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that our corporate taxes are amongst the lowest in the EU, but tax harmonisation now threatens British business and consumers?

In April 1996, the European Journal highlighted an Italian newspaper interview. Mario Monti is the EC Commissioner responsible for the Single Market and tax harmonisation. He described it as "very important" that the Italian Presidency (of the EC) had decided to reopen the debate on harmonisation after years of silence. Under Article 101 of 'Maastricht', the Commission has the right to propose measures wherever it senses a "distortion of competition" in the common market. These directives need only be approved by EC Council of Ministers by qualified majority voting. i.e. there is no veto.


How is all this relevant to us? Well, for a start our business tax rates of c.30% (20% for small businesses) are practically the lowest mainstream rates in the EC1. France's rate is 41.6%. Germany's rate lies between 43.6% and a whopping 56.6%. Only Sweden & Finland - who have joined very recently - have lower rates (28%).

Low company taxes2 are one reason why Britain attracts the lion's share of inward EC investment - to the envy of our 'partners'.

Then there is our temporary relief from putting VAT on essentials such as food, books and children's clothing. The effect of imposing VAT on buying a house could be worsened by the introduction of VAT on financial services.

In 1992, the EC's Ruding Committee was asked to report on whether different national tax systems caused "major distortion of competition". It gave the Commission its verdict that they did, and proposed a common system of company taxation.3 At that time the EC was going through a little difficulty in getting further integration accepted - particularly in Denmark and Britain - so the Commission's stance not to push for action was not a complete surprise. Tax commentator Martin Lynchehan noted that this would "not presently be politically advisable".4

Tax harmonisation has long been on the EC agenda. In 1975, the Commission drafted proposals for a uniform EC company tax rate between 45-55% together with ending the deductibility of many business expenses. Although it balked at imposing them because of Member States' concerns about sovereignty, its 1988 review considered them to be "a crucial measure" that should be implemented. 5

Euro-apologists claim that the EC has since moved away from "complete fiscal harmonisation" towards a mere "approximation" of taxes6, but this is just word-play. Approximation is just harmonisation in stages. Just as it allows discriminatory state aid for political reasons, the EC will allow special tax rules.7 These include soft VAT terms and other tax breaks to countries subsidised by the EC (such as the Irish Republic). Some animals are more equal than others in what is supposed to be a 'single' or 'common' market.

In March 1996, the EC published the findings of its think tank, the Economic & Social Committee (ESC).8 Although paying lip service to the need to stimulate economic growth and employment, the ESC claims that it would be logical to have tax conditions 'equivalent to within a single Member State'.


Disturbingly it urged greater harmonisation of VAT, particularly in addressing the issue of Britain's zero rating. (Can we trust Chancellor Brown when he says he won't put VAT on some essential items - but neglects to mention that the EC can?).

It proposed that company tax havens such as in the Channel Islands be abolished. Unlike earlier Commission studies, it cast an eye at personal income, inheritance and wealth taxes. It proposed further study into the taxation of workers who are highly skilled and therefore more mobile within the Single Market.

The ESC's own figures show that the share of taxes borne by the workforce is lower in the UK than other members, except Greece and Portugal, who are both well-subsidised out of our taxes. The implications for tax harmonisation here are obvious.

The EC Commission & Council already have powers, by passing a Decision, to tax (or fine) parties other than member states. (This is referred to as 'impose pecuniary obligation' in Article. 192 of the Treaty of Rome, carried forward into Maastricht.). Commission President Jacques Santer has told the European Parliament that VAT harmonisation is a priority and that he is going to make full use of the possibilities of 'Maastricht'.9 The recent discrimination against British beef exports for purely political reasons may be a taste of things to come.

British business must ask questions, as even a gradual increase in taxation will have a serious effect on investment and jobs.

German Finance Minister Theo Waigel has publicly accused Britain of the evil of 'tax poaching' i.e. having competitive rates! So now the Commission will be running a far reaching review of our entire tax system. It is time to put the Government on the spot, as Mr Blair has already given away the right to regulate Britain's tax laws to the European Commission - and also powers to introduce Directives deciding personal taxation.10

We should also question the politically correct Euro-enthusiasts of the Confederation of British Industry who believe that completing the Single Market is a top priority, and agree that national tax systems create "distortion". 11

Only by withdrawing from the EC and regaining our status as an independent nation will save us from the quicksand of further integration.

Sources: 1 KPMG Corporate Rate Tax Survey, quoted Sunday Telegraph, 19 Apr 98;

2 Daily Mail 14.12.94;

3,4 European Access, Feb 93 (EC)

5 Tax Harmonisation and 1992 (Coopers & Lybrand);

6 The Single European Market & Beyond (Dennis Swann);

7,8 Official Journal of the EC, 19.3.96;

9 Eurobusiness, Mar 95;

10 Christopher Arkell, European Journal, April 98

11 A Europe That Works (CBI);

Updated version of an article first published in July 1996, in Independence journal. (CIB) No copyright problems with reprinting - but please acknowledge New Alliance as source.

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This page updated: 2 Jan 1999, link updated: 11 Jun 2005