On Thursday, the EU announced it has opened an in-depth probe into a UK tax scheme that exempts multinationals from paying taxes on loan interest payments received by an offshore subsidiary.
The EU Commission says it "has doubts whether this exemption is consistent with the overall objective of the UK CFC [Controlled Foreign Company] rules," and whether it complies with EU State aid rules, which regulate the support which governments can give to companies.
Arthur VanDesande, a former IRS criminal agent who now works in private practice, told Radio Sputnik that Brussels is trying to "enforce a ghost tax rule," while the UK is looking to make itself more attractive to multinational companies.
What do you think about the timing of the EU statement?
The timing is very suspect. As usual, the EU is trying to control their major countries with tax rules that have not been implemented. The UK authorities have decided not to be a part of the euro currency and they have their own tax rules. It's amazing that the EU is now trying to basically enforce a ghost tax rule on the UK, even though they're not part of the currency.
The money is naturally going to flow where the best opportunities for growth and profit are and where the lowest tax rate is. So the fact of the matter is that the UK is offering a better opportunity for that money and that's why the money is flowing in that direction. The nature of the problem is that the money is not flowing in the EU's direction.
What does this mean for relations between the EU and the UK?
It's not going to help … this is one of many differences, but I don't think this should be one of the bigger ones because the UK is not part of the euro currency. So, why would the EU be pushing this particular issue? They should be more concerned about the larger issues of trade, budget commitments… things that are on paper. This one is not. I believe the EU is just searching for additional revenue, like most countries do when their budget is not working out.
How do you think the UK is likely to react to all of this?
London and [particularly] the City of London have been a financial center for hundreds of years, just as the major capitals of each country are. I believe that each country is going to protect their own industries, they will try to tax their industries at a fair rate and they're not going to allow others to dictate to them what rate to tax their national companies at. So this is not going to go well, they will not get along just as Amazon and other companies are protesting the EU's tax bills that they've been given.
I don't believe the UK will allow this to happen, this is obviously an after-the-fact investigation [which] will promote a "hard Brexit" and it's coming from the EU, which has a long history of protecting their own industries. [For example], there are the Belgian tax schemes and Ireland's low tax rates. There are many countries in the EU that have unique tax circumstance and have promoted those unique circumstances so for them to turn around and tell the UK or Russia or anybody else that their system is wrong, when it's legislated by their own people, is really [going] too far.
Do you believe that Brexit and the behavior of the EU could actually force the UK to become a tax haven?
The reality is all countries are tax havens for other countries … Everybody is a tax haven to somebody else because they want the tax, they don't want it to go somewhere else. So, I do believe it will increase the City of London's flexibility, I do believe they will be aggressive in going after their business, like other countries will, and I do believe they will make their laws more friendly to multinational companies.
This is not the first time the EU has lashed out at multinationals over taxes. What are the chances that such corporations will ever play by the same rules?
Every corporation, let's say a large multinational corporation, is going to look for advantages for their shareholders and their bottom line. That is not a crime; they will all look for that advantage. They will look for countries that are safe, where the money is safe, where the investments are safe and where they can grow. Whoever does that is where the money is going to go to.