Thursday, October 21, 2004

There are more ways of skinning a cat ...

This slipped through during in the course of a brief debate as part of the Starred Questions that start the daily session in the House of Lords. Baroness Noakes asked Her Majesty’s Government whether, in the light of several UK tax cases heading to the European Court of Justice, they were satisfied that this country’s tax system complied with European Union law. Lord McIntosh of Haringey wriggled off the hook as the two cases have not been decided yet and he is not in a position to comment.

Baroness Noakes’s question seemed to refer to the fact that PricewaterhouseCoopers and other accountancy firms are encouraging businesses to take action against the government for setting certain taxes too high. If the judgement goes against the UK government, according to the noble lady,
“that will open up another black hole in the Government’s finances, which will mean either that the golden rule will be bust through extra borrowing or that taxes will be raised”.
Or the government could try spending less on the galloping public sector. And, Baroness Noakes being a Conservative, she ought to have thought of it. But she did not.

The really interesting question was asked by Lord Pearson of Rannoch:

“My Lords, does the noble Lord agree that, under the anti-discrimination clauses of single market legislation—particularly Article 44 of the TEC—the Commission or another member state could go to the court and claim that our direct tax system was discriminatory? If the court were to agree with that, would the Government accept that that would require us to change our direct tax system into a more European model?”
Lord McIntosh’s reply was rather equivocal and deserves to be quoted in full, then commented on:

“My Lords, direct taxes have not been prominent in the issues raised by this Question. As the noble Lord, Lord Pearson, well knows, there are, at the margin, a few measures which are subject to qualified majority voting, but the only cases which have occurred in the courts have been the Fiscalis case and the Excise Movement and Control System case. If and when we are condemned by the European Court of Justice, we shall take appropriate action, but we have not been condemned.”
The first thing to note is that he has not denied Lord Pearson’s suggestion. This indicates that the anti-discrimination clause could be used against this or any other country over any form of taxation. As it is a Single Market legislation it is not subject to the rather dubious thesis of subsidiarity and proportionality. In other words, it is not to be changed and its repatriation is not to be discussed at any time.

Once we get past the waffle about whether direct taxation is part of the question and the guff about qualified majority voting that was not part of Lord Pearson’s comment, we get to the nub of it.

We have not been condemned by the ECJ and that is the only reason why we do not have to do anything about it. For there is only one appropriate action after condemnation by that august body: compliance.

Could there be any proposals to take the UK or any other country to the ECJ over “discriminatory” taxation? One to watch, I think.

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