Tax sovereignty, tax tourism, national impotence and the European dimension

According to an entry in Wikipedia, a sovereign state is a nonphysical juridical entity of the international legal system that is represented by a centralised government that has supreme independent authority over a geographic area.   It is also normally understood to be a state which is neither dependent on nor subject to any other power or state.

The only way a centralised government can be sure it has supreme independent authority over its geographic area is if it controls all laws that apply in that territory and it is controls the setting and collection of revenue through taxation.

In the last three posts on this blog, we have focused on an issue that demonstrates beyond any doubt that the United Kingdom is not independent.  Laws to which British people are subject are made by a foreign entity outwith these shores.  Control of the setting and collection of revenue is similarly determined by an overseas power.  As such:

  • the UK does not have legal sovereignty
  • the UK does not have tax sovereignty

This is of fundamental importance to this country and its people.

The Public Accounts Committee scrutiny of the HMRC Annual Report and Accounts for 2012-13 have brought this essential issue to the fore, yet the far reaching implications of the absence of sovereignty in these areas are either not being understood by the media, or ignored by it.  This is the most serious matter concerning governance in the UK today, yet no one, with the exception of a couple of bloggers, is trying to draw attention to it.

When Margaret Hodge asked HMRC why they have not chosen to litigate and test their powers, in respect of collecting tax based upon revenues and profits made within the UK’s jurisdiction by corporations such as Starbucks, Amazon and Google, the answer from HMRC should have been they they have already tested their powers in the Thin Cap Group Litigation – and lost the case in the European Court of Justice.  Very recently indeed, in 2007.

HMRC lost the case because EU law prohibits restrictions on corporations moving capital between member states and, crucially it prohibits restrictions on corporations making payments between their component entities within the European Union.  This basically means a company can make a huge profit within the UK’s jurisdiction but the UK cannot collect corporation tax on that profit if the corporation chooses to make transfer payments to a European ‘parent’ entity within the EU.

In such matters, as a result of being an EU member state, the UK has been rendered impotent.  It is therefore not sovereign.

Many people have been greatly angered by what they see as corporations ‘not paying their fair share’, not least Margaret Hodge.  But too few of their number understand that what the corporations are doing is legal and enshrined in EU law.  The free movement of capital (a principle which was later extended to include payments) was one of the four fundamental freedoms of the common market.  It is an EU matter.

This has shone a light on an issue far more serious than the actions of the corporations – namely the inability of member states to have tax sovereignty.

Yet this huge issue – tax tourism – with all its far reaching implications, is hiding in plain sight and attracting no attention from even a single media commentator.  Not a single national paper or news broadcaster has explained this point to the public.  The question is, why?

Politicians like Hodge can wring their hands, scream, shout and hissy fit until they faint.  They are powerless.  Their agencies, such as HMRC are hamstrung and unable to do anything.  No amount of hearings or inquiries will change that.

The competence for taking money in taxes from corporations in the UK, that choose base their activities in another EU member state and choose to transfer money made in the UK to that base from the UK in the form of payments for royalties or rights etc, has been removed by European treaties.   The UK has ceased to be sovereign.  The only way this will change is if the UK withdraws from the EU.

Yet you can be certain all those corporate interests will be lining up as they are now, demanding the UK remains in the EU because it’s ‘good for business’.  What has been outlined in this post is the reason why.  National sovereignty and the will of the people don’t matter a jot to them, only achieving the largest profit possible by paying the lowest tax rate they can find.

21 Responses to “Tax sovereignty, tax tourism, national impotence and the European dimension”

  1. 1 Anthem 29/10/2013 at 9:47 pm

    Now this is interesting…

    There are many reasons why I want to leave the EU but to assist our government to screw businesses into paying more tax isn’t one of them.

    Government have been interfering with business for too long and now they find themselves in the thick of it.

    Businesses are saying to the governments, “If you want to play business, let’s see how you do or we’re going to run rings around you because this is what we do all day, every day.”

    The various EU nations now have to compete for custom. No longer can they simply demand any payment, they have to offer a good deal or the businesses will structure their affairs so that money goes to the nation that offers them the best deal.

    I sincerely hope that we get out of this EU eventually but, in the meantime, this is an entertaining little side-show that comes from our involvement.

  2. 2 Autonomous Mind 29/10/2013 at 10:10 pm

    What happens when the EU harmonises then raises taxes and screws the businesses more than today?

    Only with sovereignty can we determine taxation matters in our country.

    It may be we become more competitive than any nation in the EU and attract more investment from abroad and help UK based businesses to be more profitable. If we were outside the EU but in the single market with such taxation control, the benefits to our economy would be marked.

  3. 3 Anthem 29/10/2013 at 10:27 pm

    Absolutely and what you’re saying in your first paragraph there is what they want in the longer term.

    However, I’d suggest that there’s a ways to go before we get to that stage and the blanket adoption of the Euro will likely have to come first and we’ve certainly dug our heels in over that for quite some time.

    Getting all nations to agree on a uniform tax structure is not going to happen overnight.

    I’m still holding onto the prospect that the whole thing could collapse on its own dodgy political foundations which have been proved to not work time and time again long before we even get to that stage though.

    In the meantime, we CAN determine our own taxation matters to a large extent and there’s a lesson being taught out there right now for anyone not too stupid to see it *cough*Hodge*cough* – lower tax rates can mean greater revenues.

  4. 4 Richard North 29/10/2013 at 10:41 pm

    You need to see past the issue of levels of taxation and cut to the chase. This is not about whether corporates pay tax, or how much they pay, but who decides, the nation state or the European Union, with its court in Luxembourg. This, as AM writes, is about sovereignty.

  5. 5 PeterMG 29/10/2013 at 10:51 pm

    Anthem I would view it this way. We all pay to much tax. However the EU and Globalisation have created a situation where the greater tax burden now falls on those least able to pay. Couple this with the fact that our government can only fiddle about the edges, which means the middle class or as I prefer the productive class and it all becomes counterproductive.

    The same happens at a local level where council tax is set by central government so councils steel off us by parking and other road traffic enforcement measures. All of these revenue raising tactics are counter productive to economic health. But one thing is for sure we can’t fix it if it is not within the responsibility of our own politian’s.

    I think we all know that Margaret Hodge and her ilk are just playing politics, but that should not stop us continuously pointing it out.

  6. 6 Anthem 30/10/2013 at 12:08 am

    @Richard North and PeterMG – I want us out of the EU but I also want politicians in the UK and in the EU to learn a lesson.

    Things weren’t all peachy here in the UK before the EU.

    For me, the big picture is not in/out of the EU. The big picture is government’s relationship with the people it supposedly represents.

    After all these years in the EU, I fear we may have picked up an awful lot of bad habits that won’t go away even if we were to leave tomorrow.

    To Richard specifically, I have to disagree. It IS whether companies pay tax and how much, more than who decides the rate.

    This principle remains the same regardless of the UK’s EU membership status.

    What if we reclaim our sovereignty and the next UK government is even worse than anything the EU could have dreamed of?

    Getting a little off-topic but a massive voter turnout in favour of UKIP could well kill two birds with one stone.

    The whole thing needs an enormous shake-up. Hodge’s hissy fit because she seems to believe that certain companies have committed the heinous crime of wanting to keep more of the money which they earned out of the clutches of the wasteful and self-serving political classes shows just how much their sense of entitlement and power has grown.

    And these are the people we will be delivered unto should we leave the EU tomorrow. Be warned.

  7. 7 Richard North 30/10/2013 at 7:12 am

    Anthem: you are not so much killing two birds with one stone as missing the target altogether. If you want to mix metaphors, you are putting the cart before the horse and failing to see the elephant in the room.

    The point here is that levels of taxation and the nature of the tax are secondary to the issue of who has the power to tax. You are focused on the secondary issue and missing the main point altogether.

    Thus, to reiterate, the primary issue is not about whether corporates pay tax, or how much they pay, but who decides, the nation state or the European Union, with its court in Luxembourg. This is about sovereignty.

    You need to focus on this issue. Whether you like tax or not, and whether you think tax should be high or low, whether corporates should pay or not – or whatever – the fact is that we have a tax system and governments levy tax. That is the real world in which we currently live and, until that changes, we have to deal with that real world.

    As it stands, the system notionally is that we have tax sovereignty – what this shows is that we do not. The power to decide whether corporates pay tax has migrated to Brussels. That is the issue here – do not get distracted by the side issues.

  8. 8 Autonomous Mind 30/10/2013 at 8:16 am

    Just to reinforce what Richard has said, the primary issue is not about whether corporates pay tax, or how much they pay… but rather who decides, the nation state or the European Union, with its judicial court complete with legal primacy sitting in Luxembourg.

    This is about sovereignty.

    Without sovereignty over the law in this country and taxation in this country, the UK has no ability to decide what entities here pay tax or how much. We cannot effect change, be it positive or negative. We are powerless and at the mercy of foreign legal and fiscal institutions that are beyond control and accountability to the British people.

    But no one is talking about this essential issue.

    It was dodged in Parliament during HMRC’s examination by the PAC, and has been ignored by the media despite the matter being in plain view and ripe for massive coverage. It gives lie to the claims of the politicians that we are still an independent country, sitting within a club of member states.

    Control over essential matters has been removed from our national parliament and legal structures.

    This has been done without our permission or consent. But the emerging consequences are not being connected back to the root cause, removal of sovereignty. That has to be our focus. That is the battleground.

  9. 9 wj (@wj557) 30/10/2013 at 8:18 am

    But, there must be something in this for the EU hierarchy.

    From your post it seems that that we in the UK are making businesses very rich and any tax due is disappearing over the water to the businesses’ chosen destination within the EU.

    Does the EU officially take from these funds or is it just a state/corporate back-rubbing exercise – brown envelopes on a grand scale.

    If so it seems that we are not only paying our subs for the EU club but we are also paying in the form of the tax that should be coming our way.

  10. 10 Anthem 30/10/2013 at 8:53 am

    Fair enough. I got sidetracked by a secondary issue but I just found that secondary issue quite interesting.

    You’re absolutely right, though. We should be a sovereign nation. I absolutely 100% agree with that.

    If anyone is going to screw us over, it should at least be our own government.

  11. 11 wj (@wj557) 30/10/2013 at 8:59 am

    Further to the above I note that the EU is trying to resolve the problem of businesses like Amazon using Luxembourg for tax purposes.

    I just get the feeling that the EU’s aim is to obtain flexibility – not so much to prevent the UK collecting tax as to remove obstacles to trade.

    What I don’t understand is that if businesses like Amazon are made to pay the appropriate tax in the UK, instead of allowing it to disappear into a Luxembourg black hole, those extra funds would go towards the GNI of the UK – a percentage of which would end up in the EU’s pockets anyway.

    I hasten to add, as someone totally opposed to the EU project, that I am against any funds going their way – and yes, I agree wholeheartedly that it’s a disgrace that no one is highlighting the reason why Amazon and Co are able to do what they do.

  12. 12 Bill 30/10/2013 at 9:21 am

    “This has been done without our permission or consent.”

    So remind me again why on earth we go along with any of it?
    Is it cos they has guns?

  13. 13 Odeston 30/10/2013 at 9:34 am

    It has been clear for a long time that we must leave the EU. Your piece on our lost sovereignty powerfully underlines that this is our ineluctable destination.
    I read yesterday that the proposed wording for an in/out referendum should be altered to accommodate those voters who do not know whether or not Great Britain is actually in the European Union: this is truly depressing. Can there really be such people? And would they vote anyway? I’m afraid the the odds are stacked against us.

  14. 14 Autonomous Mind 30/10/2013 at 10:25 am


    “This has been done without our permission or consent.”

    So remind me again why on earth we go along with any of it?
    Is it cos they has guns?

    It is because voters going to the polls validates the system that enables politicians to do what they see fit when they are in office. They signed the UK up to legally binding obligations. That is why we have to go along with it – until we can regain independence then slowly unpick decades of obligations as we work out what suits us best.

  15. 15 Bill 30/10/2013 at 5:21 pm

    “It is because voters going to the polls validates the system that enables politicians to do what they see fit when they are in office.”
    But there is no consent so I assume those in control presume consent is given unless it is specifically withdrawn or revoked.

    As for “slowly unpicking decades of obligations” created without our consent, does the same presumption of consent give the obligations a veneer of validity that isn’t really there and if so I would suggest there are no valid obligations to unpick.

  16. 16 Autonomous Mind 30/10/2013 at 7:56 pm

    The obligations are binding in law. They are valid. Don’t waste your time going down the fantasy route of claiming the obligations are not valid because we did not give our express consent. That is not required in the system we have today.

  17. 17 Bill 31/10/2013 at 10:11 am

    Please do not tell me what to think. I know this is ‘your gaff and all’ but ‘Fantasy route’, really?
    All I did was ask questions based on your reasoning.

    You said
    “This has been done without our permission or consent.”

    And then you said
    “Don’t waste your time going down the fantasy route of claiming the obligations are not valid because we did not give our express consent.”

    You and your compatriots have to be living a fantasy of your very own by creating an agenda for change that those in control, the tyrants, won’t pay any heed to and as for those who believe that voting changes things well you’ve just told them express consent is not required!

    Fantasy indeed.

  18. 18 Autonomous Mind 31/10/2013 at 3:05 pm

    Yes, where you are heading is the fantasy route, Bill.

    Too many people have buried their head in the sand and refuse to engage in activity to push for withdrawal from the EU on just the basis you were describing – the ‘consent’ meme. They say we don’t need to campaign to leave the EU because we really are not part of it, as consent wasn’t given so membership isn’t binding and the laws don’t apply. Sadly for them and you we have a recognised and legal system. What the political class signs this country up to is legal and binding, even if the system is rotten and anti democratic and express consent has not been given by the people.

    It is childish in the extreme to deride the agenda we’re pursuing when you clearly don’t understand how it will work. We don’t need and don’t want those in control to pay heed or give us anything. We are not playing by their rules, we are not signing up members, we are not seeking election. The plan is to take the power back using a different method, one they cannot fight because it’s not on their terms. If you rely on power to be granted to you, then in reality you have no power, the grantor still has it and can take it away again.

    If you think it’s fantasy, I suggest you read Gene Sharp’s books and the material that has documented how his lessons have been successfully employed in campaigns for democracy and removal of dictators in countries around the world.

  19. 19 Bill 31/10/2013 at 4:21 pm

    Oh dear. It’s okay for you to accuse me of engaging in fantasy but I’m not permitted to ‘return the favour’. Not only am I a fantasist I am now a childish fantasist simply because I ask a few questions and make a couple of statements.

    How you can claim to ‘take back power’ using a system of democracy which relies on people expressing their consent by voting and in the same thread tell those self same people that their express consent is not required to support the current system and the obligations it creates because it is ‘recognised and legal’ is beyond me so I guess your assessment of me is spot on.

  20. 20 Autonomous Mind 31/10/2013 at 7:13 pm

    Oh dear God. Engage brain before you type. It really would help.

    Parading your ignorance and inability to read before commenting doesn’t do anything to help your argument.

  1. 1 Tax tourism and sovereignty – defining the real issue | Autonomous Mind Trackback on 30/10/2013 at 8:33 am
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