The Economist: Shopping for low tax rates is no crime

THE difference between tax evasion and tax avoidance, Denis Healey, a former chancellor once said, is the thickness of a prison wall. Now, it seems, it is the thickness of a lawyer's brief. Two rulings this week, one European and one British, grappled with the conundrum of how authorities in one country levy tax on profits earned in another. The first makes it easier for British companies (and, by extension, other European firms) to cut their tax bills by setting up subsidiaries in low-tax jurisdictions, while the second makes it harder for British individuals to do the same.

In the first case, brought by Cadbury Schweppes, which makes soft drinks and confectionery, the European Court of Justice (ECJ) looked at whether Britain could impose a top-up tax on profits that Cadbury had earned in two subsidiaries in Ireland. It was no idle question. The Irish tax rate was just 10% while Britain's was 30%; the taxmen demanded the difference. On trial was the British practice of peering into a firm's heart, examining its motives for setting up a foreign subsidiary and imposing its own tax rates on profits earned there if it finds the impure desire to pay less tax.

Philippe Léger, the ECJ's Advocate General, ruled on May 2nd in a non-binding opinion that wanting to minimise tax is no crime: companies may happily shop around for the lowest rate when deciding where to establish subsidiaries. Ireland, Luxembourg, Estonia, Lithuania, Latvia, Hungary, Poland and Slovakia all have corporation-tax rates below 20% and stand to gain if firms are allowed to hunt for low tax rates as they do for low wages.

This was a blow for the British government, which is trying to protect its revenue base from the encroachments of European integration. Last year it failed in an attempt to ring-fence tax losses made by foreign subsidiaries of Marks & Spencer, a retailer. " We are seeing the ever-increasing erosion of member states' sovereignty on the issue of national tax ," says Mark Persoff of Clifford Chance, a legal firm.

So Europe is blamed because it "erodes national sovereignty", precisely because it says that European countries are free to play with corporate taxes as they see fit and corporations are free to take advantage of it across Europe?!?

The gall. Un-fuckin-believable.

Europe is bad, until it's needed for parochial reasons, and then it is needed to bang heads. But it's still blamed in the meantime.

Gah.

In the long run, we're all dead. John Maynard Keynes