PLANS TO IMPOSE ONE TAX SYSTEM
AND ELIMINATE TAX HAVENS

In one of the biggest scandals of the century, the British government under New Labour is working with the Germans to create one tax regime throughout the EU and in the countries under British protection. The target is the £4 to £8 trillion - the British government's best guess - held in offshore tax havens as well as the British and Irish economies.

Money does not of course stand still, and certainly much of the target money will escape the EU's grasp. As a result, some countries will be severely impoverished and the City of London will be badly hit.

Nearly every tax haven in the world is already within the EU or one of the British dependent or overseas territories. To bring them all within one tax net, the EU is using a mixture of rewards, threats and bribery. One financier called it 'assault and battery'. The EU is betting that its victims will not wake up until it is too late.

The onslaught is relentless. An island representative said: "We are being subjected to wave after wave of enquiries and reviews - it's either the British, the EU, or the OECD. It never stops". With only small administrations, most are struggling to cope.

None of them is expert in the Machiavellian ways of the EU. Although the tax havens freely exchange information on finance, there is no such exchange on the politics of the EU. And so far there has been no publicity. Each tax haven is either fighting alone or may not even realise there is anything sinister to fight. The deals now being negotiated will prove to be interim, and the process will only stop when there is one tax system.

The EU's attack began at the end of 1997. ECOFIN, the EU Committee of Finance Ministers, proposed measures to combat what they called 'harmful tax competition' (harmful to whom?) and a Code of Conduct on business tax. They set up a Code of Conduct Group to look at ways and means of recovering tax revenue lost to offshore financial centres. It will report to Helsinki European Council in December 1999.

Since last May, that Group, chaired by British Paymaster General Dawn Primarolo, has been carrying out its official brief: to 'study' company tax. That is a euphemism. According to the Luxembourg Prime Minister, the EU "has quietly entered the operational phase of the alignment of taxation". When the Group reports next December, all the deals should have been done.

In secret, the Group is bartering interim deals on a withholding tax. Even British MPs are not allowed to know the details of the Group's activity, but Patricia Hewitt, British Economics Secretary, assured them that no direct tax harmonisation would follow (not what the Germans are saying). She said she knew of no backdoor route such as the European Court of Justice to undermine that (the Court has already rejected member states' complete control over their tax systems). Ms Hewitt added that the Group "have certainly been making progress on identifying the areas where there are 'harmful and discriminatory' tax distortions within member states".

Irish business was the first to suffer from the Group: last July Ireland's low company tax, which has enabled the economy to boom, was labelled 'state aid'. The Irish government swiftly conformed to the EU's 'standstill and roll back' concept with a new tax of 12.5 per cent for all companies. This, after a short transition period, will replace the existing 10 per cent manufacturing tax. The EU, obviously regarding the Irish proposal as a play on words, is now taking a close look at the Irish contribution to the EU.

The British government is reassuring the City of London that it is fighting the proposed withholding tax, looking for ways to make London's eurobond market safe, and with it, thousands of jobs. Yet only this January, Economic Secretary Patricia Hewitt told the Treasury Committee of MPs that the British government "want(s) to see action against harmful tax practices and discriminatory measures, but we will protect this country's freedom to set general rates of corporation tax which are competitive".

What eurobond traders make of that double-speak is anybody's guess, and probably unprintable. They will not be encouraged that the burghers of Frankfurt are building skyscrapers to take the City's business, which the Germans believe will move there within five years.

Talks with the tax havens are conducted in total secrecy.  The politicians on the other side of the negotiating table are reluctant to admit, even to their own elected representatives, the details of what is going on. It is reasonable to assume that some of the browbeating is successful. Fear of being alone is a powerful reason for caving in to Big Brother.

Exploratory talks are known to have been held with Liechtenstein and more advanced talks with Andorra, Monaco and San Marino. No one yet knows what that means but 'Le Monde' helpfully reported that Monaco had been threatened. The French apparently told the Monegasques that if they did not toe the line, their power supply would be cut off. Presumably that was when the talks moved smartly from the 'exploratory' category to the 'more advanced'.

Luxembourg is pushing for a 10 per cent withholding tax if they can preserve their banking secrecy. Since the proposed level of tax is at least 15 per cent, even 22 per cent, and banking secrecy is 'out', talks are presumably 'continuing'.

Deals have been struck with the Isle of Man and the Channel Islands, but only a few politicians know the details. Both are still as popular as ever with depositors, who recognise good government when they see it, but news has already got out that moving to the Channel Islands may no longer be worth while. The Islands' housing market has stalled: a leading estate agent has been forced to advertise optimism in the press. Local radio 'phone-in programmes are almost exclusively devoted to Europe. No one knows the truth, but the fear is almost palpable.

The British government only supplies the services of external relations and defence to the Channel Islands. As the only part of the UK to be occupied during the World War II, they could be forgiven for thinking they had been let down once before. Islanders are relying on an opt-out from the Treaty of Rome which in essence says that they are not part of the EU. Like Britain, the Channel Islands have no written constitution, but there are 1,000 years of accepted practice. The most recent statement in the 1973 Kilbrandon Report acknowledged areas of uncertainty in the existing relationship with Britain.

In the face of a determined EU and German attack, backed by the political European Court of Justice with its codified laws, a relationship relying largely on custom and practice will fall unless ably defended by an independent British government.

Already, attacks have succeeded. According to their passports, Channel Islanders are now EU citizens - though most may not realise it.

The deal Britain's offshore islands have been secretly offered is:

What happens after five years? Will there be jobs for the children educated on islands reduced to a little agriculture and declining tourism?

The assault on Gibraltar is coming from three directions at once. Spain has created a barricade at the border with Gibraltar assaulted from three directions - Gibraltarians are protesting in the streets. If the tactics are that pressure from Spain will make Gibraltarians rush into the protecting arms of the EU, they have already failed.

Second, the Code of Conduct Group is conducting 'negotiations' and is not having an easy time.

And third, Gibraltar is being attacked by the British government. Soon after coming into power, the British government began a 'review' of Britain's remaining dependencies, which has led to the innocently titled White Paper 'Britain and the Overseas Territories - a Modern Partnership' published on 17 March.

The only publicity this paper received in the UK was along the lines of 'righting a colonial wrong'. It is the opposite. It is a sell-out. When consulted by the Foreign Office Minister, Baroness Symons, the islands said they did not want a change to their constitutions. They would like British passports, but not at the price of British tax rates and tax regime. They would like closer ties with the British Commonwealth; no-one asked them about closer ties with the EU.

If accepted by the offshore islands, the White Paper proposals will overturn their legal systems, their constitutions, and destroy their ability to attract funds with competitive tax rates. The bribe offered is a British passport, with the right to live in the UK and use the welfare state. The passport will also mean visa-free travel throughout the EU.

What the British government does not say is that a British passport is also an EU passport, making its holder an EU citizen and open to any duties the EU may impose.

The British government expressly says in the White Paper that there are no proposals for a British tax regime attached to the offers of British citizenship. The government is being economical with the truth. EU, not British, taxes will be imposed. The targets are the tax havens: the Cayman Islands, Bermuda, the British Virgin Islands and to a lesser degree, Anguilla.

The paper mentions 'harmful tax competition' but gives no detail. It mentions legal co-operation, with no hint that the door will be wide open to all EU legislation and Corpus Juris, the new legal system abolishing habeas corpus and trial by jury.

The Paper mentions human rights and expressly says that if the islands do not voluntarily change some of their statutes, then the government will impose changes either by Order in Council or Act of Parliament, as appropriate. The paper acknowledges that "in some of the Caribbean communities there is particularly strong opposition to homosexuality, based upon firmly held religious beliefs". Those beliefs will be overruled.

Unlike the Channel Islands and the Isle of Man, the 'overseas territories' are offered independence with British government help if they do not wish to accept the terms of the White Paper. Unless the island governments can read between the lines, they will walk straight into the trap set by the British government working with the EU. Pressure will come from their peoples, who will want British passports. Everything the islands have said they do not want will then be imposed on them.

Comfortingly, the British government says there will be no wave of immigration to the UK from the Caribbean, because 70 per cent of the population of overseas territories have a higher income per head than Britain. That will not be the case when tax competition ends.

Immediate beneficiaries of the EU's attack will be Switzerland, Singapore, the Bahamas, and Panama. Others will undoubtedly see the merits of encouraging incoming funds.

With that in mind, the Code of Conduct Group is talking to Switzerland to try to close some of the loopholes. Those talks have not been publicly admitted by the EU; they come under the vague heading of 'third country talks'.

The Swiss have already said they will help the EU collect withholding tax from EU citizens, but not at the cost of watering down Swiss banking secrecy or introducing a new tax. They threw the ball straight back into the EU's court: if the EU comes up with a comprehensive and efficient system to levy a withholding tax, they will work round their secrecy rules and tax system to make it work. The Swiss explained that "it would not be in Switzerland's interests to attract business solely designed to avoid the tax".

The Swiss say the EU tax must cover associated and dependent territories. They do not have to add that all their European competition would then be abolished at a stroke. The unknown is how far they are prepared to bend their already pliable secrecy rules.

The Swiss already have a withholding tax, a minimal one it is true, so they can undercut any EU tax. They are also using the lure of no stamp duty to tempt some of the eurobond market which may fall out from London.

In February, the EU issued a directive stopping residents in a high tax country like Germany benefiting from interest on savings in low tax countries. The UK is now a tax collector for other EU countries. The directive was rushed through a sparsely attended European Parliament disguised as an agriculture measure, thus requiring only qualified majority voting (see pp 4 and 5). Tax measures still need a unanimous vote. MEP Graham Mather described the directive as the death knell for tax havens.

Germany is the power behind the moves.  Chancellor Gerhard Schroeder, not one to pull his punches, said last November that he wants to see a federal Europe constructed on German lines. Germans say they want the same business tax, and soon income tax, throughout the EU. Echoing the Germans, Mme Gingou, the French Finance Minister, threatened that the tax havens had to go. Germany has pressurised the OECD to attack tax havens - yet another tentacle throttling their independence.

Even more sinister moves may be afoot. From last December, passengers to the Channel Islands have been re-routed at Gatwick airport from domestic departures through a special entrance to the international lounge. On the way, they are unobtrusively photographed using a still video. A bar code is added to their ticket. Persistent questioning has revealed that the Home Office ordered the changes and says they are 'on trial'. For what, no-one is saying.

A whistle-blower in the EU Commission, who has to remain anonymous to avoid prosecution, reports that the EU will introduce border controls to stop individuals and their money leaving the EU. The excuse will be that the EU has expensively trained them.

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