Tax war: Fear of the UK and USA undermining the EU

Economic history repeats itself. Much reminiscent of the 1980s, when British Prime Minister Maggie Thatcher and US President Ronald Reagan became the symbols of capitalism, with a company-friendly tax policy, both started a worldwide downward trend in corporate taxation which is likely to happen again.

Again, massive tax reductions are announced in London and Washington. Britain’s Prime Minister, Theresa May, has announced plans to reduce corporate taxes to the lowest level of the 20 largest industrialised countries. At just 15 percent, the tax rate is at a level which Donald Trump has promised in the US presidential election campaign.

Europe is horrified. Britain and the US could undermine international efforts to fairly tax large international corporations. In addition, this could create a ruinous tax competition.

EU finance ministers and the European Commission had also intensified the fight for fiscal justice in recent years, also in view of the ever-new revelations on tax evasion and unfair tax competition. Within the scope of the OCED as well as the G 20, the states also pushed forward their fight against tax evasion.

This is accompanied by an investigation by the European Commission against individual EU countries and their taxing of multinational companies. Competition Commissioner Margrethe Vestager, recently decreed that Apple must repay up to 13 billion euros in taxes to Ireland. Fiat and Starbucks were also ordered to repay tax to the Netherlands and Luxembourg.

During a book launch in Berlin, German Finance Minister Wolfgang Schäuble (CDU) sharply criticised Britain. He warned that London could trigger an unhealthy race with its massive reduction in corporate tax rates. “Great Britain is still a member of the European Union,” Schäuble said. “They are still bound to European law.”

According to Schäuble, even after the intended Britain’s resignation from the EU, the British would continue to be subject to regulations,”They are tied to what they promised at the G-20 Summit in Antalya,” he said. That was “not to do exactly this” – a tax competition with ever lower rates.

The development, however, was foreseeable. “If international tax cuts are no longer doable and the tax base is harmonised in the EU, then the competition will inevitably shift to tax rates,” said Sven Giegold, the Green European Commissioner. “There is a risk of a ruinous tax competition around mobile capital.”

As a solution, Giegold promotes a minimum tax rate in the European Union. “There is no reason to insult the British,” he said. “But we have to get to grips in Europe and finally set minimum tax rates.”