Raab Amendment Entirely Consistent with Community Law

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Dominic Raab’s proposed amendment to the Immigration Bill seeks to substantially restrict the ability of convicted criminals to rely upon their family ties in the UK to avoid deportation. While this amendment has received considerable support from across the house, there have been numerous suggestions that such an amendment breaches the ECHR – which it possibly does – as well as breaching the EU treaties – which it certainly does not.

The UK Borders Act 2007 provides for the automatic deportation of  “foreign criminals” (that is to say,  anyone who is not a British citizen who is: convicted in the United Kingdom of an offence and sentenced to at least 12 months in prison, or;  convicted of an offence prescribed by the Secretary of State under 72(4)(a) of the Nationality, Immigration and Asylum Act 2002 for which they are sentenced to a period of imprisonment). This automatic deportation is subject to a number of exceptions, contained within s33.

The first exception is where such a deportation would breach “a person’s Convention rights”. Dominic Raab’s amendment replaces the words “Convention rights” with “rights under Articles 2 or 3 of the Convention.” Article 2 provides for the right to life, while Article 3 provides for freedom from torture and inhumane punishment. The clear intention of this substitution is to remove Article 8 – which provides for the right to respect for private and family life – from this exemption. Raab’s amendment, however, mitigates this somewhat by providing an exception where

“removal of the foreign criminal from the United Kingdom in pursuance of a deportation order would cause such manifest and overwhelming harm to his children”.

It is important to note that the exemption applies where such a deportation breach “a person’s” rights, and not necessarily the rights of the foreign criminal. In most cases, the substantive question at issue is not whether such a deportation would breach the foreign criminal’s rights, but rather whether such a deportation would breach the rights of a person who is dependant on that foreign criminal. While it is arguable that such a deportation would not, in fact, be a breach of Article 8 – it is clear that the intention of this set of amendments is to mandate for the automatic deportation of foreign criminals even where it would be a breach of Article 8. I am not a Human Rights lawyer, however, the Diceyan in me sees little that is legally (as opposed to politically) problematic in legislating to this effect. Of greater concern, from my perspective, is that argument that this amendments breaches EU Law.

At yesterday’s Questions to the Prime Minister, Mark Lazarowicz derided David Cameron’s backbenchers for supporting “an amendment to the Immigration Bill which everyone knows to be totally incompatible with the European treaties”. Notwithstanding the fact that the amendment is supported by dozens of Labour MPs, Lazarowicz’ claim that the amendment breaches EU Law is utterly without foundation.

The Raab amendment leaves intact the exemption contained within s33(4) of the Act which prohibits deportation where it would “breach rights of the foreign criminal under the Community treaties.” It is worthwhile noting that the Community Law exemption only appears to apply to the rights of “the foreign criminal” and not “a person” – suggesting that the Community rights of dependents of the foreign criminal shall not have any bearing. However, the supremacy of Community Law still applies, and the deportation of a foreign criminal would still be subject to the rights under Community Law of any EU citizen who was dependent upon the foreign criminal.

Following the decision in Zambrano, the basic rule of Community Law is that a state cannot deport a non-EU citizen where that deportation would result in an EU citizen who was dependent upon that non-EU citizen being forced to leave the territory of the EU. It therefore requires a degree of actual dependancy upon the non-EU citizen that does beyond a mere familial connection. The narrowness of the category of persons to whom this rule applies has been made clear in subsequent decisions in McCarthy and Dereci.

A situation of the sort which the Raab amendment envisages was considered by the< High Court of Ireland last year: Smith v. Minister for Justice [2012] IEHC 113. Mr Smith was a Nigerian national who arrived in Ireland with his partner in January 2002. Having been refused asylum, Mrs Smith gave birth in Ireland a few days later. Several months later, Mr Smith travelled to the United Kingdom, where he was subsequently arrested for, charged with, and convicted of various drug trafficking offences, and sentenced to seven years in prison. In 2005, Mr Smith was deported from the UK to Nigeria.

During the years that followed, Mrs Smith was granted a right of residency parasitic upon their son, an Irish citizen. In June 2006, Mrs Smith gives birth to a second child who is – perhaps miraculously – the child of her and Mr Smith (previously in prison in UK, now in Nigeria). As this child was born after 2004 act, the child is not an Irish citizen, but nonetheless enjoys a right of residence parasitic upon its mother’s right of residence. A further child appeared in Ireland in 2006, and in late 2006 Mr Smith illegally re-entered Ireland with another child.

The Minister for Justice subsequently sought Mr Smith’s deportation. Though Mr Smith challenged this decision, in particular in light of the decision in Zambrano, the Minister contended that the issue of Mr Smith were not dependent upon him and therefore that Zambrano did not apply.

The High Court, in 2012, refused Smith’s application for judicial review. The court saw the logic in the arguments of the Minister for Justice, principally – that there is an inherent illogic in the claim that a child is dependent upon a person when that person has, through their own actions, caused themselves to be incarcerated:

“It is clear that while Mr. Smith was, purportedly, in Ireland seeking to place reliance on whatever legal rights he might have in the context of the Irish immigration system, he had in fact, again, travelled to England. On the facts of this case, there is, therefore, no reality to the asserted position of Mr. Smith in respect of his family. He has repeatedly left the jurisdiction and not tended to the needs of his family. The failure is, therefore, directly connected with the very rights now sought to be asserted.”

The rationale behind Smith is entirely consistent with Zambrano. In order for a deportation order to breach the rights of an EU citizen under the treaties, that citizen must be so dependent upon the non-Citizen that they would be forced to leave the territory of the EU with them. It is difficult to argue, in most circumstances, that a child is dependent upon an incarcerated parent. It is extremely difficult to argue that their continued residence within the EU is dependant on an incarcerated parent.

The decision in Smith broadly corresponds with the intended aim of the Raab amendment. It is, in my opinion, entirely reasonable to conclude that where someone has been sent to prison for a considerable period of time, their children are no longer dependent upon them. Therefore, notwithstanding ECHR issues, it appears that Dominic Raab’s amendments to the Immigration Bill are entirely consistent with Community Law.

British Eggs for British Hospitals: Creagh Falls Fowl of Community Law

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Anyone who’s ever taught in a law school will be able to attest to how taxing it is upon your imagination to come up with problem scenarios for your seminars. It’s difficult, sometimes, coming up with scenarios that are so obviously in breach of the European Community treaties that even freshman undergraduate students can spot it.

Thanks, therefore, to Mary Creagh for providing me with just such a scenario for my classes this year! Yesterday, Labour’s Shadow Environment Secretary proposed (and I shall ignore the fairly obvious devolution issues here) that British Schools and hospitals should be encouraged by Government to ‘Buy British’:

‘kitchens in schools and hospitals could be encouraged to buy British – something the RSPCA and other animal welfare groups have been calling for. […] she said what could be done was to insist on food produced to British welfare standards.’

Obviously, such a campaign would be illegal. In Case 249/81 Commission v Ireland [1982]] the Government of Ireland orchestrated a ‘Buy Irish’ campaign. It did so using similar methods to that which Creagh is proposing (‘encouragement’ rather than compulsion) and through a body that, though the court found to be largely backed by the Government, was far more removed from Government than a Health Board or a local authority. The court held that

‘it is not possible to overlook the fact that [those activities] form part of a government programme which is designed to achieve the substitution of domestic products for imported products and is liable to affect the volume of trade between Member States.’

Creagh does, at least, appear to be aware that the Commission might have a bit of a problem with such a policy, and therefore proposes that insisting upon higher animal welfare standards might be the trick Britain could use to get around it. Alas, however, Creagh has neglected again neglected a fairly obvious principle of Community law – the principle of mutual recognition. Case 120/78 Cassis de Dijon [1979], essential reading for any undergraduate law student, held that imposing higher standards that had the effect of restricting the availability of imported goods – whether actually discriminatory or not – was a breach of Community law. In effect, the only effective standard within the EU is the lowest one. This is ultimately why the UK has higher standards for the storage and treatment of animals within the United Kingdom, but cannot prohibit the sale of products from Member States with lower standards.

Creagh complains, with some justification, that other Member States are better at ensuring that their own products are served in their schools canteens. Aside from the fairly obvious answer to that complaint – that those states’ lower welfare standards make their products the cheaper option – the French, in particular, have been very good at enacting measures that surreptitiously favour domestic products over imports. Often times they’re caught out [see Case 216/84 (powdered milk) or Case 168/78 (grain spirits)], but on every occasion in which they are – they’re never so stupid as to openly admit that the true intention of their policy is to favour French products.

So if Creagh really wants to make British products as attractive to schools and hospitals as imported ones, she really only has two options: that a Labour Government would propose in the European Council to raise animal welfare standards across the European Union; or else to lower Britain’s standards to that of our Common Market competitors. Or if she does want to go down the French route, she’s going to have to learn to be more subtle about it – because if it’s the sort of dinger of a breach of Community Law that undergraduate students could spot it, you can guarantee the Commission would as well.

Smoke and Mirrors: The G8 Tax Proposals Will Change Nothing

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The Lough Erne Declaration, like most summit communiqués, is replete with bold statements of intent. G8 leaders have pledged to ‘fight the scourge of tax evasion’, with a focus on transparency and information sharing. However, the reality is that administrative reforms to international taxation will change very little – if anything – without substantive reforms to International Tax Law. And while the Declaration contains a statement of intent to ‘change rules that let companies shift their profits across borders to avoid taxes, and [make] multinationals […] report to tax authorities what tax they pay where’, with over 2,000 Double Taxation Treaties to amend, changing the rules in any substantive way is a herculean task.

How do firms avoid tax?

The key to reducing your tax liability is, rather obviously, to reduce your taxable profits in high-tax jurisdictions, and shift them to law-tax countries. While international tax rules, in theory, provide for taxation of business profits at source where a business has a ‘permanent establishment’ in that jurisdiction, it is possible to substantially reduce that liability through the use of – in particular – royalty payments and loan finance.

The Dutch Sandwich

Companies A and C are incorporated in Ireland. A is headquartered (and therefore taxable) in Ireland, C in somewhere like Bermuda. Company B is incorporated and resident in the Netherlands. All of these companies are ultimately part of Group X, probably incorporated and resident in the US. Tech firms domiciled in Ireland earn profits primarily from IP. The IP is owned (or substantially controlled) by Company C, but the operating arm is Company A. Company A earns a profit, but wants to shift that profit to a tax haven. Company A pays royalties to Company B (as there is no withholding tax in Ireland for royalty payments to EU countries). Company B then makes royalty payments to the ultimate owner – Company C – as there is no withholding tax between the Netherlands and Bermuda. Non IP-related profits can also be reduced through the use of loan finance funneled in the same way. For the purposes of Irish tax law, Company C is tax resident in Bermuda. For the purposes of US tax law, Company C is tax resident in Ireland.

The Double Irish

As above, except that, as Ireland has recently changed its rules relating to withholding tax on royalty payments, the Dutch company is no longer necessary. Payments can be made directly from Company A to Company C. The Double Irish, however, is only of use where profits from intellectual property are concerned. Where loan finance is used as a means of reducing profits a Dutch company is still necessary to channel profits out of the EU.

Where do these rules come from?

Current international tax rules find their genesis in the work of the Fiscal Committee of the League of Nations in the 1920s. Most of the principles that presently make up international taxation law were agreed by the four experts who were charged with drafting a set of model treaty articles – Professors Bruins, Einaudi, and Seligman; and Sir Josiah Stamp. Today, the rules as they are in force are contained in a network of over 2,000 Double Taxation Treaties (DTTs) – most of which are based on one of three models: The OECD Model; The UN Model; and the US Model. The OECD Model is the most prevalent, although the key clauses in the other models are fairly similar to that of the OECD.

Why not a multilateral treaty?

It was initially thought that agreeing a multilateral treaty would be nigh-on impossible. Instead, the League proposed model articles on which bilateral treaties should be based. It was hoped that once the principles of the model articles had been bedded-in by bilateral treaties, that states would eventually move to multilateral treaties – however few have ever emerged.

Why have they never changed?

Quite simply, because it would be too difficult. Agreeing even modest amendments to the Model Convention can take years – while the core principles of permanent establishment and arms length accounting have never been amended. Instead, the OECD has opted to amend their highly authoritative commentary on the Model Convention. Of course, even if amendments to the OECD Model could be agreed – it remains merely a set of model articles. The thousands of DTTs currently in force would then have to be amended – which cannot be assured of success. The dangers of having a patchy net of tax treaties are usually thought greater than the comprehensive but imperfect network that currently exists.

But these changes will work, right?

Doubtful. The focus of the G8 Summit at Lough Erne has been on information sharing and transparency. However the reality is that shedding light on companies’ tax arrangements will usually reveal that all is perfectly legal and above board. While it is the case that they may be forced to do in public what they formerly did in private, when it comes to a choice between pleasing tax campaigners and substantially lowering their tax bills, multinational corporations are going to elect to continue to do what they have been doing all along. What is needed is a genuine drive to alter the substance of international tax rules – rather than the manner in which they are administered.

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