Brussels to unearth EU plans for corporate tax

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The European Commission is preparing fresh proposals for a common consolidated corporate tax base (CCCTB) this year, but views diverge between Brussels, Paris and Berlin over the objectives of the plan.

At the last EU summit on 4 February, Germany and France presented a working document, called the ‘Competitiveness Pact’, inviting eurozone countries to agree minimum harmonisation in taxation and social policies.

The pact was presented as a way of closing the structural economic gaps that Paris and Berlin believe has made the eurozone sovereign debt crisis worse.

It also came as a warning that Europe’s largest paymaster, Germany, expected a political return on the bailout plans it had reluctantly agreed for Greece and Ireland.

Germany, France and Britain have long viewed low Irish taxes as a form of unfair competition and the finance ministers of Austria and France said Ireland’s 12.5% corporation tax may have to be raised as part of any EU/IMF bailout deal.

Their campaign ultimately failed, as the Irish government insisted the country’s national sovereignty was at stake.

Diverging views

The European Commission, which has long sought to harmonise corporate taxation regimes across the Union, is now hoping to ride on the Franco-German pact idea to revive its own plans, first initiated ten years ago (see ‘Background’).

However, it appears Brussels, Paris and Berlin have different views on the objectives.

In France, President Nicolas Sarkozy sees the eurozone crisis as an opportunity to stamp out what he sees as tax dumping within the euro zone. On a visit to an Airbus factory in January, he said it was unreasonable for Ireland to seek financial aid from the European Union while also maintaining its low corporate tax rates.

“I deeply respect the independence of our Irish friends and we have done everything to help them,” Sarkozy said. “But they cannot continue to ask us to come and help them while keeping a tax on company profits that is half [what other countries have],” he added.

In Brussels, however, the focus seems to be rather on making Europe a more attractive place for investors as a whole. “Our focus is to reduce the compliance cost for business and making it easier for companies to exploit economies of scale,” said a senior EU official, who was speaking to journalists on condition of anonymity.

“Currently, companies have to deal with 27 different rulebooks for calculating their taxable profits, resulting in high compliance costs, administrative burdens and complex re-adjustments,” explained Emer Traynor, spokesperson for EU Taxation and Customs Commissioner Algirdas Šemeta.

“Common EU rules for establishing the taxable base of companies would eliminate large costs and complexities for European enterprises and make the EU a more attractive market for foreign investors,” she told EURACTIV.

For the Commission, tackling tax dumping seems more like an afterthought. “Of course, the CCCTB also reduces the possibility of tax planning or profit-shifting,” the official said. “When you have intangibles, you can easily shift them to a low-tax country. With the CCCTB, this is no longer possible.”

“But the main purpose is to improve the functioning of the internal market,” he stressed.

No harmonisation

Of course, the Commission is also conscious that any move to harmonise taxation is likely to run into opposition. Britain, for instance, does not want to participate in the regime, which would remain optional.

“We are not preparing a fully-fledged harmonisation programme,” the EU official said. Taxation “is very much a national competence,” he reminded, “a politically sensitive field” and “an emotional issue for Ireland”.

“I have to underline that it is not about corporate tax rates at all – we have no plans for any proposal to harmonise rates, as this is an issue of national sovereignty,” added Emer Traynor, spokesperson for EU Taxation and Customs Commissioner Algirdas Šemeta.

Traynor also points out that the system would be only optional – “only businesses that wanted to sign up to the CCCTB would have to,” she said. But she says the system has “very strong backing from industry,” with 80% saying they backed the idea.

The commissioner “intends to bring forward a proposal in the first half of 2011,” Traynor added.

Speaking after an EU summit on 4 February, French President Nicolas Sarkozy said: "Regarding the taxes on profits from our Irish friends, the objective is not to deny national specificities. But let's at least agree, in order to make comparisons possible, on a base for profits tax that would be the same [across the euro zone]. And then maybe go towards convergence. But convergence does not mean absolute identity. Convergence means to strive for comparisons and reconciliations instead of moving towards divergences."

The Commission's plans to introduce a Common Consolidated Corporate Tax Base (CCCTB) would be the ideal solution for small businesses, according to UEAPME, the European small business association. "The CCCTB would provide SMEs with a set of simple and workable rules," said Andrea Benassi, secretary-general of SME federation UEAPME, calling for it to be opened to all companies.

"As far SMEs are concerned, the EU is indeed one single market, but it is burdened by 27 diverse and inconsistent tax systems. Despite some recent progress on VAT, much remains to be done in this area," Benassi said at the European Commission's 2008 Tax Forum.

However, Irish businesses fear a CCCTB would push up compliance cost for companies based in Ireland, which benefit from a super-low 12.5% corporate tax. Research by Ernst & Young for Irish business groups suggests the CCCTB would push up average compliance costs by 13%. Chris Sanger, head of tax policy at Ernst & Young, told the Financial Times newspaper: "The CCCTB would reduce the benefit of having a lower rate."

A Deutsche Bank Research paper, published in 2007, said plans to introduce a CCCTB was likely to benefit large enterprises and that smaller companies would be "out of their depth" when choosing between national and European systems.

The paper warns that a CCCTB would involve "considerable curtailment of the member states' tax autonomy," and as decisions relating to taxes require unanimity, "the chances of a CCCTB being realised for the EU 27 are rather small".

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 (see EURACTIV's Lisbon Agenda LinksDossier).

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 Commission says creating a single tax base will encourage cross-border activities and investments.

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, which fear losing their sovereignty over national tax. 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.

  • By July 2011: Commission to present fresh proposals for Common Consolidated Corporate Tax Base (CCCTB).

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