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Going to the dogs - By Kitty Miv, Editor

Kitty Miv, Editor
12 January, 2012

One of the most curious features of the European Union is the ambivalent status of its 'member states'. Are they states or are they members of a state? Nationalism is certainly alive and well in Europe: to listen to the region's politicians you wouldn't for one moment think that their powers were trammelled by any kind of supra-national entity. Whatever their private beliefs, they almost never have anything nice to say in public about the Union to which they do, in fact belong.

The legal reality, however, is that individual member states operate within ever-narrower constraints on their freedom for independent manoeuvre. Labour relations, human rights, consumer protection, health and safety, VAT, the Internet, farming, fishing, aviation, telecommunications, banking, insurance, pensions, construction and competition are just some of the sectors in which the EU's powers are now equal to or greater than those of national governments.

Whether that is an issue or not depends on your perspective; but what is clear is that national politicians only acknowledge the porosity of their borders when it suits them, and of course usually it doesn't. A current exception is the spat over a financial transaction tax. The EU's current leaders, at least in terms of public visibility, Messrs Sarkozy and Merkel, would like to impose a supra-national tax, applying to financial institutions in their home bases. The sub-text is of course that most European financial institutions are based in London, so that the tax would hit London particularly hard. Naturally, the British hit back by saying that they will veto any European-level tax that affects their national interest.

Turn the page, though, and the positions are reversed.

The British have been watching their betting, gaming and gambling industry, and its rich tax harvest, disappear for the last ten years as the Internet has eaten away at real-world betting operations, with most providers decamping to low-cost and low-tax territories such as Malta, Gibraltar, Alderney and Antigua, whence they can service their British customers on-line and pay out their winnings more or less tax-free.

Very often, the British user of such sites may have little or no awareness of the location of the server on which they are playing, but in many other cases they are highly aware, and operate foreign bank accounts or credit cards to manage their betting transactions.

All this is of course anathema to the British government, which would now like to try to force the users of gaming sites to deal with UK-taxed providers by making it illegal to gamble with a provider that it has not licensed (ie from which it does not extract tax).

Of course this proposal is unrealistic short of a Chinese or Iranian-style campaign to muzzle or imprison non-conforming ISPs; but let's ignore that and concentrate on the European legal dimension. And that's where we find the UK attempting to impose its national laws at a European level, when there is already an EU regime under which most or all of the competing providers have established acceptable legislation.

The UK would like to compel a Maltese gaming provider to register under UK law and pay UK taxes. What is sauce for the goose is sauce for the gander, so in that case why would the Maltese not be able to require a UK insurance company, say, to register under Maltese law and pay Maltese taxes before it could sell policies to a Maltese resident?

So these EU borders are magical: one moment you see them, the next moment you don't.

The matter is very clear, and the ECJ ought to resist all such attempts to bypass the single market. Unfortunately, and inexplicably, not all of its rulings on related cases brought by other countries have followed the correct line; and the Commission itself is struggling to give birth to a green paper on the subject of cross-border gambling, no doubt because of pressure from member states which have already installed illiberal national gaming regimes, or are planning to do so.

It is particularly disgraceful that the UK, which puts itself forward as a defender of the single market, and is prepared to go to the wall to defend the single market on behalf of the City, should compromise itself so egregiously in pursuit of an industry which it has carelessly thrown away and is never going to return.

Ciao, Kitty


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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