Missing tax revenue: EU Commission advises on lawsuit against UK

United Kingdom and Gibraltar European Union membership referendum

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In six months, the UK will leave the European Union. However, the negotiations are stalling - and now another conflict is weighing on the relationship between London and Brussels.

According to the SPIEGEL, the European Commission will discuss on Wednesday whether it is suing the British government before the European Court of Justice (ECJ) in order to recover several billion euros in tax revenues.

It would be the next step in the so-called infringement procedure initiated by the European Commission in March. These are shoes and textiles from China, which were imported to the EU far below their value in Britain. As a result, the EU had escaped tax revenues of 2.7 billion euros between 2011 and 2017, the European Commission said in March.

EU Member States are obliged to levy customs duties on imports from third countries and pay them to the EU after deduction of a fee. London must therefore pay the 2.7 billion euros to the EU, argues the Commission - especially since Brussels had already pointed out in 2007 on the risk of fraud, without London has responded.

Timing is explosive

After the Commission's first letter in March, the British government had two months to reply. However, from Brussels's point of view, this did not seem satisfactory, and the Commission sent a formal request to London to restore EU law. But even that has not happened in the view of the Commission. The next step would be to go to the European Court of Justice (ECJ). Whether at the meeting on Wednesday, however, already a decision for a lawsuit, is reportedly open.

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Theresa May

That should also be related to the explosive timing. The announcement of a lawsuit before the European Court of Justice on Wednesday just a day before the informal EU summit in Salzburg, in which British Prime Minister Theresa May wants to appeal again to the heads of state and government of the other 27 EU member states, would be in the negotiations to accept a withdrawal agreement.

The dispute could mean a new setback for May

One key point in May's proposals is a tariff agreement with the EU, which is supposed to levy UK duties on the EU. The fact that London refuses to pay too little taxes to the EU and that the dispute could go to the ECJ is unlikely to increase the chances of May's proposal.

Anyway, time runs away from the negotiators. Actually, the exit deal should be approved at the next formal EU summit in October. However, since the talks have been stalling for months on key issues, a special summit should be held at the request of EU Council President Donald Tusk in mid-November.