Brexit plot: EU finance chief’s plan to target City will backfire, says expert

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Meanwhile Mr Dombrovskis’ proposed digital tax would put the bloc on a collision course with the USA – and the UK would be well advised to steer clear of any similar proposal, Pieter Cleppe, a research fellow with the Property Rights Alliance think tank, said. European Commission vice-president Mr Dombrovskis, a former Prime Minister of Latvia, was last week handed the bloc’s trade portfolio after the resignation of Ireland’s European Commissioner, Phil Hogan, in the wake of the “golfgate” controversy.

Ignoring this also hurts European industry as it would impose more hurdles for them to obtain financing from London

Pieter Cleppe

Although officially he was only given the role on a temporary basis until Ireland nominates its replacement for Mr Hogan, the appointment will have caused some disquiet in London, given Mr Dombrovskis’ past remarks about the City.

Mr Cleppe told “Dombrovskis has been warning to cut off market access for the City.

“Basically ignoring this also hurts European industry as it would impose more hurdles for them to obtain financing from London.”

On the subject of a digital tax, Mr Cleppe added: “The EU’s move to tax digital services – and similar national taxes – are not only threatening innovation, it has also put the EU on a collision course with other partners (USA), as it changes the way corporates are taxed: no longer simply based on where their HQ is, but on where they make profit.

“Organisation for Economic Co-operation and Development [OECD] talks on this are going very badly.

“In the first place, big US tech firms often pay more corporate tax than old European manufacturers that have learned how to circumvent high European corporate tax rates.”

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In a message to Downing Street, Mr Cleppe added: “There have been rumours the UK would scrap such a tax, and I think that would be desirable, as UK should try to obtain a good trade deal with the US.

Speaking last month, Mr Dombrovskis suggested there was no guarantee the UK would get rapid access to EU markets after the end of the year.

He said: “In some areas we will not be in a position to adopt equivalence decisions.

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“Not all EU parameters are in place in these areas.

“Implementing rules are not yet in place.”

He also hinted at a need for the UK to negotiate individual deals with member states to retain access to mainland Europe on January 1, saying: “UK investment firms can have this access via national regimes.”

Speaking last week on the subject of “own resources”, the process which provides the EU’s main revenue, Mr Dombrovskis said the EU needed to tax companies which generated revenues with digital services because the money was needed to fund infrastructure and social programmes in the future.

He added: “We need to address the digital taxation, and we need to do it preferably internationally because especially the digital economy is quite globalised.

“With more digital economy it becomes also more of a challenge for our tax revenues to finance our infrastructure and social programmes.”

Ray Bassett, Ireland’s former ambassador to Canada, Jamaica and the Bahamas, has said the proposed digital tax will also be viewed with unease in Dublin.

He said: “Once you give the EU the right to directly tax, then you are well on the way to a Federal State.

“I presume Martin, like all Irish politicians would be opposed to the EU gaining control of taxing the US Digitals, as it would adversely affect the Republic.

“However I fear that a weak Irish Administration and without the UK’s support might cave into Brussels.”

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