The EU has completely destroyed the right of national governments to levy tax where income is earned.
Few scandals have recently aroused more howls of outrage than revelations of how many large companies are making billions of pounds of profit in Britain while paying little or no tax.
Astonishingly, however, entirely missing from all the outrage 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. Google, Amazon, Apple and the rest can thus quite legally channel all their earnings wherever tax rates are lowest.
In 1992, a further massive loophole was opened up by the Maastricht Treaty, which, in preparation for the single currency, extended the “freedom of capital” to countries outside the EU, including tax havens such as the Cayman Islands or Jersey, with even lower tax rates. This is how, for instance, our water companies manage to pay so little tax, despite making profits averaging at 30 per cent a year. They have also learnt the cleverest trick of all, which is to borrow huge sums from their tax-haven-based owners, at artificially high rates of interest, which can then be offset as a business expense against their profits, shrinking their tax liability still further.
Even more disturbing is the way no one ever publicly admits that this is what makes such a colossal racket perfectly legal. Mr Cameron keeps strangely quiet about it. When Mrs Hodge was asking the HMRC’s man last week why it doesn’t bring “show cases” against these firms, he made no mention of the EU dimension, despite knowing that HMRC has already put this to legal test in a historic case in the European Court of Justice in 2007. The UK comprehensively lost. The greatest financial damage inflicted on us by our membership of the EU has thus become the most embarrassing “elephant in the room” of all.