Feb 24 2012

Rubik: a zombie stirs in its grave

Posted by: Nick Shaxson in: Thoughts

I have been granted the honour of my own blog on the EU Observer site, to comment about European affairs from a tax haven perspective. My latest contains rather a lot of European inside baseball (well, in Europe it’s football I guess) – not really for the faint hearted – but it is clear enough, I think, and it makes a tremendously important point.

The picture here gives the general idea. It is about Switzerland’s unholy tax deals with the U.K. and with Germany. Those wily Swiss.

The blog itself is here. (I’ve also expanded my Swiss ‘lipstick’ blog for the Task Force on Financial Integrity, here.)

28 comments so far

Alien Edouard 2th February, 2012 8.09 pm

Nick – I am not sure where your usual source for this type of information heard that Germany is now vetoing any progress at ECOFIN. If it is indeed the case (and considering your source’s track recored of predictions with respect to the ESTD I would not bet the house on it), it would certainly confirm what I had been predicting all along; the EU Commission can try to pick a fight with Germany (and the UK) over these agreements, and it certainly seems to have done so, but this is not a fight it can win.

As for your assumption that all future interest payments (as defined in the 2003 ESTD) have been carved out from Rubik, I would advise against a round of high-fives just yet. There are several ways to get around the Commission’s objections that are currently being looked into: the most radical (which the UK is looking into) would be to retract the ratification of the agreement between the EC and Switzerland that mirror the terms of the ESTD (here http://bit.ly/AtIURr). Alternatively, the EU member states could simply write into their national tax laws that any amounts if interest received from Switzerland under Rubik would discharge their resident taxpayers’ liabilities. The EU Commission could do nothing about that.

This is all very interesting, isn’t it?

Nick Shaxson 2th February, 2012 9.38 am

Oh, I am not advocating high fives just yet. But I do think you are wrong about the particulars here – the EU has plenty of ability to challenge national laws, for instance. It can win fights, too. France might just decide, for instance, not to kowtow to Germany on this particular one. Oh, and you’ve got a typo: ‘your source’ should read ‘your sources.’ Minor point. And not sure how retracting the agreement with Switzerland would be accepted, for one. etc.

Alien Edouard 2th February, 2012 11.04 am

Nick – of course the EU can challenge many national laws, but not in this particular area. Member states have retained entire sovereignty over the taxation of their residents. Whatever Germany or the UK decide to do, there is nothing that the Commission, France or little green alien men can do about it. As for the retraction of the UK’s ratification of the Swiss-EC agreement, who exactly could object to it? Unlike the ESTD itself, which is European law, the Swiss-EC agreement is a series of bilateral treaties between Switzerland and each member state. It was negotiated by the Commission in accordance with a mandate given by the member states, but it was their ultimate prerogative to ratify it (or not), and it remains their individual right to retract that ratification.

Anyway, this is all very interesting but quite irrelevant. The reality on the ground, if your source(s) is/are to be believed, is that Europe’s entire German-speaking block is holding up progress on the ESTD amendment unless Rubik goes ahead. This only confirms what I had been trying to tell you several months ago: Rubik was negotiated between Europe’s German-speaking club, and these countries will see it through, with the UK water-skiing behind them.

The only good news I see in all this is that Semeta may be out before the Summer.

Mark Morris 2th February, 2012 7.21 pm

Hi Alien,

Long time no speak. I’ll tell you now it wasn’t me at all that told Nick that Germany is blocking EUSD at ECOFIN. In fact I vehemently disagreed with Nick about the credibility of his source on this subject

As for my track record on anything, don’t you think I’ve been spot on? I always said from day one that the EU Commission would intervene against Rubik.. and you laughed and laughed. Well now I guess he who has the last laugh, laughs loudest.

If you stick around, I’ll let you know about the second review of the EUSD already underway to tackle the last handful of loopholes.

Cheers

Mark

Nick Shaxson 2th February, 2012 3.26 pm

Indeed, we have disagreed on this particular point. All I can say is: I stand by my sources. And they are good ‘uns.

Mark Morris 2th February, 2012 7.39 pm

Alien,

At first I thought I was dealing with a reasonably intelligent informed opponent, but now we seem to be dealing with a farmer in a suit.

Your first assertion that Swiss can retract the EUSD mirror agreement is a worthy statement from someone imbibing too many Dutch spacecakes on a regular basis.

http://www.the-best-of-both-worlds.com/images/carrot-stick.jpg

The second even more ridiculous contention that “EU member states could simply write into their national tax laws that any amounts of interest received from Switzerland under Rubik would discharge their resident taxpayers’ liabilities” is a statement from someone who recently partook a hefty dose of premium ganja.

After falling off the chair from laughter I get back up to point to you that THERE IS NOT A CHANCE IN HELL THAT ANY EU MS CAN INCLUDE INTEREST IN RUBIK. Which part of the above can’t you understand?

This is obviously you, my pal…

http://www.the-best-of-both-worlds.com/images/flogging-horse.jpg

A monkey in silk is a monkey no less.

Cheers

Alien Edouard 2th February, 2012 9.02 pm

record of predictions on this topic, I must admit that the money is on him. Why would Germany veto the ESTD? It does not help Schauble internally to deal with his SPD-controlled Lander in the upper chamber, does it? Also, Germany did not need to veto this; Austria and Luxembourg were going to do it anyway.

Please help to make sense of this.

Alien Edouard 2th February, 2012 9.09 pm

Mark – I am not going to come down in the gutter to play with you. I am interested in genuine debate, something which Shaxson seems able to engage in, but not you. You should know that I actually quite enjoy looking at your website, despite its shortcomings. I want to continue doing so without having to remind myself how rude (and often wrong) you are in conversations.

I note however that as recently as last December you were predicting on your website that the revised ESTD would be adopted in “early 2012″ for implementation in 2014. Well, it is not happening, is it?

And your knowledge of EU law is a little deficient. It is not that long ago that somebody over at Murphy’s had to explain to you that Switzerland is not part of the EU, or had to hand walk through the basics of Channel Islands’ trust structures. Don’t you think that this casts a shadow over whatever else you may have to say about the legal constructs underlying the ESTD and related agreements with third countries?

If you bothered to read what I say, you would have noticed that there is no suggestion of Switzerland withdrawing from its ESTD mirror agreements. In fact, it is the EU member states that (in the case of the UK) apparently semi-seriously considered doing so. They are also very seriously considering the idea of writing into their national tax laws, as opposed as in the treaty, the components of Rubik that the EU Commission wants to see carved out: interests and final discharge of liability. So you are right, there would be no more interest module in Rubik, because there would be no need for one. It would have been pushed down to the level of the national tax code. The only “victory” for the Commission is that the Swiss will have to make concessions on their demands for market access; Swiss banks probably still will have to operate through subsidiaries, but with simplified requirements (which are the preroagtives of member states).

Your constant references to narcotics consumption is slightly weird, almost worrying. You can do better than that. Why don’t you explain why, based on existing legal arrangements, these solutions would not be implementable by the member states.

Mark Morris 2th February, 2012 2.11 pm

C’mon Alien,

Lighten up dude. A couple of sarcastic snide druggie related comments on a niche blog, and you get all bent out of shape!? Sheesh.

Look, finally, I’ll be proved correct. Swiss will have to can Rubik and accept EUSD revisions. I predict that EUSD will eventually be extended to other investment gains as in the EU co-opertaion and mutual assistance directive which includes 8 other types of income and capital gains.

Not only that, but by 2020 there won’t be anymore withholding tax option.

Now lighten up and take a smoke break. He he.

Alien Edouard 2th February, 2012 3.55 pm

Shaxson will be pleased to read that he is running a “niche” blog. He seems to have a rather much higher sense of self-imprortance.

Better from your side to stick to very long-term predictions. This way, nobody will remember to call you on them when they fail to materialize.

Btw, who is Shaxson’s other Deep Throat?

Nick Shaxson 3st March, 2012 3.37 pm

deep throats, not deep throat, actually.
It was two little birds, actually, who sat on my shoulder and whispered into my ear.

Alien Edouard 2th February, 2012 8.11 pm

Mark – on a lighter note, I find your cartoons very good. I don’t agree with the content, but they are very entertaining. Congratulations.

Alien Edouard 3nd March, 2012 8.56 am

Nick – one of the little bird is Meinzer, the fourth wheel of the tax justice network, and the only member who seems to speak German.

We shall find out soon who the other flying creature is.

Nick Shaxson 3nd March, 2012 9.32 am

More than one other flying creature. Are you now going to start repeating your creepy, weirdo and quite false queries and theories and innuendo now about the sexual connections of all the different participants, like you did a couple of months ago?

Nick Shaxson 3nd March, 2012 9.42 am

And yeah, TJN is a tiny, tiny team. We are amazed at the astonishing success we’ve had with such limited resources. I guess it shows we’re on to something. You can find a few more of those linked to TJN here, if you are looking for fodder for your weird theories
http://www.taxjustice.net/cms/front_content.php?idcat=14 Oh, and you won’t find out our other sources on this, since they are close to the action and won’t be outed.

Nick Shaxson 3th March, 2012 10.38 am

Here you go Mia – one more confirmation of our position for you, independent of TJN. Our sources seem to be correct, and your speculation once again is incorrect.

Alien Edouard 3nd March, 2012 10.23 am

Nick – “creepy, weirdo and false queries”? Sorry, but are you sure you are not confusing me with somebody else. As I told Mark, I dont play in the gutter, with him or anybody else.

As for the TJN, you have been good at generating a lot of self-publicity. This is impressive and you have made yourselves a valuable (although extremely marginal) contributor to the policy debate, but I suspect a lot has to do with the fact that there is not much competition in the market for loonie-leftie comments on tax and politics. So you have that one cornered all for yourselves.

Look deeper however, and I am not sure what you have really ACHIEVED in terms of policy decisions.

Nick Shaxson 3nd March, 2012 1.20 pm

No, I am not confusing you with someone else. You know, the stuff about the ‘real story’ of who is the partner of this journalist, and so on. If I had the time to trawl through all the past stuff, I’d find it. Luckily for you, i guess, I don’t right now. But I might find the time at some point.

Alien Edouard 3th March, 2012 10.16 am

Nick – credit where it is due. Your source(s) seem(s) to have been spot on regarding Germany’s blocking progress on ESTD at ECOFIN. Nasty fight: considering that Germany gets pretty much what it wants in Europe at the moment, and for the foreseeable future, the money has to be on them.

Another blow to Morris’ credibility, who vehemently objected to your sourcet(s)’ credibility. At least the cartoons are good.

Nick Shaxson 3th March, 2012 1.13 pm

Well, yes, thanks, although Morris does seem to have got it wrong this time, he has been consistently right in the past.

Alien Edouard 3th March, 2012 4.20 pm

Nick – it is not like Morris has predicted that the ESTD would be approved last April, then last July, then this January…. Oh no!

My own little birds are telling me that the deal with the UK is done. The adjustments consisted of pushing the interest element of Rubik into Swiss and UK law, and to avoid any mention at a treaty level. It is a derivative of idea that had been floated by HMRC actually a few weeks ago, and leaked to the Swiss press (here http://bit.ly/sXSmNr). There is a UK budget coming up and the intention is to include the provisions into the Finance Act, and then have the Swiss Congress ratify the Swiss law aspects of the agreement.

That strikes out the Commission.

What are you hearing?

Nick Shaxson 3th March, 2012 7.42 am

Uh, yes, as you know, predictions of the timing of something are never accurate, especially when politics is concerned.

I saw that story you point to. But also as you know, when there is a conflict between UK law and EU law, EU law prevails. As one academic article (which I just googled) states:

http://labspace.open.ac.uk/mod/resource/view.php?id=376467
“If an EU member state had the power to annul EU law by adopting new domestic (national) law which was in conflict with the EU primary or secondary legislation, or the member states could simply give precedence to domestic (national) law, then the policies set out by the EU would be impossible to pursue and achieve.”

Alien Edouard 3th March, 2012 2.48 pm

Nick – one could argue that one should be aware of these limitations before making wild predictions.

On the more substantive point, you are of course right to say that a member state cannot pass a law that contradicts EU legislation, or prevents it from achieving its objective. But there are two issues here.

First, the only piece of EU legislation that may be impacted is the bilateral treaty EU/Switzerland that mirrors some, but crucially not all of the ESTD terms. The crucial difference is that the EU/Swiss agreement, unlike the ESTD, saw the withholding regime as permanent. Nothing in the agreement commits Switzerland to accept automatic exchange. Even though the Commission may have as a political objective to impose automatic exchange, that is not the EU’s legal position. In fact, the mandate that the Commission is trying to obtain from ECOFIN is for the exchange of information on request (OECD standard), and moreover since the Commission has so far failed to obtain this mandate it is possible that, from a legal point of view, it has no objective at all.

The second issue is that while the withholding tax under the EU/Swiss agreement clearly does not in itself constitute a discharge of taxpayers’ liability, the agreement is not prescriptive as to what would effect the discharge. It is up to member states to decide through national legislation how this should be dealt with. There is nothing in the agreement to prevent the UK, for instance, from deciding that any resident taxpayer whose Swiss assets has incurred the withholding tax is fully compliant.

This approach is sub-optimal, and it would have been better to deal with the issue at treaty level. The biggest problem is that there will not be an agreed framework for dispute resolution. But the bigger loser will be the Commission itself: far from increasing its influence, it will lead all the countries now lining up to sign Rubik agreements (Austria, Italy, Spain, Greece, etc.) to negotiate at the inter-governmental level rather than through the EU.

Nick Shaxson 3th March, 2012 9.38 am

“The only piece of EU legislation that may be impacted is the bilateral treaty EU/Switzerland”
No. Not correct. Rubik directly impacts the EUSTD – and the amendments – which incidentally is why Austria and Lux say there is no level playing field with Rubik since it gives special treatment to Swiss banks. I’m sorry but I think means your arguments here are just wrong. I think that the process for getting the EUSTD amendments through requires the EU-Swiss deal to go first, and then the rest follows sequentially after that, though I’d have to check that particular snippet.

Alien Edouard 3th March, 2012 11.12 am

Nick – please check. What you are describing is, possibly, the POLITICAL process through which the ESTD amendments may be accepted and implemented at EU level. But the LEGAL basis (and remember that the Commission is threatening to initiate a legal process with respect to Rubik because of its failure to comply with existing laws) is very different and I stand very firmly by my analysis. The ECJ, if the matter was ever referred to it, is not (yet) a political institution and would have to render judgement on the basis of the law alone.

Nick Shaxson 3th March, 2012 9.11 am

I’m sorry, are you saying that the EC have no idea what the law is and are simply having a go at Rubik because it annoys them, even though they know they have no hope of winning? I’m not sure it works quite like that. And NB the conflict is both with the current EUSTD and with the amendments.

Alien Edouard 3th March, 2012 11.34 am

Nick – last post on this because it is time to move on.

The ESTD amendments do not involve Switzerland because (i) Switzerland is not a party to the ESTD but only to the EU/Switzerland bilateral agreement, and (ii) there is no current legal mandate to vary this agreement (in line with the amendments to the ESTD itself) because AT and LU are objecting to it. So from a legal perspective, there in no connection between the ESTD amendments, Switzerland, and Rubik. The connection only exists in the Commission’s dreams, but that is politics.

As for the Commssion’s general of competency, you just need to look at Semeta’s latest brain cramp (reported here http://euobserver.com/19/115576), with him saying that he believes that the real reason for Austria and Luxembourg’s refusal to move to automatic exchange is linked to “the[ir] long history and traditions of banking secrecy”. Really Algidras? Did you discover this all by yourself? I’d say it is time to start shapes and colors!

Nick Shaxson 3th March, 2012 9.07 am

I don’t think questioning Semeta’s brainpower really advances the debate very far. Legally speaking, as I understand it the EU needs to reach an agreement with Switzerland as a first step in the process of getting the amendments approved. So it’s a necessary precondition of approval of the amendments, I believe. (Otherwise they might approve the amendments and then Switzerland would be in a position of competitive advantage, until Switzerland approved its measures.) So I’m afraid it all fits together, legally speaking. Anyway, as you say, time to move on: let’s leave it there.

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