ALL THE COMMISSION'S MEN

 The last few months have not been the most comfortable for EU-philes in British business. The exposure of the CBI's fear of honest answers to its survey questions, the imminent threat of a 20 per cent withholding tax on interest payments and the potential damage of Oskar Lafontaine's tax harmonisation plans have all helped turn general business opinion on the EU in a sceptical direction.

 'Red' Oskar was particularly effective in this respect. He spoke out with brutal honesty, not being familiar with the established conventions of EU policy making - 'decide in secret, then talk in public'.  No wonder Tony Blair encouraged The Sun newspaper to brand him the most dangerous man in Europe and to print and distribute throughout Germany a special German issue. He had given the game away; tax harmonisation follows the introduction of the euro as night follows day, and both are political decisions, not just economic ones.

 The reaction by EU-philes to these setbacks to their plans has revealed who their most determined advocates are. These are not to be found among businessmen, however much the CBI might like to pretend otherwise. The real EU-fanatics are far more likely to be accountants than chief executives or sales directors.

 This is not, of course, the impression given in the media. Even diligent EU-watchers in the UK rarely mention Colin Sharman, head of KPMG international in the UK, though they are all too familiar with the names of Haskins, Marshall and Fitzgerald as the chief EU-philes among businessmen. Yet accountants have immense influence through their briefing notes, whose quiet but pervasive bias continues to promote the EU-phile message beneath apparently impartial professional advice.

 Two recent examples demonstrate this insidious practice. The last article in KPMG's European VAT Brief issue 2, 1999 (released in May) has the title 'Is VAT Harmonisation still a distant dream?' The very language of such a question is enough to alert an EU-sceptic. Why 'dream?' EU-sceptics do not 'dream' of VAT harmonisation across the EU; it causes them waking nightmares. Replace 'dream' by 'nightmare' and the bias in the title of the article becomes plain.

 The article itself appears to begin neutrally enough. "More and more doubts arise about the feasibility of setting up a common VAT system within the next few years". These doubts have been expressed throughout the EU by politicians, officials and accountants alike. The Commission has expressed them too, though in its 1996 plan for a common system [XXi/1156/96], its doubts were expressed as complaints about the member states which have "neither the willingness to face the problems posed by the necessity to harmonise rates and relinquish derogations, nor [are] they ready to accept any compensation mechanism for VAT revenues ..." [XXi/1156/96, p9].

 The article goes on to identify a lack of political will in the member states to pursue VAT harmonisation. "The current political priority is the accession of Central European countries to the European Union. This will make harmonisation even more difficult than before: firstly because unanimity will be even more difficult to obtain when there are more members of the Union; and secondly because the new member states may find the administration of the [existing] common system of VAT very difficult." It is clear where the anonymous writer's sympathies lie - Qualified Majority Voting (QMV) for tax matters in the Council and a new, easy-to use-and-administer common VAT system.

 How fortunate, then, that the Commission's 1996 plans advocated both, though the KPMG article refers only to the proposed distribution of VAT revenues among the member states according to centrally collated statistical trade data, and not to the QMV necessary for its introduction. Given that QMV is highly politically contentious, especially in the UK, the writer's silence on this topic is a perfect example of bias by omission.

 The article concludes by blaming the politicians of the member states for the present impasse. "Without the political will to progress further, VAT harmonisation will remain a distant dream." This echoes the Commission's complaint that it is the member states that have been obstructing VAT harmonisation because they do not dare "embark on a legislative harmonisation process which is more extensive than has ever before been contemplated in the field of indirect taxation" [XXi/1156/96, p57]. The closeness of view between the writer of the KPMG article and the European Commission is obvious. Having examined the text closely, it should be even more obvious that the Commission's opinion has been handed on as impartial advice for its clients by KPMG.

 A second example of bias masquerading as independent professional advice is published in The Tax Journal, issue 505, 21 June 1999 at pp 7-10, 'Business Tax Harmonisation in the EU'. John Hawksworth and Peter Cussons are both senior men at Price Waterhouse Coopers. Hawksworth heads its Macroeconomics Unit and Cussons is a partner in its international Structuring Group. They claim in the sub-title that their article "summarise[s] the background to the political debate in Europe about corporate tax harmonisation, consider[s] the possible future drivers of business tax harmonisation in the New Europe and outline[s] the implications for European companies."

 Again, the language indicates the likelihood of bias, also its source. What is 'the New Europe'? Is this another form of the mantra 'New Labour, New Britain'? Has the Blairite 'project' extended itself to offering tax advice in the obscurer corners of the technical press?

 Hawksworth and Cussons state their aim clearly enough: "to provide a broad overview of the key issues from an economic perspective." Predictably, those naive enough to look for EU-sceptical as well as EU-phile arguments will be disappointed.

 The statistics are unexceptional but the interpretations contentious. OECD figures are given which show, among other things, corporation tax burdens as a percentage of GDP. The ratios are: Germany, 1.4 per cent; France, 1.7 per cent; Italy, 4 per cent; and UK, 3.8 per cent. The explanation given by the authors for the UK's relatively high figure is that our tax base is much wider, with fewer deductions from corporation tax than other countries. Yet an equally valid explanation is that tax compliance in the UK is far greater than on the Continent. While the UK's record has been consistently in the 90 per cent range, in Italy unofficial estimates put the level of compliance at less than 50 per cent. In France and even Germany the levels are nowhere near as high as the in the UK. That is why those countries tend to raise proportionately more tax revenues from social security contributions "levied largely on companies directly " which cannot be evaded as easily as corporate taxes. For example, in four core EU countries, Germany, France, The Netherlands and Italy, tax revenues from social security levies are respectively 16 per cent, 20 per cent, 17 per cent and 15 per cent of their GDP. The figure for the UK is 6 per cent.

 The authors consider what is driving business tax harmonisation in the EU. They identify the single market programme; the single currency; the E&MU stability pact; national tax reform initiatives; and the EU's own initiatives (by which they actually mean the Commission's own proposals). Interestingly they minimise the importance of the ECJ. Its decisions in ICI v Colmer (a corporation tax case they refer to) and National Bank of Chicago (a VAT case they don't mention) deserve, in any impartial consideration, far more prominence than the 41 words allotted them by Hawksworth and Cussons.

 Even on their chosen ground, the pair present only EU-phile arguments. "The implicit or explicit suggestion in some of the contributions to the debate [on the single currency] is that [it] necessarily implies the need for tax harmonisation. We would argue that this is true neither in theory nor in practice". Since tax, they say, is only one of the factors in a company's choice of location, and since labour mobility in the EU is so poor (they do not give the statistic - 1.5 per cent, European Journal, May/June 1999, p12, Brian Burkitt), varying tax rates can co-exist in a single, federally organised state such as the USA.

 Such an argument begs more questions than there are 'spare-some-changers' on London's streets. It assumes that the EU is constitutionally, in reality or in embryo, a European version of the USA. It uses the evidence of the past, when the EU's member states were much more independent than at present, as a prediction of outcomes in the future - one in which the United States of Europe is assumed to have incorporated the separate jurisdictions of the member states. It also assumes that the fiscal effect of the first six months of the euro is an accurate guide to the future. Nul points for intellectual rigour, though Tony Blair and Ken Clarke would no doubt admire the chutzpah.

 As always, it is in the conclusions that the 'invisible guiding hand' become obvious. "If, as some Euro Commissioners have argued [ie Mario Monti], tax issues were able to be decided by QMV, then more rapid progress might be expected on EU tax harmonisation. Countries such as the UK, however, are likely to oppose any such extension of QMV and, without such change, progress on EU tax harmonisation is likely to remain slow and piecemeal." The implication is also obvious. Bad old UK, dragging its heels again, holds up progress for New Business in the New Europe. This is exactly the view of the Commission, in the person of Mario Monti. He made it as clear as possible without saying it in so many words, in his evidence to the House of Lords tax committee in May, that the UK's veto on tax harmonisation was unacceptable to the Commission.

 In both articles, senior tax specialists in international accountancy firms have presented the European Commission's view on direct and indirect tax harmonisation disguised as impartial professional advice. In neither case is the source of the bias acknowledged. In neither case is Mario Monti quoted, though it is his publicly expressed attitude which is being articulated by the authors from KPMG and PWC. Why should this be, and what does it tell us about the relationship between the European Commission and the professions advising business?

 It is a common assertion on the EU-sceptic side that the Commission favours a corporatist construction for the EU's economy. Scarcely an issue of the European Journal or Eurofacts is published without evidence to support this assertion, and there is no need to repeat any of it here.

 For example, the Commission wants to impose an employment directive. It calls to a meeting the 'social partners', that is, the European trades union representative body and the employers' equivalent. It discusses its proposals with these representatives, hears their views, considers them, and some time later issues its orders, with the two bodies with whom it has had 'consultations' directed to put the regulations into practice. The text of the regulations is handed to the corporate arm dealing with legislation (the member states' parliaments) with instructions more or less detailed on how to make them work in practice. Now it seems that the accountancy profession, or at least its tax department, is quietly becoming an instrument of the Commission's tax policy.

 The accountancy profession has for some time been co-opted by the European Commission into its regulatory activities. Partners and senior managers have become part of the European administocracy, devising new ways of levying VAT on financial instruments such as mortgages. The Poddar Committee, which is examining this very topic, is being guided by Ernst & Young [Taxation, 5 March 1998, p545].

 All the other big international accountancy practices are also engaged on some Commission business or other, each piece of which has, as its ultimate purpose, the imposition of an EU tax system in place of those of the member states. In these circumstances, what may at first sight be impartial tax advice from an international expert turns out to be little more than propaganda on behalf of the European Commission in general, and one of its Commissioners (in this case, Monti) in particular. For example, Otmar Thoemmes of Deloitte and Touche, Munich, issued a paper under the auspices of the Confederation Fiscale Européenne (a corporatist grouping of member states' tax institutes such as the UK's Chartered Institute of Taxation) demanding a 'long term plan to achieve greater harmonisation of tax legislation' [Intertax 11, 1996, pp 451/2].

 On the same day - 3 December 1996 - that the CFE released Thoemmes' article, Mario Monti published a press release identifying "a pressing need for progress to be made towards co-ordinated tax policies".

 Accountants still claim to be proud of their independence. All the various professional bodies have been busy setting up ethics committee and issuing detailed regulations to their members on how to retain that independence in the increasingly complicated and conflicting relations they have with clients, tax authorities, statutory regulators and other third parties with an interest in the accounts they sign off. Yet these highfalutin' activities are worthless in the face of the European Commission's encroachments on the integrity of the profession, as illustrated in the two articles considered above.

 Equally worrying are the slight but unmistakeable traces of Blairism which seem to have crept into professional tax advice and discussion.

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