The EU is an enemy of fair taxation

EU treaties enshrine rules to allow companies to dodge tax.

The European Union is undermining its member states’ control over their own taxation. This is a serious attack on democracy.

A new report, Tax Evasion and the Crisis in Greece, points out that outstanding tax debt in 2010 was 89.5 per cent of annual net tax revenue. The OECD average was 13.5 per cent.

This illustrates why the IMF, EU and European Central Bank “troika” which is monitoring Greek compliance with EU austerity before releasing the next €1 billion (£840 million) tranche of its €110bn “bailout,” clearly doesn’t believe Greek Prime Minister Antonis Samaras’s projections for improved Greek tax revenues in 2014.

Heroic promises of improved tax collection and clampdowns on tax evasion are belied by the reality of continued disintegration of the Greek state.

Declining numbers of Greek workers with jobs pay income tax, while small businesses evade tax and shipping magnates and corporations legally avoid tax under EU rules designed for this purpose.

EU austerity has also eroded Greece’s revenue from indirect taxation by destroying domestic economic demand. The latest official figures estimate that Greece’s economy shrank by 7.1 per cent in 2011 and 6.4 per cent in 2012, while a further 4.2 per cent contraction is forecast this year. By January 2013 monthly indirect tax-take was over €300m short of its predicted target.

Yet Greece’s experience is being exported as an inevitable consequence of the EU’s own fundamental rules. The so-called “free movement of capital,” implemented in Britain in 1979 when Margaret Thatcher abolished exchange controls as one of her first acts of government, and its corollary “freedom of establishment” principle entitle firms to move their income to the country where they choose to pay tax.

This right is enshrined in the 1957 Treaty of Rome – article 43 specifies freedom of establishment and article 56 free movement of capital – and all subsequent EU treaties up to and including articles 49 and 63 of the 2009 Lisbon Treaty.

The 1992 Maastricht Treaty extended free movement of capital to countries outside the EU, such as tax havens in the Cayman Islands or Jersey.

It is curious that tax justice campaigners concentrate so much on abuse of tax rules and so little on the tax injustice enshrined by the EU.

The European Commission is now developing a formula for an “optional” Common Consolidated Corporate Tax Base across the EU. Corporate tax however in EU jargon remains an ersatz “national competence.”

Meanwhile EU member states are bound hand and foot by EU rules that enshrine the freedom of capital to move across borders to evade national rules. There can be no tax justice without the right of states to control corporations making profits from economic activity within their borders.

EU fundamental rules not only enshrine free movement of capital, they ensure the bankruptcy of welfare states and the removal from democratic control of taxation policies. Tax justice is incompatible with EU membership.

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