EU help, not hindrance, in fighting tax avoidance

by Jack Schickler | 13.06.2016

Leave campaigners say that EU rules favour corporate tax avoidance, costing between £2.4 billion and £50 billion. Boris Johnson says big multinationals support EU membership because lobbying and EU court rulings mean they can “avoid paying their proper taxes in the UK”.

The figures are gross distortions – EU membership makes us better able to take on tax dodging, not worse.

Vote Leave says the European Court has “forced us to make multibillion tax refunds to multinationals”, and goes on to say another £42.9 billion may be at risk. Part of this terrifying figure is arrived at on the implausible assumption that HM Revenue and Customs could lose every single one of the 24 £100m-plus cases where its ruling is being challenged. By comparison, the Office for Budget Responsibility forecasts HMRC will face a total of £7.3 billion in payouts over the next five years, including for cases involving income and inheritance tax issues that are entirely unrelated to EU legislation.

Vote Leave also fudges a 2006 EU court case on Cadbury’s tax affairs. The UK had attempted, under its rules on Controlled Foreign Companies (CFCs), to surcharge the confectioners for housing their subsidiary in low-tax Ireland. But the Luxembourg court ruled the UK had no right to tax the company for operations elsewhere in the bloc, unless the arrangements were “wholly artificial” ones purely to escape tax.

Following the Cadbury ruling, the UK in 2013 passed a “full reform” of its CFC rules, at a cost of £2.4 billion over the first four years. To blame these costs on the EU, as Vote Leave do, is highly disingenuous. Rather than raising additional tax revenues, the stated goal of the reform was “to improve the UK’s tax competitiveness” and “attract business investment from all over the world”. Technical documents accompanying the government’s legislation do not mention the Cadbury case.

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Far from hindering, the EU is cracking down on corporate tax dodging, to avoid profits being squirrelled away artificially. It has launched investigations into the tax arrangements of McDonald’s, Apple and Amazon and has also used its tough state aid rules to make Fiat and Starbucks repay €40-60 million (£32-48 million) in back taxes, while in another case it fined 35 companies a total €700 million (£550 million).

As Jolyon Maugham, a QC specialising in tax, has noted, if we leave the EU, “huge multinationals… will be free to demand more tax breaks from the UK”, and we will be less able to resist without the protection of EU state aid rules.

Many businesses rely on working and trading freely between different countries, without barriers. The only way to prevent those freedoms being abused for tax reasons is to work together with other countries.

Edited by Geert Linnebank