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.

Coming with EU membership is, for what it is worth, full access to the single market in services. Whilst this market is far from complete; being part of it, also known as the European Economic Area, is one of the ways Britain can have full unencumbered and automatic access for the sale of services into the EU. This right, that does not require setting up a subsidiary in the EEA nor the need to gain authorisation from each single market state, is known as passporting.

The ability of British based financial institutions to trade with countries on the continent is clearly a great benefit to the economy. At the same time, the EU’s reticence at making trade agreements, an exclusive EU competence, with emerging markets around the world that include access to their services markets is holding the UK back. EU membership has meant that Britain could not make agreements that allowed our great strength, the services industry, to fully engage with other markets around the world. Instead of looking at the enormous opportunities that Brexit presents, the debate so far has focused on the risks of losing access to the EU’s single market.

The latest twist in the Brexit tale is the legal limbo hanging over who can trigger Article 50 of the Lisbon Treaty, signalling the United Kingdom’s departure from the European Union. Following a lawsuit filed in the summer, the High Court ruled on October 13 that the British government cannot trigger Article 50 without Parliament’s permission. This decision was immediately appealed by the government, who are anxiously awaiting the Supreme Court’s final word in December.

Rule of law is one of the foundations upon which Britain’s success over the centuries was built, and must be respected. However, I, like many people, was surprised by the message the High Court’s ruling was sending –that Parliament supersedes the will of the people, not the other way around. After all, isn’t Parliament supposed to reflect the will of citizens? Don’t all MPs, from the lowliest backbencher, to the prime minister, work for us?

In any case, I am not terribly worried about this court battle. If the triggering of Article 50 does end up going to Parliament, there will be enormous pressure on MPs to vote in line with their constituents, leading to a crushing majority in favour of leaving the European Union (EU). It is true that most MPs, across all parties, favoured remaining in the EU prior to June’s referendum, but not aligning with their electorate on this subject could very likely cost them their jobs next election. This threat is especially true for Labour MPs, many of whom saw constituents in northern “safe” seats reject the party’s advice advice by voting to leave the EU.

Where there is greater cause for concern, however, is in the growing pushback by elites opposed to Brexit. The following three examples are among the most publicized, but by no means the only instances of such pushback:

The EU's Common Fisheries Policy is a drain on the British economy. A condition of entry into the EEC, as it was then, the British government was required to surrender control over its fishing waters on 1^st January 1973. Under United Nations rules a country now has the right, even the responsibility, to control the sea around its coast stretching out for a total of 200 miles or until the median line between two adjacent nations.

The European Commission opened UK waters to all other member states fishing fleets, apportioning fishing rights as they see fit. The Common Fisheries Policy costs Britain more than £3.7 billion per year caused through the EU depriving the UK of its valuable fishing grounds.

Slowly, however, just like the tectonic plates which created the Atlantic, there was a growing separation between Europe and America. In the case of the Republic of Ireland, this divide never emerged. The Irish economy was more linked to America than continental Europe. It was on the same economic cycle as the United States, that is until the Eurozone crisis. With regards to Britain, despite the best efforts of Barrack Hussein Obama, the UK and the US remain close.

There have been times when superficially there seemed to be a gulf between the EU and the USA. At times, some elements in the EU seemed to take an anti-American position. That however was just a brief period and has long since been forgotten. The close relationship that has existed between the EU and the USA goes back an extraordinary way. In some respects, the EU is the creature of the United States of America and its foreign policy. The student has become the master.

The European Commission predicted that the once much-heralded Transatlantic Trade and Investment Partnership (TTIP) will boost EU GDP by 0.5% which will annually add €120 billion to the economy.[i] The gains seem significant but they represent little more than a rounding error in the calculation of economic output.

The speculative benefits are unlikely to be realised. TTIP is effectively dead. Its future looked bleak even before Bernie Sanders rose to prominence in the United States, acting as the bête noire of corporate interests, and long before the election of Donald J Trump. It was EU intransigence on regulatory issues that caused the gridlock and not the public’s overwhelming opposition to the Investor State Dispute Settlement (ISDS); the courts where nation-states can be sued and punished for policies detrimental to corporate interests.

The media would have it that events are moving towards a clean Brexit. Yet it is still worth considering that Britain does have other options. And these are not as weighted towards the interests of Brussels and Berlin as our European competitors mistakenly believe.

Other EU leaders should bear this in mind, their demands for continued free movement in exchange for being a part of the Single Market, or a free trade agreement, are not only unreasonable but also unenforceable. Not only do other countries have trade agreements without the obligation for free movement, even in the Single Market one small, yet notable, country has opted out from freedom of movement.

A core principle of the European Union is the free movement of peoples between member states of the EU. This is one of the main areas where people will see the effects of EU membership. The rules governing this are contained within EU Directive 2004/38/EC.

Under its rules deportation can only happen when ‘The personal conduct of the individual concerned must represent a genuine, present and sufficiently serious threat affecting one of the fundamental interests of society.’ It also states that, ‘Previous criminal convictions shall not in themselves constitute grounds for taking such measures.’[i]

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.

 Economy

• How much would the UK actually save if we left?
• Haven't Brexit fears affected the value of Sterling? Will the value if the Pound in my pocket suffer if we vote to leave?
• I work in financial services. Would my job be at risk?
• How much would the UK actually save if we left?
• Would leaving the EU affect property prices?
• Are there economists that favour leaving the EU?
• The Government says that the cost of living and prices in the shops will go up if we leave the EU. What are the facts?
• Why is the prospect of leaving causing business so much uncertainty?

  Jobs

• Are jobs at risk if we leave the EU?

  Trade

• Would it be more difficult to secure trading deals without the EU behind us?
• How would we preserve trade with the EU and the rest of the world if we left?
• Would our exports (e.g. motor vehicles) face steep tariffs if we left the EU?

  Law and Order

Independent research, commissioned by the Bruges Group from acknowledged expert in this field Bob Lyddon, shows that the true extent of the UK’s potential exposure to the European Investment Bank (EIB), European Central Bank (ECB) and EFSM (European Financial Stabilisation Mechanism) is over £80 billion. If the crisis in the Eurozone continues this already high figure could increase massively.

The UK carries huge financial liabilities as an EU Member State, liabilities that could translate into calls for cash far higher than our annual Member cash contribution. These are created through various funds and facilities of the EU itself, and through shareholdings in the European Investment Bank and the European Central Bank. Each of these bodies engages in financial dealings on a large scale, with the Member States acting as guarantors for sums borrowed. The main recipients of funds are the Eurozone periphery states: Italy, Spain, Greece, Portugal and Ireland.

The UK, being one of the largest and most creditworthy of the Member States, is looked at as one of the guarantors most able to stump up extra cash as and when demanded, demanded, that is, by a Qualified Majority of Member States with no unilateral right of refusal. Such calls can be expected if another crisis blows up in the Eurozone.

The UK’s leaving the EU would relieve us of these considerable risks and liabilities. This independent research shows that Britain should leave the European Union.

Independent research, commissioned by the Bruges Group from acknowledged expert in this field Bob Lyddon, shows that the true extent of the UK’s potential exposure to the European Investment Bank (EIB), European Central Bank (ECB) and EFSM (European Financial Stabilisation Mechanism) is over £80 billion. If the crisis in the Eurozone continues this already high figure could increase massively.

The UK carries huge financial liabilities as an EU Member State, liabilities that could translate into calls for cash far higher than our annual Member cash contribution. These are created through various funds and facilities of the EU itself, and through shareholdings in the European Investment Bank and the European Central Bank. Each of these bodies engages in financial dealings on a large scale, with the Member States acting as guarantors for sums borrowed. The main recipients of funds are the Eurozone periphery states: Italy, Spain, Greece, Portugal and Ireland.

The UK, being one of the largest and most creditworthy of the Member States, is looked at as one of the guarantors most able to stump up extra cash as and when demanded, demanded, that is, by a Qualified Majority of Member States with no unilateral right of refusal. Such calls can be expected if another crisis blows up in the Eurozone.

The UK’s leaving the EU would relieve us of these considerable risks and liabilities. This independent research shows that Britain should leave the European Union.

The Prime Minister David Cameron suggested in a speech to Chatham House in late 2015 that as an accompaniment to his re-negotiation package he would like to introduce reforms which ‘…uphold… [the]… constitution and sovereignty’ and which protect the ‘…essential constitutional freedoms…’ of the UK. This paper has attempted to show that this domestic part of his EU reform agenda is, like his re-negotiation, likely to be a damp squib, achieve very little of substance and fall short of his own stated ambitions for the policy. In reality, raising the possibility of domestic legal reforms to uphold the constitution, sovereignty and protect essential constitutional freedoms is marketing and political spin, nothing more substantive that that. Empty domestic reform does however, nicely complement the vacuity of the claim that Cameron has achieved reform in the EU. Cameron’s reforms are likely to be nothing more than rhetoric and spin.

The Church of England has released a prayer for the EU referendum campaign. The prayer is for use by churches and individuals ahead of the vote on 23^rd June.

We feel this is a good prayer. It is regrettable that there have been comments critical of our Archbishop. Lord Tebbit is right in saying that there is ambiguity  - in some people's minds, about this prayer and confusion in their statements. The EU effects all of the world and we might pray for all of the world when considering our referendum decision.

Let us look at this prayer line by line.

God of truth,

According to Colonel Richard Kemp Britain would be forced to join an EU army within five to 10 years if people vote to Remain in the EU.

“An EU army is inevitable. As the EU has declared, it is moving to ever closer union,  it intends to become a fully fledged superstate. That’s the plan.”

“We would essentially be giving up our right to sovereign self-defence. Control of the EU army would not rest with us but in a collective EU decision.”

“There would never be consensus for an EU military operation  to retake the Falklands. It could not happen.”

58% said they would prefer Britain being a part of the European Free Trade Association (EFTA) rather than the EU, 42%

A majority of voters would prefer the UK to be a member of the European Free Trade Association (EFTA) as opposed to the EU, according to a new survey published today by the Bruges Group.

Removing don’t knows, of those expressing a preference in the survey, a clear 58% said that Britain would be better off as a member of the trade group EFTA, as opposed to 42% who thought that Britain should remain a member of the EU.

EFTA differs from the EU in that it would not have jurisdiction over the UK’s agriculture, fisheries, home affairs or justice policies. It takes Britain out of the Europe Union whilst still giving UK businesses full access to the EU’s Single Market. EFTA membership would also allow the UK to negotiate free trade agreements with countries outside of the EU. In addition, Britain would become again a sovereign nation with more power over its domestic affairs. This is the positive alternative to EU control.