Paris, Berlin to unveil joint corporate tax plan at Ecofin

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A meeting of finance ministers in Brussels will see France and Germany present plans to align their national corporate tax regimes, as the European Commission's own attempt at EU-level harmonisation has so far failed to garner the required unanimity among the 27 member states.

France and Germany have taken the lead on fiscal convergence in the eurozone by announcing in August their joint plans to establish a common corporate tax between themselves, as of January 2013.

François Baroin and Wolfgang Schäuble, the two finance ministers, will report progress on those plans at a meeting of the EU's 27 finance ministers in Brussels on Tuesday (21 February).

"Europe goes forward at 27 but it is not forbidden to have smaller groups that go a little bit faster," argues a national diplomat in Brussels, explaining that "the Franco-German couple is bringing forward a number of technical solutions to overcome divergences in fiscal regimes."

The diplomat said the initiative, although bilateral for now, could be seen as a Franco-German contribution to an EU attempt to introduce a Common Consolidated Corporate Tax Base (CCCTB), hoping it will inspire others.

"From this presentation we are expecting to create a dynamic on the issue of fiscal convergence on a subject which requires unanimity," the diplomat said, adding that a European consensus on tax issues was "sometimes difficult to find."

Britain is the staunchest opponent to a European Commission proposal, presented in March last year, to introduce a CCCTB. Ireland has also rejected any change to the corporate tax rate for companies on its soil, which at 12.5% is among the lowest in Europe, but said it was ready to "participate constructively in discussions on the CCCTB and fiscal policy in the framework of the Euro Plus Pact," adopted last March.

Enhanced cooperation?

In a letter to European Council President Herman Van Rompuy, dated 17 August 2011, French President Nicolas Sarkozy and German Chancellor Angela Merkel said discussions on the CCCTB should be concluded "before end 2012", an objective which appears optimistic at the moment.

Otherwise, the two leaders argued that "the member states of the eurozone should be ready to envisage enhanced cooperation to move forward in the domain of fiscal coordination."

Enhanced cooperation is a mechanism in the EU treaty which allows a minimum of nine EU countries to adopt common rules in an area where unanimity cannot be reached.

Twelve EU countries have already signalled their readiness to move forward (see background).

The European Commission has long sought to harmonise national corporate tax systems, claiming that this will contribute to its goal of creating more growth and jobs in Europe and boosting the competitiveness of EU companies.

Currently, there are 27 different systems in Europe for calculating a company's taxable earnings, making it costly and burdensome for businesses to operate in several member states.

The idea of a common consolidated corporate tax base (CCCTB) was initially voiced in a 2001 communication but progress has been slow due to member states' reluctance to allow the Commission to encroach upon their national sovereignty in this area. 

A first report on progress to date and next steps towards a CCCTB was issued in April 2006. The Commission followed up a year later with a communication outlining the remaining steps to be taken to establish a single tax base for European companies by 2010.

But the plan has since been stuck in the pipeline due to opposition from at least seven member states. When the first progress report was debated in 2006, 12 countries were in favour and seven – Ireland, the UK, Lithuania, Latvia, Slovakia, Malta and Cyprus – were against. The rest were still undecided.

With the eurozone crisis and the 'Euro Plus Pact' for greater fiscal and economic convergence, the European Commission believes the context is now more favourable. It tabled a formal proposal in March 2011.

  • 21 Feb.: Meeting of the 27 EU finance ministers (Ecofin)
  • Jan. 2013: France and Germany aim to introduce common corporate tax

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