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European Commission threatens sanctions on UK if no agreement on 'tax good governance' standards

Thursday, 8 February, 2018

A European Commission presentation to EU member governments last week proposed the UK should be sanctioned if it does not agree a 'tax good governance' code of conduct after exit from the EU.

The presentation addresses the issue of establishing a 'level playing field' (LPF) between the UK and the remaining EU members after 'Brexit'. Though there are three separate aspects to the level playing field – state aid, taxation, and environmental/employment – the main perceived threat is a 'race to the bottom' in corporation tax rates that would endanger EU Member States' tax revenues, dependent on as yet undefined future UK tax policy.

The Commission suggests that after withdrawal from the EU, the UK is likely to use tax to gain competitiveness, under pressure from US tax reform. There will no longer be a legal requirement for the UK to exchange information with EU Member States on tax matters, there will be no legal obligation for UK to apply the EU's anti-tax avoidance provisions, and the UK's political commitment to the existing Code of Conduct, covering no standstill or roll-back of harmful tax regimes, will end. Also, the EU Corporate Tax Directives will cease to apply to the UK. The key risk the Commission sees is targeted UK tax measures to attract investment and business.

Accordingly, the Commission suggests a future UK/EU agreement should include a tax good governance clause and a code of conduct on business taxation, mirroring the EU Code. These would be accompanied by binding requirements on exchange of information, anti-tax avoidance measures, and public country-by-country reporting for credit institutions and investment firms.

The Commission's presentation even suggests that the UK could be added to the EU's blacklist of 'uncooperative' tax jurisdictions, although a low rate of corporation tax is not one the current rules for inclusion on the list.

George Bull, of accountants RSM UK, notes that Ireland, still an EU member itself, has a much lower corporation tax rate than the UK. Moreover, he adds, the UK has long been a supporter of tax information exchange and it is unlikely that this would change after Brexit.

'This may be just grandstanding from the EU', commented Bull. 'To categorise the UK in this bracket seems an overreaction. Perhaps the EU does see all of this as a real risk, or maybe they are just making these noises as part of their negotiation tactics.'

Sources

Comments

Submitted by Ian Boxall on Thu, 08/02/2018 - 17:37

At last a nice bargaining chip for David Davies: after Brexit, suggest UK 10% VAT, 20% income tax and hands off the UK Overseas Territories.
Ian Boxall
Cayman Islands