Friday, 23 September 2016

More sloppy Euro-think: VAT on electronic books

  • debate about whether UKGov should remain a member of the European Economic Area; and
  • The dust still settling from the crazy decision of the European Commission against the Republic of Ireland re Apple;

the Advocate General of the Court of Justice of the European Union has thrown another mortar round into the toxic world of Euro-anything.

Reported by, the AG of the CJEU has confirmed that it is right to charge standard-rated value-added tax on electronic books while, at the same time, physical books may enjoy a reduced rate.

It is another clear example of classic, European disjointed thinking, seemingly a function of lobbying than of clear thought.

The issue is the usual issue for VAT.  When is a Jaffa cake a biscuit or a cake?  Answer: when the rate of VAT changes for absolutely no meaningful reason whatsoever, but where the state wants to engage in ‘tax fabrication’ (the opposite of ‘tax avoidance’).

In the case of e-books (standard-rated) versus real-books (exempt in UK; reduced-rate elsewhere), similar protectionist discrimination continues to apply.  If the rationale for reduced-rate VAT on books is to reduce the cost of education, then why charge a higher rate of VAT on e-books?  Why charge a higher rate of VAT on a form of book whose carbon emissions is arguably lower? (careful with this line of argument though; how many wind turbines are needed to power computers with which to read e-books?)

The ulterior motive is most likely that a reduced rate of VAT on paper books is a sop to the vested interest of the forestry and paper industries. These are powerful lobby groups in some countries, notably Finland.  So just as German taxi drivers sought to have their courts ban Über so as to reduce useful competition, another industry might quite like a relatively punitive VAT rate on their cheaper competitors.

It lends credibility to critics of the Single Market when they say it should have been called the Single Protectionist Zone.  Welcome to Europe!

Thursday, 22 September 2016

Can Britain survive without access to the European Single Market?

By September 2016, Remainiacs continued to demonstrate their on-going ignorance of the real world and, in most cases, their desperate desire to have a second referendum to reverse the actual referendum of 23Jun2016.  Remainiacs’ preferred strategy is ‘deliberate over-complication’, a rather sinister way of deliberately confusing choices with consequences to perpetuate Project Fear.

In turns out that Project Fear did have an effect.  Precisely the opposite effect as intended, as it turns out.  In a speech to his party’s conference on 20Sep2016, Liberal Democrat leader Tim Farron (who?) admitted that amongst his ‘undecided’ friends, the turning point was when Obso announced his ‘punishment budget’.  At this point, his ‘undecided’ friends chose to vote leave.

Sadly, Remainiacs show no sign of understanding this.  Their current polemic is to perpetuate Project Smear by stating explicitly that Britain cannot survive without access to the Single Market.  So, because this assertion comes from Remainiacs, it’s worth asking the question: really?

The media show presents the usual idiotic binary choice:

A good place to see such ‘debate’ amongst Brexiteers (and realistic ex-remainers) is the new forum,

On 14Sep2016, Douglas Carswell MP - whose credibility has always been easy to challenge, especially when he recently waded into a non-argument about whether the sun or moon causes tides - started the debate off by suggesting a distinction between being a member of the Single Market or merely having access to the Single Market.

Access clearly doesn’t require membership. Countries around the world trade with the single market. Many do so freely, with no tariff barriers, via bilateral free-trade agreements. Britain can do the same. We don’t need to be part of the single market to trade freely with it.

On 15Sep2016, Tory remaino-realist Iain Anderson responded.  The sum of his contribution is a deviation the Remainaic/Project Fear script.  He accepts that Carswell’s division between “membership” and “access” has merit, but doesn’t appear to recognise that it is an artificial distinction in the current narrative of the European Union/Remainiacs.  However, he wants some sort of access to the Single Market.  His key example is the passporting rules relating to financial services.  He cautions that there is no simple, easy answer, citing the example of the unfinished Canada-EU deal (“CETA”).  In particular, CETA offers a lower level to access to the Single Market than the UK’s current access via membership of the European Union.  His conclusion is to carry on negotiating: with elections pending elsewhere in Europe in 2017, now is not the time for conclusions.

On 16Sep2016, business Brexiteer - and clearly one of the Brexiteer establishment - Richard Patient waded in.  Nonsense, says Patient of Anderson.  Wanting access to the Single Market is “groupthink”.  Patient wrote:

First of all, there are plenty of businesses whose owners voted Leave to get out of the single market. Dyson volubly complained when single market regulations imposed a power output for vacuum cleaners that helped his German competitors and didn’t do anything to help consumers. The tech firm Ghost voted with their feet, and moved to Singapore, as a direct result of the new single market VATMOSS regulation. And all the SMEs who waded through (or more than likely just ignored and got caught later) the 2,500 single market regulations every year will tell you that the single market is neither ‘highly desirable’ nor ‘utterly vital’.

In truth, the single market was always a misnomer. It should have been called the Single Protectionist Zone or the Single Regulatory Regime. The single market was never about opening up markets, it was always about imposing rigid common, anti-competitive, standards.

And in the services sector, the single market was unfinished at best, and not really helpful at worst.

Take the City. [...]  The EU already has ‘regulatory equivalence regimes’ to allow non-EU financial services firms to trade in the UK, similar to the passport mechanism. This is set to be expanded under the new MiFID II regulation, due to come in at the start of 2018. Given the UK already complies with EU financial regulations, ‘regulatory equivalence’ should be all but automatic for Britain. And that’s before taking into account the EU requiring access to markets in the City as well.

(my emphasis)

Patient’s comment echoes my own thoughts about the purpose of “solidarity” within the European Union, in particular the game-theory/prisoners’-dilemma/red-blue-game feature of such solidarity.  So I’m drawn to Patient’s comments.  But, as Patient also says, “The search for evidence starts now.”

Actually, shouldn’t the search for evidence have started prior to the referendum being declared?

Well, yes. It should have started years ago.  And so I turn once again to Dr Richard North and the Leave Alliance.

Following the Flexcit plan, North has started to publish a series of monographs for the Leave Alliance, the first one entitled “Single Market participation and free movement of persons”.  North prefers the European Economic Area over alternatives (i.e. the Swiss model, the WTO model or the Australian process).  North recognises the imperfections in the EEA (see Flexcit plan “phase three: a genuine Single Market’), yet sees it as the best short-term position for UKGov.  For North, the EEA is not a take-it-or-leave-it option as both Extreme Brexiteers and Remainiacs want to present via the blogosfear.  The opening paragraph of the monograph:

“This note sets out possibilities for a solution to the conflict between post-exit participation in the Single Market and limitations on freedom of movement. It shows that, contrary to claims by the Commission and a widespread belief, freedom of movement provisions are negotiable, and that a legal base within the EEA Agreement exists for a settlement.”

The Leave Alliance declares that “Opposition to the EEA is wholly irrational.”  In a nutshell:

What critics of the EEA miss is that the EEA agreement is not just an agreement on single market participation. It is an interface mechanism with its own infrastructure for constant review and reform for the purposes of entering special conditions, exemptions and reservations. And so though we may be adopting an agreement that someone else has, there are mechanisms to tailor the agreement to the needs of the UK, be that enhanced controls over freedom of movement or better consultation on regulations.

How to reconcile North from the sceptics of the EEA/Single Market?

I think the truth lies in between Patient and North and, in any event, I think there are multiple ways to the same broad range of objectives for both UKGov and EU.  North offers ‘in-scope’ lines of negotiation; Patient offers ‘beyond scope’ positions if the ‘in-scope’ lines fail to produce fruit.

The Leave Alliance sets out how ‘in-scope’ could work, and it all sounds politically realistic to me as at today (ignoring the stupid polemics, of course):

Moreover there is a structured means of reviewing the EEA agreement. Entering some custom final agreement means we have to persuade the EU to open it up for review in the future. The EEA already has review systems in place so we can revisit things we get wrong.

As to immigration, the EEA does have safeguard measures on freedom of movement and we can leverage them into a more formal quota system within the EEA framework. That would be a strong start to immigration reform. This would be sufficient if we use the opportunity to also tackle non-EU immigration issues. We will still need a fairly high turnover of EU people and we do not want to close down opportunities for UK citizens living in the EU. One thing the UK does not want to do is cut its nose off to spite its face. Full control is neither necessary or desirable and the advantages are slender.

There is every reason to believe the EU would be amenable to EEA membership. Firstly a messy Brexit is damaging to the EU economy as a whole. Secondly, as discussed, a bespoke system is time consuming and will require ongoing use of diplomatic runtime for the next decade. Using that which is already in place requires only a marginal increase in resource. The alternatives to the EU require a gargantuan commitment of intellectual resources right about the time the EU needs to be directing its trade expertise elsewhere. Not least with the alleged imminent failure of TTIP and CETA.

The EU can either concede on Freedom of Movement for the sake of a cost effective Brexit or we can create risks and complications that serve nobody. There is no reason why we should accept freedom of movement as an EU red line since every other member wants similar concessions and at some point in the future the EU, if it wants to survive, it will have to bend to this dynamic. Nobody is happy with freedom of movement as it stands and a refusal to reform it is more likely to see others moving toward exit than any special concession for the UK.

(my emphasis added)

I believe that UK can survive without access to the Single Market, but that the short-term costs of a “quick hard Brexit” are greater than a more pragmatic alternative that is within scope of existing treaties.  Both UK & EU need more useful, less polemic, negotiations before we get the point of questioning whether UK can survive without access to the European Single Market.

That said, UKGov needs to be ready to consider the “quick hard Brexit” in the event that the EU goes down the route of economic and political suicide, which is the polemic that some European politicians are happy to consider.

Wednesday, 21 September 2016

UK prepares the way for cross-border tax transparency before the EU gets started

Reported by law firm news service on 07Sep2016, UK MPs vote to empower UKGov to require corporate taxpayers to disclose country-by-country tax payment information in their annual reports.

On balance, I consider this good news, in part because it’s harmless politics.

Of particular note is that UK Parliament has authorised UKGov to permit (or oblige) something that UKGov hasn’t yet properly considered, as if UK Parliament and the OECD are patiently waiting for UKGov to keep up.

Of even more particular note is that UK Parliament is ahead of the European Union.  In effect, UK Parliament has authorised UKGov to do something before the EU has even drafted a coherent directive.

And yet, whatever consultations might have taken place so far, the EU’s efforts are already largely undermined because of the European Commission’s crass decision against Republic of Ireland re Apple.

How likely is the European Union’s proposed directive going to be moulded by a desire to use this ‘transparency’ as a means of protectionism by the European Union against non-European Union corporates? Would it become a form of corporate-racism-by-proxy?

Meanwhile, UKGov forges ahead with its own plans for publishing at least a corporate taxation strategy.  Whatever that actually means.  UKGov has published guidance to corporate taxpayers, which accounting firm BDO has attempted to re-hash into something more vivid.

Sunday, 11 September 2016

European Court of Justice bans hyperlinks on grounds of copyright laws to protect corruption?

The court sets out its description of events in the third paragraph of its ruling.

Summary of the Court’s press release

A Dutch company GS Media BV (“GS”) posted links to an Australian website to photos of some Dutch celeb Britt Dekker.  The Australian site had no permission from the rights holder of those photos (“Sanoma”) - Dekker is not the rights holder of those photos - so demanded that GS remove its links to the photos.  GS refused.

At the same time, Sanoma demanded that the Australian website also remove the pictures.  The Australian website complied.

In response, public users of a forum hosted by GS posted links to the forum revealing where the same photos continued to appear elsewhere on the internet.

The Court considered that an EU Directive requires all member nations to provide authors with the exclusive right to authorise or prohibit any communication to the public of their works.  The Court accounted for case law.

The Court upheld a discriminatory value-judgement.  If someone links to copyrighted content without the intention (or accomplishment) of making profit, then the copyright holder’s rights are unenforceable.  But if that somebody links to copyrighted content as part of a profit-making commercial operation, no matter how incidental to the business, then that person should as a matter of course find out who owns the copyright and get their permission to link to the copyrighted material.

The Court held that GS published the links for profit and that Sanoma had not authorised the publication of the photos on the internet.  Therefore, GS had to remove all links on its website to those photos.


As one commentator wrote, “This is a fucking disaster”.

Even the European Advocate General hesitated to think in the same way as the Court, noting that “hyperlinks which lead, even directly, to protected works are not ‘making them available’ to the public when they are already freely accessible on another website, and only serve to facilitate their discovery.“  Moreover, the EAG considered irrelevant the two factors that the Court found so important, namely: i) GS’s motivation (profit); and ii) whether GS should have known the photos were a breach of copyright.

But the vested interests who profit from enforcing copyright law were quick to demand the status quo.  One copyright lawyer was so taken aback by the maverick and radical view of the EAG - presumably because it recognised the immediate loss of ‘business’ that would happen if the Court agreed with the EAG - that it described the EAG’s views as an attempt to undermine the acquis of copyright law.

Unsurprisingly, the Court has ignored the Advocate General and has again ruled in favour of sustaining artificial, profiteering monopolies of intellectual property, a.k.a. the acquis.

Objectively, however, the discriminatory value-judgement within the Court’s press release is disingenuous and false.  Even if a non-profit-making individual linked to copyrighted material, then the copyright holder can still sue the linker to the copyright holder’s own profit, even if the individual received no funds as a result of the link.  Negligence is negligence, after all, no matter how well intentioned it might be, and because of copyright law, from negligence may flow profits to a ‘wronged’ party.  It’s a classic example of the King doing the nasty work of the Sheriff of Nottingham.

But here is the real issue.  The implication of the Court’s ruling goes beyond profiteering by copyright holders, because its discriminatory value-judgement cannot be enforceable in future cases.

Where does this take us?  In combination with the sickening European “right to be forgotten”, it takes us to a place where the corrupt can further lawfully conceal their criminal acts.

Hence why GS is a key player in this case.  GS is very much a pro-freedom, activist, anti-European-Union forum.  GS’s loss at law is arguably GS’s gain at public, because it has revealed just how tyrannical and double-standarded the media elite are lawfully allowed to be, and worse they can profit from it!  This case is all about a photo of a typical media-celeb (not exactly known to be the quiet, shy, self-publicity-hiding, demur types) appearing on the internet without the right holder being able to make money from its publication.

GS’s own comment on the decision is scathing.  To GS, the Court has enforced copyright law precisely to undermine both i) a free press; and ii) a free internet.  Public comments reveal the depths of Euroscepticism amongst GS’s readership, and therefore the wider section of society hostile to blatant corruption.  Note the comment that refers to “EUSSRopa”, and another that says, “Zo snel mogelijk een Nexit weg van deze dictators uit de EU”, and another that predicts the death of the internet because of the EU’s “linktax”.

It’s yet another example of how the European Union bolsters the interests of lobbyists with deep pockets against the objective freedoms of the masses.  Far from demonstrating that we need a big, strong state, this case proves hands-down just how damaging a big state objectively is.

There could be another court hearing to follow, but even if the Supreme Court agrees with the EAG and undermines the profits of the copyright enforcement industry, the damage is already done.  The industry won’t give up; it’ll lobby the European Commission for more law that keeps them in business.

What if you are a copyright holder that wants fair remuneration for your work (or, more accurately, the work that somebody else did but from whom you bought the right at a gross undervalue)?  Well, that’s fair enough.  Just provide some content that is actually worth paying for… without stealing somebody else’s ideas, or co-incidentally re-inventing those same ideas, or solving a problem in the same way as somebody else, or implementing an idea that a four-year-old could have had, or allowing it to be digital media (for whatever reason).  If you are any good, then you won’t need an artificial monopoly at law to justify your ‘agents’ taxing your own customers for recommending you.

The sooner the British leave this toxic European Union, the better.


The American model of copyright regulation seems just as corrupt as that which the Europeans seem to build.  According to one pressure group, standard ‘revolving door’ corruption applies at the American Copyright Office, whereby an unspoken rule is that the office is run by ‘former’ employees of the entertainment industry.  However, American courts tend to overturn decisions by the Copyright Office, whereas the European Court enforces the acquis against those who don’t pay cash for expressing their opinions.

Monday, 5 September 2016

European Commission v Republic of Ireland re Apple

On 30Aug2016, the European Commission held that Ireland had offered illegal state aid to American corporation Apple via the Irish corporation tax system.

Apple referred to the decision as “maddening” and “political”.

Advisers were surprised that the charge of €13bn was higher than they expected.

The US Department of the Treasury was also less than impressed with the EC’s decision.

Ireland has a tax treaty with America, dating from 1997 (updated 1999).  This appears all in order.  Yet, the Commission’s press release mentions neither “treaty” nor “convention”.  This is a stark omission from the Commission, and in so doing, it undermines the Commission’s whole case.

The substance of the Commission’s case against the Irish government is the same, in principle, as that against Netherlands and Luxembourg.  In all three cases, the Commission held that each government permitted a value-judgement required by international tax law (“transfer pricing rules”) relating to an “arms-length” valuation of transactions (“controlled transactions”) between corporations owned by the same beneficial owners (“controlled parties”).

Where a government agrees to a corporate taxpayer’s price and accounting treatments of controlled transactions, the government and the taxpayer create an Advanced Pricing Agreement (“APA”).  Thereafter, the taxpayer needs to demonstrate compliance to the APA.

The Commission held that the Irish government upheld an APA to allocate profits within Apple’s Irish corporations, resulting in the bulk of profits being siphoned off to a particular subsidiary that paid no tax at all.

And therein lies the problem for the Commission.  That the subsidiaries in question paid no tax is lawful and correct.  Whether tax was paid is irrelevant.  What matters is who is liable to pay.  Why?

Under American tax law, profits of American corporations held overseas are liable to deferred corporate tax, where the charge crystallises on the repatriation of those profits to America.  To comply with the double-taxation provisions of the tax treaty, Ireland’s APA with Apple needed to ensure that Ireland taxes business profits within the scope of Irish corporation tax, but no more, leaving the taxpayer with further taxation - in this case, American taxation - upon repatriation of those profits to America.

The Commission chose not to understand this bit.

So, in effect, the Commission’s decision has taken a fully lawful arrangement and declared it illegal.  The Commission was deliberately negligent for the sake of political theatre.

The European Commission holds out the following political position: “Well, if you Yanks are too stupid to tax cash just sitting there for the taking because of your own stupid tax law, we’ll take anyway.  Use it or lose it!”

Whilst socialists, anti-capitalists, pro-statists and anti-Americans rejoice in the decision on illiterate and emotional grounds, the real damage of the Commission’s is yet to be understood by the mass media.

The Commission has sabotaged existing states’ abilities to collect taxes due from corporations.

If you are an American tax authority, a Norwegian tax authority, a Russian tax authority or a Chinese tax authority, the European Commission has basically just made the APAs you agreed with European-based corporations largely unenforceable (pending judicial review, which shall happen).

I think the Commission should have reasonably foreseen this outcome.  Therefore:
  • If if did foresee such outcome, then it is essentially vandalising international tax law, i.e. criminal intent.
  • If it did not foresee such outcome, then it is a deeply negligent and stupid organisation, whose stupidity demonstrates why everybody should abandon the European Union and somehow ‘politically quarantine’ the people who work, and campaign, for the European Union.

Putting a spanner is the works is a political orgasm, but it only works if the spanner remains in place and doesn’t become a boomerang.

The American Government recognised immediately the sudden unenforceability of APAs that the Commission has unnecessarily created.  It appears to have bristled - barely containing its anger - at the arrogance of the Commission when - according to law firm partner Heather Self - “The Commission has tendered an olive branch to the US, by suggesting that the US could require Apple to pay larger sums for financing US research and development. Effectively, this may give a face-saving route to a solution for both sides, with more tax being paid in the US rather than Ireland."

I disagree with Ms Self.  That isn’t an olive branch.  It is, in fact, the political equivalent of a poke in the eye with a Cruise missile.  As if encroaching on national sovereignty within Europe wasn’t bad enough, the European Commission now feels entitled to wade into American national sovereignty as well!! (Specifically, telling the Americans that their arm’s-length valuation of a particular transaction is somehow wrong, then choosing not to tell the Americans what the ‘correct’ value should be, then vaguely telling the Americans that they should do something about it.)

I’m no fan of American encroachment of the extra-American world.  Neither am I fan of the ‘corporate racism’ that the Internal Revenue Service appeared to deploy in various cases, most notably IRS v GlaxoSmithKlein.  In this respect, even I will indulge in a tad of joy watching the European Commission give the Americans a taste of their own medicine.

But not at any cost.

The Commission just took a loaded gun and fired a round at its own feet, fired a round at its own genitals and emptied the bullet cartridge by repeatedly firing at its own head in an attempt to find its brain.  Failing to find its brain, it then re-loaded the cartridge and sprayed bullets at every tax authority around the world, seeking to destroy the only infrastructure they have to collect taxation from multi-national corporations, without regard for whether those tax authorities were European or non-European.

Uncertainty is now the issue.  And corporation tax authorities now face far more uncertainty about their taxable base than any taxpayer has about whether they pay tax at all.  This matters.  The big headline amongst western economies is that whole tax base is shrinking (a substantial cause of which is poor monetary policy, low non-market interest rates).  The latest discussions at the OECD is even called BEPS, “Base Erosion and Profit Shifting”.

If corporations are as evil as anti-capitalists like to portray them, then the Commission’s decision is perhaps the most entertainment that ‘evil’ corporations have had in decades.  To these ‘evil’ corporations, the supporters of ‘pro-tax big government’ appear to have rushed up their own backsides with excessive enthusiasm.

Observers of Irish politics probably also have a lot of fun in store.  Ireland is stoically pro-European, so an order on the Irish government by a European authority to break international law is going to go down like a lead balloon.  Far from containing “Brexit”, the Commission’s crass decision looks more likely to encourage the Irish to question their loyalty to an apparently treacherous supra-national wannabe-government.

Meanwhile, in the few years that it will take the Irish government to appeal against the Commission’s decision at the European Court of Justice, the Americans might well get their arse in gear and formalise their deferred corporate tax regime so that it becomes European-proof.  Better late than never, I suppose!

The sooner the British leave this toxic European Union, the better.