexit: UK now able to tackle tax havens

The EU is a dysfunctional organisation in the area of corporate tax

17th December 2016
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The EU is a dysfunctional organisation in the area of corporate taxes because:


1.      the EU Commission is not able to prevent EU countries such as Ireland, Belgium and Luxembourg operating as tax havens (this is because member states have not conferred legislative competence on the EU over direct taxation), and


2.      the Court of Justice of the European Union (CJEU) has developed the fundamental freedoms in its case law to prevent other EU countries tackling the artificial diversion of profits to these tax havens, unless the arrangements are “wholly artificial” (please see the CJEU’s decision in the Cadbury Schweppes case (C-196/204)). The CJEU applies the most liberal, even extreme, interpretation of Organisation for Economic Co-operation and Development (OECD) tax rules to allow multi-national corporations to avoid taxation.


One of the advantages of the UK leaving the EU is that the UK will be free to prevent UK companies from shifting their UK taxable profits to EU tax havens, such as Ireland, Luxembourg and Belgium, and non-EU tax havens.



Tax avoidance is costing the UK billions, and the UK Government is powerless to address the problem all the time the UK remains in the EU.  This is because of the supremacy of EU law over English law.  Consider, for example, the CJEU’s decision in the Cadbury Schweppes case (C-196/204).  The case states that companies are free to shift their taxable profits to tax havens within the EU to reduce the burden of taxation in their host state unless the arrangements are “wholly artificial”.  Given that companies are able to ensure that their tax avoidance activities are not “wholly artificial”, this means that the UK is powerless to prevent UK based multi-national companies from engaging in tax avoidance in the other 27 member states.


Large UK based multi-national companies are not only aware of the opportunity which the CJEU’s decision has created, they are readily exploiting this decision for their own advantage.  This is one of the reasons why so many large UK based multi-national companies were in favour of the UK remaining in the EU.  They know that if the UK leaves the EU, there will be no restriction on the UK Government from tackling tax avoidance.


Countries remaining in the EU can only solve this problem by conferring on the EU authority over direct taxes, to determine the tax base and the rates of tax, so that tax havens no longer exist within the EU.  If this were to happen, companies operating within the EU would not be able to gain an advantage by shifting their taxable profits to the member state offering the lowest effective tax rate, or exploit the asymmetries between the bases on which member states levy tax.  Such a proposal is on the EU Commission’s agenda, because it recognises that it is impractical to have a single market where member states compete against each other for the taxable income of companies.  The only winners in such an environment are large multi-national companies.


The EU Commission has made proposals to remedy, one aspect of this problem, namely, for member states to have a common tax base (please see the Commission’s reports entitled A Common Consolidated EU Corporate Tax Base (2004), analysed first by the Bruges Group, and A Fair and Efficient Corporate Tax System in the EU (2015)).  If the EU Commission’s proposal were implemented it would solve part of the problem.  To solve the other part, the EU would need to be allowed to set the rates of tax for all companies operating within the EU.


In an environment where member states are able to compete for taxable income, the smaller EU states, such as Ireland, Belgium and Luxembourg, will always be able to offer the lowest effective rates of tax.  This is because they have less to lose than the larger member states from offering lower rates of tax to their domestic companies.   As a consequence, the EU has become an area for companies to seek out the lowest effective rate of tax for their taxable income.  This problem is particularly acute where income arises from mobile capital, such as finance and intellectual property, which for many large multi-national companies is their main source of income. It is not as though the smaller states benefit from this situation, because the amounts of tax which they collect are negligible.  The big winners are the large multi-national companies.


This is not a problem that critics of the EU have invented.  One only has to read the following comments by the EU Commission to realise that this is a real problem:


unfettered tax competition which facilitates aggressive tax planning by certain companies creates competitive distortions for businesses, hampers growth-friendly taxation and fragments the Single Market.


However, the co-existence of 28 different tax systems in one integrated market has also resulted in strong tax competition between Member States. As a consequence, Member States have progressively lowered their corporate tax rates, in order to protect their tax bases and attract foreign direct investment.


…….as corporate tax planning has become more sophisticated and competitive forces between Member States have increased, the tools for ensuring fair tax competition within the EU have reached their limits.


Differences in corporate taxation between countries are the driving force for corporate profit shifting”.


This is not a problem that was confined to Euro zone states, it applied to the UK.  This is one of the reasons the UK Government has had to cut the rate of corporation tax to 17% by 2020.  Because of the structural flaws mentioned above, all the time the UK remains in the EU it is engaged in a “race to the bottom” in corporate tax rates. 


Somewhat disturbingly, the EU has no power to tackle the problems mentioned above.  As the EU Commission states in its report the only way in which it is able to address this problem is by peer pressure:


The Code of Conduct for Business Taxation Group is composed of Member State representatives to deal with harmful tax competition in the EU, in a non-binding way, on the basis of peer pressure.


To tackle these problems the EU needs to have the unanimous backing of member states.


The flaws mentioned above have arisen because of the manner in which the EU operates.   The aim of the EU is to create a Federal States of Europe, akin to that which exists in the US.  The language of the EU Treaties, and in particular the fundamental freedoms, is open ended, which has allowed the CJEU to interpret these freedoms in an expansive manner.  The CJEU has applied them in a much wider range of scenarios than was ever intended.  For example, the Treaties were never intended to apply in the field of direct taxation, but the CJEU has not only applied them in this field more recently but also has prioritised the fundamental freedoms over domestic laws tackling tax avoidance. In contrast, the EU Parliament has been unable to enact a common corporate tax rate and basis for charging tax across the Union, because it has been unable to obtain the necessary support of all member states, as required.  To date, the smaller member states have been unwilling to support such measures because they would remove one of their competitive advantages.  However, the financial position of many member states is now so perilous that this has become a priority for the EU to address.  As a consequence, pressure may be exerted on the smaller member states to withdraw their objection to the EU Commission’s proposals for a Common Corporate Tax Base.


State Aid

The EU is able to take action against any member State offering “sweet heart” tax deals to specific companies.   This is because this type of behaviour distorts competition and violates the EU’s rules on State aide.   However, countries such as Ireland, Belgium and Luxembourg is able to circumvent the EU’s State aide rules by simply making the “sweet heart” tax deal available to all companies.


This is yet another example of how the EU does not have the power to effectively tackle tax avoidance.


Recent Comments
Robert Oulds
Thanks for your comment. You can see below a series of articles that show how the ECJ has continually been making decisions that a... Read More
Tuesday, 03 January 2017 19:56
Robert Oulds
Hi Gary. We should have a competitive tax regime and encourage businesses to operate here. The EU problem is that companies which ... Read More
Tuesday, 17 January 2017 10:32
Robert Oulds
Hi Gary, Thanks for your thoughts. Once we are out of the EU, the UK will be able to fully engage with global bodies, that is not ... Read More
Thursday, 16 November 2017 09:45
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EU tax law creating £55 billion black hole in UK finances

HMRC has set aside £55 billion to cover the potential cost of payments, including interest, which the European Court of Justice will force upon the British taxpayer.

3rd December 2016
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EU law and direct taxes

The UK, in common with other EU member states, has not conferred any authority on the EU for direct taxes.  The Court of Justice of the European Union (CJEU) assumed this authority in the late 1990s by adopting a more expansive interpretation of the fundamental freedoms.

The staggering cost of EU law tax litigation
One of the consequences of being a member of the EU is that EU law is superior to English law.   Large UK based companies are, therefore, able to use EU law, and EU courts, to retrospectively challenge the legality of the tax laws enacted by Parliament.   This is highly profitable form of activity for large UK companies and their advisors, which is costing the UK Government tens of billions.  When UK companies challenge the legality of the UK’s tax laws under EU law they know they are “knocking at an open door”, because the CJEU is keen to expand its authority over Member States under the guise of “ironing out inefficiencies” in the operation of the single market. 

HMRC has set aside £55bn to cover the potential cost of the litigation in which it is involved.  There are two reasons why this figure is so large.  First in a number of cases involving EU law, UK companies are able to reclaim corporate taxes, dating as far back as 1973.  Second, EU law requires the UK Government to pay compound interest on these claims.  In the Littlewoods case, a claim of £208m, covering the period from 1973 to 2004, cost the Exchequer £1.2bn when compound interest was included.  The UK Government had previously estimated that the Franked Investment Income case (C-362/12) would cost £5-7bn.  However, this case could easily cost the Exchequer £30bn when compound interest is included, as it covers the period from 1973 to 1999.


European Career Politicians as EU judges
Each EU Member State is able to nominate an EU judge.  In 1995, Belgium nominated its Deputy Prime Minister, Melchior Wathelet, to be an EU judge.  Although Wathelet had studied law as a student, he had been a career politician from 1977 to 1995.  This raises questions about both his competence and his impartiality.

Wathelet was subsequently appointed as an Advocate General.  When a case comes before The Court of Justice of the European Union (CJEU) it is usually heard by at least five judges, one of which will be an Advocate General.  The Advocate General is responsible for writing a legal opinion on the case under consideration for the benefit of other judges.  In the majority of instances, the CJEU decides cases on the basis of the Advocate General’s opinion. This is what happened in the Franked investment Income case (C-362/12), a case that will cost the UK Government in the region of £30bn.  Wathelet wrote the legal opinion and the other judges agreed with his opinion. 

What did the UK Government do “wrong“ in the Franked Investment Income (FII) case (C-362/12) so as to breach EU law.
The simple answer to this question is: the UK Government did nothing “wrong”.  The reason the UK was held to have breached EU law is because the UK is a common law jurisdiction, rather than a civil law jurisdiction.  In fact, the UK is the only large common law jurisdiction in the EU, as the other common law jurisdictions are Ireland, Malta, and Cyprus.  All of the other EU member States are civil law jurisdictions.  This means that the EU commission is staffed, for the most part, with people from civil law jurisdictions, and the Court of Justice of the European Union consists mainly of civil law jurists.  This meant that in FII the UK was adjudicated on the basis that it is a civil law jurisdiction, notwithstanding that the facts of the case are unique to a common law jurisdiction.

In a civil law jurisdiction, only the State is able to create a restitutionary remedy against itself.  This means that the State has the opportunity to set an appropriate limitation period at the same time it creates a new remedy.   It is not possible for the UK Government to set an appropriate limitation period at the same time the English courts announce their decision to create a new remedy.  This is because the UK Government and the English courts operate independently of each other.  This means that the UK Government has no prior knowledge of the decisions of the English courts.

The reason the UK Government was held to have breached EU law was because the facts of FII were adjudicated by the CJEU on the basis that they arose in a civil law jurisdiction, notwithstanding that the facts are unique to a common law jurisdiction. The FII case is another example of the “one size fits all” philosophy, which prevails in the EU.


The UK Government and the BBC working together to conceal the truth regarding the EU
One of the Vote Leave claims was that the UK Government would have to repay £43bn in taxation because of EU law.

The BBC’s response to this claim on its Reality Check site was:

‘HMRC say: “There is no question of this amount or anything close to this amount [£43bn] ever being repaid as the figure is based on our losing every single case currently being litigated, which is not going to happen. In reality, HMRC wins most cases at Tribunal.”’

At the time HMRC gave this response to the BBC, it had produced its accounts for the year ending 31st March 2016, although they had not been published.    HMRC knew that the figure of £43bn was an under-estimate of the potential costs, because it had increased the figure in its latest accounts to £55bn.   Moreover, HMRC knew that the increase related to claims for breaches of EU law. 

There are several other comments that one can make about the comment HMRC gave the BBC. 

1.      Why did the BBC ask someone who reported to George Osborne to make a supposedly “impartial comment” on the Vote Leave’s campaign? 

2.      HMRC does not have to lose every single case for it to have to pay-out £43bn.   HMRC has already lost a number of important cases involving EU law that will require the UK Government to repay taxes dating as far back as 1973, together with compound interest.  These cases alone could cost the UK Government £43bn, or possibly more.  HMRC has consistently under-estimated the cost of settling these and other legal cases in which it is involved. 

3.      The courts decide who wins the cases in which HMRC is involved, not HMRC.  

4.      It is of no significance that HMRC wins most cases at Tribunal, because such cases are for trivial amounts.

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Tax Reform - Post-Brexit

Tax simplification for Brexit

Flat taxes to drive economic growth

Sir David Roche
9th November 2016
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The sole aim of Tax Reform is to get in more taxes.


The UK is running a large deficit between what it receive in taxes and what it spends on services. Albeit money is cheap, it cannot go on for ever. With money so cheap it is an ideal time to make changes.


The tax code is now very complex and needs to be thrown out and replaced with a very simple model all can understand.


The reason it is so complicated is that successive, Labour and Conservative governments have given ‘tax breaks’ to their supporters to get elected. They have stayed in the code while new ones get invented.


The Hall Rabushka model is a place to start. This book on Flat Tax was published in 1985. It suits a closed continental economy like America but would need some changes for the English Economy. The difference being that getting in more taxes is competitive. It has nothing to do with ‘International cooperation on tax avoidance’.


However, the principal is that a tax return should be done on a post card is a good one. The post card looks like this: [with some simple numbers]

Total Annual Income                                                            £110,000

Tax free allowance                                                                   10,000

Net taxable income                                                                 100,000

Tax @ 25%                                                                               25.000

Post Tax income                                                                        85,000


The big note is that other than the tax-free allowance to keep the lowest paid out of the tax threshold there are no other allowances. The other reason to have a tax-free allowance is that it is expensive employing people to collect small amounts of tax.


The tax payer can do what he likes with his post tax income. He can give some of it to charity; save some for his pension or spend it. Whole industries like the pension industry, the charity industry, the ISA industry will not like it and do its best to stop it. The number of tax collectors and accountants who calculate tax will be reduced dramatically. They will not like it either. But the taxpayer will.


The Daily Telegraph did a tax computation on this taxpayer some years ago. By the time they used the current tax avoidance schemes, pension, ISA, EIS etc. They got his tax paid down to about £4,000. “Aggressive Tax Avoidance” is caused by Governments.


‘Trickle down’ and ‘Net Immigration’

When Mrs Thatcher reduced the top rate to 40% this idea was that this rich people with more money to spend would spend it in England so it will trickle down into the economy. What happened was ‘trickle out’. Net immigration is the difference between poor people coming into the country and rich people leaving it.


Tolerance and the Treasury model.

England is the most tolerant country in the world but there is an intolerance to ‘high earners and bankers’. As they must live in England to bank or play football they all pay tax. The Rich are in fact the business owners who live in Monaco or Switzerland. We want them back because we want their money. A straw poll of Verbier residents, who currently pay no tax, would pay 25 to 30 percent of their world-wide income for the right to live in England on the above model, subject to no inheritance tax. The Treasury model is a closed system and does not include this vast store of wealth that could be tapped.


Inheritance tax; in 1979 Mrs Thatcher abolished exchange control which was designed to stop money flowing out of the country. The result was that so much money flowed into the country that the Bank did not know what to do with it; and at $2.40 to the £.


Inheritance Tax currently produces about 3.5% of total revenue, and it costs an estimated 40% to collect. It is not much compared to the flow of money into the country if it were abolished. If we get these people back, we get 20% of all they spend. Trickle Down would finally work.


Chancellor Osborne always knew about this but was been too frit to do it. He had a go at limiting tax relief to charities and got roundly beaten. He wanted to reduce corporation tax but fears abolishing it on the Estonian model:


Siim Kallas in Estonia found that company tax was yielding the least revenue and abolished it. But with a twist! No company tax was to be charged on company profits that remained in the company or its subsidiaries, but taking money out of the company by way of dividend, director’s entertainment, cars etc was subject to the flat tax rate, then 26%. This was done by simply adding an extra line to the monthly VAT form. This had two magical effects; firstly, revenue came in immediately instead of an 18 month wait and as companies did not have to depress their profits, which any accountant can do, to avoid tax. They declared as much as they liked and in a year, this doubled the country’s GDP.


Nothing had changed but the GDP pundits thought it must be a great place to invest, which they did, making it a self-fulfilling win, win situation.

With the confidence that comes from having available new computer models it is the time for a body in the City to research and run it on a simplified basis on a totally fiscal and non-political basis.

The current guide to taxpayers is here.


Sir David has been an advocate of Tax Reform for some years. Most notably in Estonia, Slovakia and more recently to an African country that has hopes of being the ‘Dubai of Africa’. With the Tax Payers Alliance he contributed to the Forsyth Commission. He has had contributions in these efforts from the leading Tax Chambers in London and a leading City economic Think Tank.
Sir David served as a Director of private companies in the sectors of energy; leisure, shipping, and Eastern European property. He represented Siemens Wind Energy on the Board of The British Wind Energy Association, and advised on Estonian, Czech & Slovak, and Balkan investments. Sir David has been the Chairman at Plaza Holdings Ltd since 2002 and a director and founder of Neasden Aggregates in the cement industry at present. He has been the Chairman of the Board of Directors at Strategic East European Fund . He held various positions including serving as the Chairman to Carlton Real Estate Plc and as a Member of the Estonian Government Tax Reform Commission from 1993 to 1994. Sir David is a regular commentator on the BBC, other television networks. Sir David qualified as a Chartered Accountant with Peat Marwick Mitchell, (now KPMG). He is also an FCA. He was senior manager UK Banking at Samuel Montagu, (now. HSBC)
Sir David was educated at Wellington and Trinity College Dublin.

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