The EU tax legislation that explains Brexit

Despite the House of Commons Library’s own assessment that “There is no way of calculating the percentage of national laws based on or influenced by the EU,” it’s fair to say that the EU serves as the primary driver of some areas of UK law: external trade, the environment, agriculture, amongst others – the so-called “shared competences,” as outlined in Title I, Article 4 of the Treaty on the Functioning of the European Union (what a mouthful). It was, after all, this particular facet of the UK’s European integration that the Leave campaign capitalised on during the 2016 referendum – “unelected bureaucrats” making laws which influenced, and in many cases superseded, UK law. One of these areas of UK law is tax evasion.

Before the referendum, Brussels announced plans to combat “industrial-scale tax avoidance by the world’s biggest multinationals” – plans that Britain decisively rebuffed. Officially the Anti Tax Avoidance Directive (ATAD), the legislation sought primarily to crack down on the culture of offshoring, one of many tax-avoidance schemes used by the well heeled to minimise their tax liabilities. Without the directive in force, assets could be shifted to a related company in a low-tax country, reducing the taxes paid on the profits. The common tax regulations of the ATAD would have removed many of Britain’s competitive tax advantages over its European neighbours. The ATAD was initially proposed as part of the EU Commission’s Anti Tax Avoidance Package on 28th January 2016; an amended directive was formally adopted by the European Council in July. Per the ATAD’s directions, member states would have to implement all measures in their national law by 1 January 2020. In the United Kingdom, however, these measures would never be adopted; an escape route presented itself for the nation’s super-rich in the form of Brexit.

Unsurprisingly, it was the strongest supporters of the Leave campaign who had the most to gain from ATAD exemption. Both the Panama and Paradise papers (millions of confidential documents relating to offshore investments) contained the names of many pro-Brexit voices. Aaron Banks, dubbed by New Statesman’s Martin Fletcher “the man who bought Brexit,” has links to tax haven companies in the British Virgin Islands and Gibraltar. In 2014, Banks donated £1m to UKIP, an additional £7.5m to Nigel Farage’s Brexit campaign, and continues to argue for a “hard Brexit.” Among Tory MP Jacob Rees-Mogg’s multimillion-pound investments is a stake in Somerset Capital Management, an emerging markets fund managed via subsidiaries in the Cayman Islands and Singapore. Even Nigel Farage, despite his claim that “[he has] never been the beneficiary of any offshore company,” set up a trust fund in the Isle of Man in 2013. At present, there is nothing illegal about these arrangements, but under ATAD rules, there would be.

It’s no surprise then, that those with offshore interests tend to be Brexit supporters. It’s why hard Brexiteers have dismissed any long-term deal with the EU, including Theresa May’s Chequers agreement. Under these plans, the UK would still be governed by certain European regulations, defeating the entire purpose of Brexit. Daniel Hannan, now a Conservative MEP, has said that his goal in founding the anti-EU European Reserach Group in 1993 was to turn the UK into an “offshore, low tax haven.” It’s why 2015 Conservative voters predominantly favoured leaving the EU, according to YouGov polling – wealthy supporters of low domestic tax rates. It’s why, despite eurosceptic factions existing within the Labour Party, the Conservatives ultimately became the torchbearer for leaving the EU, culminating in the eventual election of Boris Johnson as party leader in July.

Since being elected at the start of the decade, the Conservative Party has slashed the UK’s corporate tax rate from 28% in 2010 to only 19% today, with further plans to cut it by another 2% before April 2020. Although the Tories argue this is a boon to the economy; an attempt to create a more hospitable business environment for the United Kingdom compared to its European neighbours, cuts to corporation (and other) taxes have coincided with mass cuts to public spending, a significant rise in child poverty, and extraordinary benefits cuts, which the University of Nottingham found had been harmful to working families and beneficial to older homeowners. To make things worse, our membership of the EU entitles us to funding to help alleviate such problems – that’ll be going away soon. It’s a criticism that’s been leveled at the Conservatives since time immemorial: low taxes entail cuts to public spending. Contrary to the beliefs of many working-class Leave voters, exemption from European tax regulations will do little to ease the way: Brexit is another instrument of the super-rich to cling on to their wealth. Until people grasp this fundamental axiom at the heart of the Brexit turmoil, the wealthy will continue to profit at the expense of the poor.