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Tax Harmonization Is Coming!

Jeremy Hetherington-Gore Unleashed
19 October, 2008

A little noticed judgement from the European Court of Justice last week cements another brick in the wall of European tax harmonization.

Governments of member states such as the UK and Ireland stand firmly behind their red lines, refusing to allow the EU to have 'competence' over fiscal matters other than VAT, where the battle was lost a long time ago, and fighting against the CCCTB (Common Consolidated Corporate Tax Base) while, through the back door, the ECJ is quietly colonizing their tax systems, bit by bit tying them down with gossamer rulings which they hardly notice, but which will one day render them immobile.

The latest ruling, by Advocate General Mengozzi, states that the German tax authorities were wrong to disallow a tax deduction for a charitable donation by a German citizen because the beneficiary organisation was located in another member state. His opinion argues that less favourable tax treatment for cross-border donations may discourage people from making such donations and found that the German legislation constitutes a restriction on the movement of capital within the single market.

Almost all countries give tax deductions for charitable donations, but most of them set hurdles in the path of people who try to claim for donations made to foreign charities, or exclude them altogether. In some countries, the charity is able to claim back basic rate income tax on donations, leaving the donor to claim higher rate relief if appropriate. How will this work in a harmonized EU? Surely the ECJ will say in due course that a Bulgarian charity should be able to claim UK basic rate income tax on a donation made by a Brit? The Inland Revenue will be apoplectic, but the logic is impeccable.

While we're on the subject, isn't it about time that the ECJ and or the EU Commission itself did something about the practical impossibility of reclaiming VAT paid on foreign services? If for instance an EU business hosts a sales meeting in another member state, the VAT charged by the venue is theoretically reclaimable by the buyer, but in reality the bureaucracy totally - and intentionally - prevents this from happening, and needless to say, the buyer is unable to reclaim the VAT through its VAT return. This is iniquitous, and is a glaring breach of the freedoms incorporated in the EU Treaties.


About the Author

Jeremy Hetherington-Gore Unleashed

Jeremy tackles the difficult issues head on!


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