Exercise 16. Read the article below quickly to pick out the main economic indicators. Supply prepositions where necessary. Then study the vocabulary given after it.

 

The European Union, UK objections aside, edged closer last week to agreement about a minimum tax on savings and investment. The proposal, which may benefit the US, has worthy aims. But it is deeply flawed.

The EU is trying to improve the policing of the taxation of capital. Suppose a German resident puts his money into a bank account in Luxemburg, which does not tax interest payments to non-residents. In theory, he should be taxed on his interest as he receives it in Germany, and so should gain no advantage from moving his money. In practice, though, the interest payment rarely finds its way on to the tax return. The German resident receives gross interest and Luxemburg gains from the growth in its banking system, but the German government is out of pocket. This type of tax evasion happens on a large scale within the EU.

The European Commission has proposed that EU countries should be obliged to do one of two things. They could provide information on non-residents’ interest income to their home countries to ensure they will be fully taxed at home. Some EU countries, with stringent banking secrecy laws, would be reluctant to do this. An alternative would be to impose a withholding tax of 20 per cent, so at least some tax would be paid on interest income.

This solution would work if the capital stayed neatly within the confines of the EU. But it cannot be so easily tied down. That was true even in 1963, when the US introduced a similar tax. The result then was capital flight, the creation of the Eurodollar market, and the establishment of London and Switzerland as the premier global financial centers, at the expense of New York.

Now, with global capital more mobile, the movement of funds may be even swifter. The EU would undeniably lose out to low-tax countries such as Switzerland and, ironically, the US.

The EU proposal is also unwelcome because it is the thin end of an interventionist wedge. Taxation has recently been moving up the EU agenda. The proposal is itself part of a package which includes plans to eliminate certain discriminatory tax regimes. More ominously, the Commission has hinted that it is in favor of changing general tax rates.

Until now, national governments have held fast to the principle of subsidiarity in tax matters. But the pressure being put on the UK to accept the withholding tax proposal suggests that tax harmonization measures could be forced through as member states vie to prove they are “good Europeans”. Loss of tax flexibility would be a grave mistake and could permanently damage the EU’s competitiveness.

This does not mean that the problem of evasion of taxes on capital should be ignored. But the EU approach is misguided. Instead, the issue should be tackled at a global level. The OECD, which has already prepared a report on the subject, may be the appropriate forum.

Unilateral EU action will not stop tax evaders. But it could stifle the move towards greater efficiency and integration in Europe’s capital markets, which a single currency will otherwise promote. The plan should be dropped.

 

VOCABULARY

 

To edge closer                       подходить ближе

To benefit                              извлекать пользу, выгоду

Worthy                                  достойный, заслуживающий

Flawed                                  полон недостатков, изъянов                                 

Policing of taxation               политика налогообложения

Gross                                     большой

On a large scale                     в больших масштабах

Stringent                                строжайший

Reluctant                               делающий с неохотой, неохотный,

                                   вынужденный

To impose                              налагать, облагать (налогом)

Withholding                          удерживающийся

Neatly                                    четко, аккуратно

Confines                                пределы, рубеж, границы

Capital flight                         утечка капитала

Swift                                     быстрый, скорый

Undeniable                            неоспоримый, несомненный

Unwelcome                           нежеланный, нежелательный, неприятный

Wedge                                   клин                                      

Agenda                                  повестка дня

To eliminate                           исключать, упразднять, ликвидировать

Ominously                                    угрожающе

To hint                                          намекать

Subsidiarity                                  помощь, субсидия

To vie                                           соперничать                                                

Flexibility                                     гибкость, уступчивость

To misguide                                  вводить в заблуждение

To tackle                                       вырабатывать, решать, закреплять

OECD (the Organization of Economic Организация экономического

Cooperation and Development)        сотрудничества и развития

Unilateral                                          односторонний

Tax evaders                                  уклоняющиеся от уплаты налогов

To stifle                                             душить, подавлять

To promote                                        помогать, содействовать, способствовать

To drop                                             оставлять, прекращать

 

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