Monday, 13 August 2007

The European Tax Cartel and Switzerland's Role

Most European States expect to record high increases in public spending, due to the lack of adaptation of social dependency programs in the face of demographic change. The taxpayers’ fiscal exhaustion leads some Member States to use the European Union to centralize and standardize tax systems in order to render less competitive those countries deemed too attractive for capital or residents, increasingly encouraged to ‘vote with their feet’.

Tax centralization at European Union level progresses at a much faster pace than is generally perceived. High minimal rates for the VAT, which represents more than one third of all tax revenues, the standardization of excise taxes and tariffs, the Savings Tax Directive and the project of a Common Consolidated Corporate Tax Base for corporate income taxes are all examples suggestive of the extent to which the European tax cartel is already a reality. The EU makes use of such dubious concepts as ‘harmful tax competition’ or ‘fiscal state aid’ in order to attack less penalizing tax regimes, as in the case of the current tax dispute with Switzerland.

Arguments in favor of tax standardization generally rely on an erroneous conception of the functioning of markets and ignore the negative effects of the State’s fiscal weight and the role of tax planning in the international allocation of capital. Thus, ‘fair competition’ as advocated by the European Commission through tax standardization is nothing more than a form of protectionism. Fiscal diversity, far from endangering the financing of ‘public goods’ provided by the State, tends on the contrary to improve their relation to the tax burden. Diversity also leads to efficiency gains in international capital markets.

Fiscal diversity places some limits on an excessive tax burden and thus favors capital accumulation at the source of innovation and economic progress. It leads to greater overall prosperity than under a standardized tax regime. Tax competition is also an essential condition for institutional innovation by allowing comparisons between countries and the emulation of best practices. Finally, fiscal diversity is a necessary bulwark for individual freedom and legitimate rights by restraining the potential for abuse of the monopoly of force intrinsic to the State and by making ‘voting with one’s feet’ easier.

In view of the dangers involved in the cartelization of tax systems in Europe, Switzerland continues to play an essential role. Switzerland’s enlightened dissidence contributes significantly to the preservation and increase of productive capital while enhancing individual rights and choices, in the interest of all Europeans and the future of Europe.

Read the full Swiss Institut Constant de Rebecque’s study on the matter: The European Tax Cartel and Switzerland’s Role (English version at the bottom of the page)