The EU’s insane attempt to sue the UK for retroactive payment of VAT on derivatives transactions (see quoted THREAD) exemplifies the radical difference & incompatibility between EU & UK law. NEW THREAD
1/ The UK’s legal system (particularly English contract law) is one of its fundamental competitive advantages, which EU membership was designed to erode
2/ As a foreigner, I've long been aware at the back of my mind of how conducive UK law is for entrepreneurs or working in finance, based on my experience of both those activities in this country
3/ But it’s really thanks to my learnèd Twitter friend @DomaineValescia that I came to understand just what a powerful & unassailable advantage British common law & English contract law are
4/ The essential difference between the EU’s prescriptive, Napoleonic law & UK common law is that EU law seeks to tell you what is permitted, whereas according to UK common law you can do as you please as long as the law does not prohibit it (double negative)
5/ The UK (rightly) thought it didn’t need to charge VAT on derivatives because there wasn’t a rule that said it needed to (see my other thread). The EU’s attitude was that unless they explicitly allowed you not to charge VAT on derivatives, you must
6/ The EU has to tell you something is permitted, in this case not charging VAT on derivatives, while the UK says you don’t need to charge VAT on derivatives unless it’s illegal not to (double negative again)
7/ This prescriptive attitude is very hard to live with. So many continental European countries tend to have lots of laws - most of which are ignored in order to get by in the real world - whereas the UK tradition was for few laws - most of which are followed
8/ The following anecdote, told by my German high school teacher in the European country I grew up in (not Germany, as we shall see), is illustrative of the point
9/ The teacher wanted to build a garage. So, being German, he went to the local authority (this was the 80s, when you went into offices & talked to officials) to find out what the regulations were
10/ The people in the local authority office were a bit confused by his question. They finally found someone who was supposed to be responsible
11/ “Why do you want to know what the regulations are?” he asked the teacher. “Because I vant to build ze Garage in konformity viz ze Regulations, selbstverständlich.”
12/ The official looked annoyed but marched down the stairs before returning, about half an hour later, with a document (this was the 80s when regulations were consulted in printed documents)
13/ He blew the dust off the document, flipped through the many hundreds of pages & began to read: “The garage must be built of the same stone as the house, if made of stone, or if the house is made of wood, must be built of sandstone.
14/ The garage may be no higher than 2/3ds of the height of the house, the door of the garage must … etc etc etc or uzw uzw uzw”
15/ By the time he finished our teacher was confused. “In meine Street, everyvone hat eine Garage, but none of zoze Garagen konforms to a single vone of zese ztipulations vich you have enumerated. Vy is zis?”
16/ The official was stumped. He stared blankly for a few minutes before shrugging & saying “well, they never asked what the rules were”
17/ So everything is prescribed to the nth degree, unlike the UK traditionally (I’ll come back to how that tradition has changed as a result of EU membership)
18/ But, because the prescriptions are so extensive & mind numbing, everyone ignores them, until you bump into one of the officials responsible
19/ But that puts lots of people in a risky position & gives lots of power to plodding local authority officials. Anytime, he can serve you with notice that your garage doesn’t comply with any number of silly rules. The UK VAT ruling is just such piece of arbitrary enforcement
20/ It’s an insider system. Established businesses pay their friendly officials bribes. Any new business opening up can suddenly find the book thrown at it. No chance of escaping with a bribe. They're allowed to sink their money into the café or shop only to lose everything
21/ To be fair, Holland, Denmark & Sweden are historically quite similar to the UK. In Germany they manage to have a lot of laws and to follow them (Ordnung must zein)
22/ And the EU through its centralisation eradicated some (not all, as anyone who tries to do business in Italy will know) of this localised skullduggery by replacing it with a more systematic set of prescriptive codes
23/ But all that did was push the power to selectively ignore laws & the associated corruption higher up the pyramid. The local insiders with the local official have been replaced by big corporates & Commission directors
24/ That’s why the EU is such a mecca for lobbyists as @James7Holland brilliantly explains
25/ In the UK, things are much simpler. Everything's based on precedent. So if the local official comes after you for the size of your garage door, he has to make a precedent - or back off. If there's precedent that garage doors of a certain size are allowed, he can whistle
26/ This extends to bodies like Companies House & the FCA. It’s very straightforward to set up a company on Companies House, as long as you don’t do something prohibited
27/ Everything you do on CH is tracked & recorded so if you screw up everyone can see. It strikes a good balance between letting businesses do business & keeping people on the straight
28/ I found the same in three FCA approval processes in different fields. As long as you clearly explain what you’re doing & it doesn’t fall foul of any prohibitions, you’re good to go (there are also some client reporting requirements but nothing excessive)
29/ This simplicity is embodied in English contract law. That’s why it has been used for decades by countries all over the world.
30/ You don’t need to scour the whole code to find out what you are allowed to do in English contract law. You just have a simple, reliable template according to which you and your counterparty AGREE on something
31/ Of course, some agreements can be complex, not doubt about that. When that’s the case you need to call @DomaineValescia
32/ But the key point is there have been so many & such a variety of agreements in English law that the body of precedent is rich beyond measure. So if you’re ever in any doubt, you have precedent to fall back on
33/ Rich layers of precedent replaces complex prescriptions in English contract law. Its beauty is its simplicity, which the EU abhors
34/ That is why a Chinese company buying a Dutch company will use English law. The Chinese don’t want to learn Dutch law, the Dutch don’t trust Chinese courts
35/ Same for a Belgian company signing a JV with a Portuguese company. Belgians don’t want to dig up the Portuguese corporate code which hasn’t been translated into English, the Portuguese don’t want the Belgian one in case the Flemish version is different from the French one!
36/ This won’t change one iota post Brexit. You can sign a legal agreement with anyone in any jurisdiction, if you *both* choose. Quite a lot of the freelancer agreements I’ve signed in my time have New Jersey as jurisdiction. There's nothing the EU can do to stop this
37/ Because of this, the UK is a massive legal services exporter to the rest of the world. It’s also a great place to start a company
38/ This helped the UK attracted around 2x the tech startup investment of the whole of the rest of Europe in 2019 #DespiteBrexit sifted.eu/articles/uk-te… 
39/ One reason the UK is so successful internationally is that it offers this light touch but reliable framework. It's one reason why unemployment is so low here. One reason why so many people from across the globe decide to incorporate their world beating startups here
40/ EU membership has, however, eroded this competitive advantage, as the prescriptive EU legal code seeped more & more into the UK’s statute books. FBPE types will point out – with some justification – that many UK lawyers & regulators were spearheading this …
41/ … of course they were. EU law is a busybody regulator or lawyer’s wet dream. The EU’s prescriptive approach to health & safety, financial regulations such as MIFID satisfy the type of left wing big state meddling instinct which animates much of the Left in this country
42/ No wonder so much of the Left is pro-EU
43/ The EU’s derivatives VAT case shows the risks to the UK of being part of such a murky, you can only do what’s what’s allowed legal framework. It makes you indentured
44/ At any time, they can pull you up for falling foul of this or that law. Whether you are pulled up or not is purely political. So you are forced to curry political favor & be a “good” EU member
45/ The derivatives VAT case shows that, however much freedom the UK has now, the EU can always take it away. Like the guy with the garage door that is more than 3/7ths of the size of the garage, you never know when they’re going to tap you on the shoulder
46/ EU regulation is a one way street. Always increased, never repealed. Its prescriptive legal framework is harmful to UK common law, embodied in English contract law, which is one of the UK’s greatest competitive advantages. #Brexit saved your British asses END
