Published: 9:55 AM August 28, 2018 Updated: 8:45 AM September 18, 2020

The EU's forthcoming anti-tax avoidance rules could be a big boost for our public services but, as Chevan Ilangaratne and Dami Olatuyi explain, they will be binned if Farage and Rees-Mogg get their way.

In all honesty, tax and law are an unattractive couple. Even specialists in the field will admit as much. That said – few doubt the necessity of tax. It pays for new hospitals and schools. It builds new houses. It keeps us safe on the streets. It helps us care for children and the elderly.

Thus the value of taxpayers' money cannot be understated – however discouraging it is to see chunks of your earnings go to tax collectors. The same applies to businesses – big or small – who pay corporation tax... well, that's when they pay it.

In recent years, the likes of Google, Amazon, Apple and Starbucks have come under the spotlight for large-scale tax avoidance. This means they've arranged their finances rather cleverly – albeit within the law – to dodge tax obligations they would otherwise have to fulfil. Less tax paid by these huge companies means less money to invest in our public services – we all lose out!

Well the EU have had enough.

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As from the start of 2019, yes coincidentally just as the Brexit deadline looms, all EU member states will have to apply the Anti Tax Avoidance Directive (ATAD). It's an EU law designed to tackle businesses shirking their tax-paying responsibilities.

The likes of Nigel Farage, Jacob Rees-Mogg and a host of wealthy Brexit donors are unlikely to warm to ATAD. It fact, it might be one of reasons why some Brexiteers are hell-bent on pushing for the hardest Brexit possible.

How will ATAD work?

The directive seeks to tackle the thriving culture of corporate tax avoidance. For example, consider the scenario in which an EU company shifts profits to a related company in a low-tax country reducing the tax paid on these profits: under ATAD, a company could still do this, but the profits will be taxable at EU rates.

Another situation is where EU businesses developing a new product move it to a low tax country to avoid paying larger taxes on the profits once it is developed. Thanks to ATAD this tactic won't work as member states can levy tax on the product before it is moved.

Even with ATAD, you might argue companies – through their nifty lawyers – will find new loopholes to avoid tax, right? The EU thought of that: ATAD provides a general anti-abuse rule to counteract these regimes where national laws have failed to address them.

There are many other measures in ATAD which you will no doubt be inspired to research. But before you do that, you will hear people air grievances that this Directive is another example of how the EU hates business or that it is another instance of Brussels encroaching on our sovereignty.

Dealing with the first allegation, anti-tax avoidance laws are not developed to harm businesses. Their objective is to ensure companies play ball in a competitive market which means paying their fair share of tax. Flowing from this, in a globalised market, agreeing a set of rules to encourage fair trade is hardly an encroachment upon sovereignty. It is an acceptance that the world today sometimes requires countries to come together and agree on things for mutual benefit.

Vital for our schools and hospitals

Britain becoming a low-tax haven economy on the shores of Europe is a Brexiteer fantasy – and ATAD compliance poses a direct threat to that. But a low-tax haven for the rich will thrash the public services upon which the vast majority of us rely on and deepen inequalities in modern day Britain.

Most of us can agree tax is far from ideal but a means to very vital end. If the likes of Google or Amazon were going to be put out of business by following the ATAD one could see the logic in rallying against it. But we know these major corporations will be just fine; meanwhile our schools and hospitals are left in crisis.

• Chevan Ilangaratne and Dami Olatuyi are members of the organisation Lawyers Against Brexit.