France must cut corporation tax to compete within EU, say auditors

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The EU needs a New Tax Deal. Jan Sarnowski and Piotr Arak set out the principles that could guide it. [Images Money/Flickr]

Corporation tax in France is too far above the European average, according to a report by the French Court of Auditors. The experts said a cut from 33.3% to 25% would allow companies to compete with their European counterparts. EURACTIV France reports.

The amount of tax paid by businesses in France has been steadily climbing for the last two decades. Today, they pay the highest rates in Europe. But this growth has not been good for the country, according to a report published by the Court yesterday (12 January).

First levied in 1948, French corporation tax is today one of the highest in Europe, at 33.3%. The government has promised to reduce this figure to 28% by 2020.

But this is too little and too slow for the auditors, who concluded that France would not be able to compete at the European level until it slashed corporate tax to 25%.

“France should aim for a structure more in tune with its European partners, which, while remaining attractive to businesses, should allow it to fight more effectively against base erosion and profit shifting,” the report said.

Corporation tax

France has not always been a high tax jurisdiction, compared to other EU countries. In 1995 it was more or less at the European average. But it has steadily increased over the last 20 years.

Commission plans EU company tax despite opposition

The Commission adopted, on 2 May, a Communication outlining the remaining steps to be taken to establish a single tax base for European companies by 2010. But the plan is opposed by at least seven member states which fear for their national tax sovereignty.

At the same time, other EU member states have been moving in the opposite direction. According to the report, most member states have lowered tax on business revenues, or have imminent plans to do so.

The UK, for example plans to cut corporation tax to 17% by 2020. The average tax rate paid by EU companies fell from 33% in 1999 to 25% in 2015.

Competitiveness at a high cost

Nut the report’s recommendation of a 25% tax rate would come at a cost to the public purse. The plan to cut tax to 28% by 2020, fixed in the last budget, will already cost the state some €7 billion. Implementing the Court’s recommendation of a 25% tax rate would cost a further €4.2bn.

Brussels aims to harmonise corporate tax by 2021

The European Commission has unveiled its latest action plan to harmonise corporate tax. After two past failures, the executive hopes the recent flurry of tax scandals will give the project a new lease of life. EURACTIV France reports.

But aside from aligning its tax rate with those of its EU partners, the experts also encouraged France to support the EU’s plans for a Common Consolidated Corporate Tax Base (CCCTB).

This European Commission initiative is aimed at stamping out tax competition between EU member states. According to the French auditors, the common tax base should be accompanied by the establishment of a tax rate “corridor” for businesses.

Among the most important points in this project, the French experts called on Paris to examine the question of “a ceiling for the deductibility of loan interest, as well as the reduced rate applicable to revenue from intellectual property”. This fiscal workaround allows big companies in Europe and around the world to cut their tax bills significantly.

If the executive’s plans for a common tax base by 2021 are to go ahead, it will need France’s support. In order to become law, the proposal must be adopted unanimously by the EU’s member states.

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