There is very great diversity of fiscal
rganises fiscal injustice.
regimes across Europe, particularly concerning the taxation of savings. Luxemburg and Germany have no specific regulations ensuring that the interest paid to EU residents is identifiable for tax purposes. Others, such as Denmark, the Netherlands and, in most cases, France have a "reporting system," under which banks must inform the Treasury of interest payments on capital. Belgium, Spain, Italy, Ireland, Britain and, in certain cases, France) prefer to tax revenue from capital (interest) at source.
The result of this diversity is that, ever since the free circulation of capital became effective on 1 July 1990, there has been a dramatic move away from local savings in the core countries of the EU, and a competitive avoidance of tax by capital.
Theoretically tax revenues from savings are payable in the tax-payer's country of residence, after an aggregation of all income, whether originating inside the country or elsewhere in the EU. In theory, then, taxation of savings should occur independently of where the capital is invested. In practice this doesn't happen, because most EU tax administrations do not have the investigative means to discover what happens to capital owned by "their" residents. Consequently, collecting tax on investments placed abroad depends on the declaration of such revenue by the tax-payer.
Since, at the same time, savings by nonresidents are tax free in a majority of EU states, the free circulation of capital has created a situation where income from the mobility of capital can, perfectly easily evade taxation. Fiscal policy and Maastricht
The other jaw of the fiscal injustice trap is the budgetary stabilisation prescribed by Maastricht. The EU has created a framework which allows capital to avoid tax. But at the same time, it requires member states to reduce debts and budget deficits. It is now clear that the burden of stabilisation is being transterred on to the working class - in the form of reductions in expenditure (Social Security etc) and through the introduction of new methods of raising revenue (like Value
This competitive avoidance of tax on the revenues from investments has a number of effects. To avoid the cessation of local investment by its residents each government is introducing tax measures favourable to its own' rich. It is in this context that we should regard recent steps, such as the abolition of the inheritance tax in Germany and its reduction in France. But these sort of measures have been taken in the majority of countries
In every country the rate of tax on inheritances is declining whilst their volume is increasing and, at the same time, there is a concentration in the hands of the richest, especially the banks. Fiscal competitiveness of firms
This competitive reduction in taxation doesn't just affect finance capital. Other capitalist sectors do not want to be left behind and the E is striving to give them satisfaction. Take the question of parent' companies Previously a deduction (tax) at source was made in the country of the subsidiary firm on the dividends paid to the parent company in another country. But the EU decided that this was an intolerable "tax discrimination" since there is no such deduction when both the parent and subsidiary firms operate in the same country.*
This logic of abolishing supposed "tax discrimination" is still at play. The consequence is a progressive lightening of taxes on capital. For example, the Commission is drafting a directive which will ensure that losses run up by a subsidiary in an EU state will be treated in the same way as if the subsidiary were located in the same country as the parent company. A group of companies will, therefore, be able to locate its investments in a country where tax relief is most appealing and then transfer them on paper to one of the group's enterprises in a country with less generous tax benefits, with the advantage that the loss thereby created will be tax deductible.
Since the fiscal rules governing amortization and taxes on company profits vary almost as much as those on tax deductions to investment income, the result can only be an increase in competition between EU member states, "bidding" against each other with fiscal presents to attract investors. All, of course, in the name of promoting employ-
From now on, official statistics on the rate of tax on profits must be examined with the greatest care, because, in every country, governments have developed a wide range of deductions and exceptions which reduce, or even completely write off, taxes on profits. As a result, very few people have an overall view of these mechanisms in the different countries any more. A deliberate policy
Even the EU's own specialists predicted these perverse effects of the free circulation of capital combined with criteria for budgetary stabilisation.
On the decisive question of taxation on savings the Commission proposed in 1988 a common regime: a 15% tax on interest payments, to be deducted at source, and better collaboration between the fiscal authorities of the member states. Nevertheless, eminent tax experts have estimated right from the start that these proposals will be inoperable or, at the very least, completely insufficient.®
• A system of deduction at source cannot be limited to affecting the tax interests of the residents of one of the EU member states: it must also apply to residents of a
• The exemption of Euro-obligations from deduction at source risks making a mockery of the idea of European fiscal harmonisation. Instead, it will promote
Euro-obligations as a substitute for traditional bank deposits and government
• Taxation on global income cannot be installed without putting into question
Belgium's system of taxing interest payments at source, which entitles depositors not to declare this interest as part of their taxable income. This is contrary to the principle of aggregation of income, of taxation of people in relation to their contributory liability;
• The deduction at source envisaged was lower than the rate of taxation on interest from savings practiced in the majority of countries. In the context of free circulation this proposal will lead to a lowering of the rate of tax on income from investments.
The most important criticism concerns the European Commission's refusal to
19
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• Australia $33 • Britain £25 • Canada $80 • Denmark 380 DKK • Ireland £25 •
• South Africa R100 • Sweden 400 SEK • New Zealand $35 • USA $70 • recommend to the member states the adoption of the "Reporting System" - i.e. the lifting of banking secrecy throughout the whole of the EU. The Commission claimed that such a move "would, in all probability, run up against serious obstacles in those member states which have a long tradition of banking secrecy which, very often, receives the full protection of the law".
Not only did the EU take no account of these predictions, but the proposed directives were not even adopted: Britain and the Luxembourg were opposed, in the name of liberal economic principles, whilst the Netherlands insisted on the generalized adoption of the "Reporting System'. Despite this setback and despite all the fine words about the necessity for accompanying measures to prevent the liberalisation of the movement of capital provoking an explosion of fiscal fraud, free circulation was set in motion on
In 1990 Germany unilaterally decided to implement a levy of 10%, deducted at source, on interest, but had to repeal this measure a short time later because she was confronted with organised sabotage by Big Capital. After this episode the European debate on "measures to accompany free circulation" was frozen until 1993.
In 1992 the Ecofin Council was obliged to concern itself with the scandal at the Luxembourg-registered BCCI (Central Bank of Commerce and Credit International), which was revealed to be a focal point for the laundering of drug money. This scandal underlined the relevance of radical measures such as the lifting of bank secrecy. But EU Finance Ministers adopted a document claiming, against the evidence, that "the system consisting of control at the level of the country in which are situated the registered offices and common surveillance instituted by Community legislation which has been adopted in the last few years is a system of fundamental value which requires no important revision". On the contrary, the ministers still openly insist on "the necessity for a solution favourable to the capitalist
In the most recent period the Commission has begun to insist on the need to reduce the burden of taxation on employees. But this is not in order to correct the fiscal imbalance between labour and capital, since any discussion about increasing the level of taxation on capital is excluded. Instead, the objective is the radical reduction of employer's payments for Social Security. In other words, the reduction of the cost of wages. As usual, the aim of social regression is hidden in beautiful but false words about the fight against unemployment. Our proposals
The radical left generally ignores the fiscal aspects of our anti-capitalist alternative to neo-liberalism. But this is an extremely important chapter. The road to follow is not that of fiscal harmonisation through the EU. On the contrary, we have to challenge every government to use its right of veto on these matters. Moreover, we need to put forward demands on taxation which form the bridge between the question of public debt and that of employment.
In this regard more attention needs to be paid to an exceptional tax at a high rate on the inheritance of the richest 10% of the population, and businesses. The creation of a fund to finance a generalised reduction in work time in the public sector and small
Analysis with Attitude enterprises (big firms can pay out of their own pocket) is one of the possible uses for these new budgetary measures.
Coupled with more 'obvious' demands,
There is only one magazine in the English language where • the leaders of France's trade union left debate how best to articulate the new mood of resistance to public sector cuts and unemployment. • Tahiti's NGO activists explain why they feel Greenpeace marginalised them during the campaign against French nuclear tests • Indian activists argue that we shouldn't ban imports on countries with deficient environmental and labour legislation. Founded by Ernest Mandel, such as the generalised lifting of banking and insurance secrecy, the suppression of offshore tax havens linked to EU states and the establishment in every country of a register of large inheritances, radical fiscal demands are capable of making concrete an important aspect of any alternative policy which is centred around the satisfaction of social needs. * Notes 1. The implicit average rate of tax is calculated by dividing tax actually paid by the taxable base. 2.Taxation in the European Union, Report on the Evolution of Tax Systems," Commission of the
International Viewpoint is the world's largest international Marxist news and analysis magazine. Correspondents in over 50 countries report on popular struggles, and the debates which are shaping the left of
European Community, October 1996 3. In Belgium,since 1980, the tax on interest has entitled depositors not to declare that interest as part of their taxable income. The rate of taxation was reduced from 25% to 10% in January 1990 (it was raised to 13.39% in 1993-1994). In Denmark revenue from capital is exempt from the surtax on incomes above 231,800 Danish Krone. In France the rate of obligatory deductions has been reduced from 26% to 15% for government bonds and from 46% to 15% for other negotiable bonds and tomorrow. Direct from the front line in the fight against neo-liberalism.
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20 International Viewpoint #290 bank deposits; a Belgian-style system has been introduced for the benefit of capitalisation. In Italy too, a
Belgian system has been introduced. In Luxembourg and the Netherlands tax free allowances have grown.
4. European Directive, 23 July 1990
5. COM (89) 60 final/3, 12 May 1989
6. These particular criticisms were formulated by Belgian
Professor Max Frank, former Inspector of Finances
7. Ecofin Communiqué à la presse, 27 July 1994
8. As demanded by the Geneva Appeal of magistrates.
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