New retrospective EU income and capital tax directive !

Council Directive 2001/44/EC of 15 June 2001 amending Directive 76/308/EEC
http://europa.eu.int/eur-lex/en/lif/dat/2001/en_301L0044.html
and http://www.inlandrevenue.gov.uk/international/eu.htm

This is a new EU directive for automatic executive assistance between EU states in the recovery of, inter alia, taxes on income and capital.

The directive appears to be so badly written that it:

• is retrospective without limit
• gives no guarantees of valid or acceptable procedures in the foreign country
• allows foreign countries to violate bilateral agreements between the UK and the foreign country
• allows foreign countries to make claims against UK citizens in the language of the foreign country, thus often precluding any defence
• is automatically enforced and allows no appeal in the UK

This directive has to be implemented in the UK before 30 June, 2002

The Inland Revenue Foreign Intelligence Section anticipates that it will form part of the 2002 Finance Act.

Am I reading this directive correctly?
If so, can we lobby to amend this directive to eliminate the above consequences?

If you are interested in discussing this further, please do not hesitate to get in touch with me via sageforce@blueyonder.co.uk

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More detail on my reading of the legislation, and an example
.
Retrospective
There is no restriction on the fiscal year to which the claim relates.There is nothing in principle to stop foreign claims being made on fiscal year 1750!

The only restriction is that the finalised claim in the foreign country has to be less than five years old. This will, in 2002, allow claims finalised in 1997 to be made on any previous fiscal year.

Acceptable procedures not guaranteed.
It is assumed that because a country is a member of the EU, its internal regulations and procedures on income and capital taxes will be acceptable to, and consistent with all other EU countries. A dubious assumption!

Can violate bilateral agreements
and do this retrospectively (see example)
Language problem. There is no requirement that a UK citizen is presented with the case against them in English. The foreign country will use its own language (Greek, Portugese, Finnish, whatever)

Automatic enforcement. There will be no possibility of an appeal in the UK once the foreign claim, even one with all the above properties, is finalised in the other country.

Example
I have worked as an employee of my small UK company that provides educational services since 1988. During this time, the company had contracts in many EU countries. Between 1996 and 2000, my company had 3 successive contracts with a University in Central Finland. I made many visits to in the course of fulfilling these contracts.

Under the terms of the bilateral agreement between Finland and Great Britain, I was only liable for UK taxes since (a) I was always in Finland less than 183 days in any fiscal year (b) I was an employee of a UK company with (c) no fixed base in Finland. I have paid all my UK taxes on my salary from the UK company.

So far so good.

Now that these contracts have ended, and with no word of warning in the past 5 years, the Finnish Tax Office has retrospectively 'deemed that I was a direct employee of the University, and therefore resident in Finland. All the fees paid to my company under the contract have been deemed personal income, and Finnish income tax is being claimed from me on the total. Neither I nor my company was asked to provide any information to the 'investigation.

I cannot defend myself against this claim in Finland, since I do not speak or understand Finnish, and all the documentation is only provided in Finnish. I have asked for translations, and this has been refused.

The basis of the claim seems to be a catch-all variant of the UK IR35. Anyone providing services to a 'public community(government, local authority, university) is deemed to be a direct employee -- and therefore a Finnish resident for tax purposes.

I have pointed out to the Finnish tax office:
(a) my terms of employment for my company and under the contracts were significantly different to those of university employees

(b) the many costs of fulfilling the contracts were borne directly by my company. These costs total approx. 50% of the fees, and all audited accounts are available from Companies House in London

(c) The contracts were a matter of public record, were approved by the university legal process, and formed part of the university accounts which are fully audited annually

(d) I am and have always been domiciled, resident, and ordinary resident in the UK, and am only subject to UK tax on my company salary under the terms of the Finnish-GB bilateral agreement.

The Finnish Office ignores my statements, and presses on with its (to me completely mysterious) procedures. This will probably result in a Finnish enforcement order. Under directive 2001/44 this order will be automatically enforced in the UK, and I will have no right of appeal here. This will cost more than I have earned, net of UK tax, over the past 5 years. I do not think it is fair or just.

What can be done?
I do not believe the Finnish tax office will take my defence seriously, since (a) I don't speak Finnish, and can't understand either the case against me, the 'investigation documents, or Finnish law, or the Finnish appeal procedures (b) I cannot afford the tens of thousands of pounds it would cost for suitable, internationally qualified, legal representation in Finland. I also believe this Finnish claim may have been formulated, after all my company's contracts had ended, with exactly 2001/44 in mind.

Lobby.
The only course of action open to me seems to be to lobby for against the aspects of 2001/44 highlighted above. In particular, and especially:

• No retrospective application. The UK version of the directive needs to be amended so that it does not apply retrospectively. Here it is extremely important that it is not retrospective with respect to the fiscal year on which the final claim is made. The claim finalisation date may be many years after the fiscal year on which the claim is made (as in my case).

  If this directive only applied to future fiscal years, at least contractors would have an idea of the problems they were letting themselves in for by working in other European countries in the future. If the legislation is retrospective, it could result on a claim on any UK citizen who has worked for any UK company in any European country during their lifetime!

• Defence in English. UK Citizens, living in the UK should have the right to see the case against them in English and the right to defend themselves in English. There should also be a right of appeal, in English, in the UK.

  If there is no right to see and reply to the claim in English, then in many cases, especially for small contractors, the claim will become a judgement -- simply because the contractor has been prevented from putting their case. The claim, no matter how ill-founded or vexatious, will become a judgement, and then the judgement will be automatically enforced in the UK. This cannot be right

Mike Robinson (sageforce@blueyonder.co.uk)