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.
On 2 May 2007 the Commission adopted a second Communication on progress towards harmonising national tax systems for companies, outlining a number of key areas that still need to be tackled before a legislative proposal is made next year.
Stressing the fact that the Commission is not looking to harmonise the tax rates applied by member states and that countries would retain full sovereignty over their tax revenues, the Communication calls for a CCCTB that is “broad, simple and uniform with as few exceptions as possible”.
Nevertheless, Taxation Commissioner László Kovács said that he would not deny member states the possibility of applying a certain number of tax exemptions and incentives in order, for example, to encourage R&D or climate-friendly activities.
The CCCTB would remain optional for companies, allowing those operating at a purely national level to stick to their known national systems. However, Kovács said that he expected many SMEs to opt for the EU system, allowing them to broaden their horizons to the entire single market.
The financial sector would, initially, be excluded from the scope of legislation.
- National opposition expected
Kovács’ plan is expected to spark opposition in a number of EU capitals, particularly those using low tax rates to attract foreign investment, such as Ireland and many of the new member states.
The main fear is that the measure could serve as a ‘Trojan Horse’ for rate harmonisation across Europe, forcing them to raise their rates. Also, countries with flat tax rates, such as Slovakia, fear their tax base could be reduced by EU rules, slashing government revenues (EURACTIV 11/04/07).
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.
But Kovacs made it clear that he would not allow the veto power of a few countries to block his project. He said that he would envisage, “as a last resort”, going ahead with a pioneer group of states, under the so-called enhanced co-operation mechanism. This would allow a minimum of eight states to push forward with the initiative even if it were blocked by others.
The Irish Taoiseach, Bertie Ahern, warned that corporate-tax harmonisation proposals from Brussels, if implemented, could ruin Dublin's ability to compete for investment and jobs in the global economy.
"This is not the harmless, sensible, logical, technical adjustment which some people are trying to portray it as," he warned, adding: "We regard the proposal as little more than a Trojan Horse for harmonised corporation tax and that is why we will resolutely resist and oppose it."
But EU Taxation Commissioner László Kovács insisted that the changes are not about the rights of individual member states to set their own tax rates. "It is not the intention of the Commission and not my ambition to propose the harmonisation of corporate tax rates," he said, adding that Ireland could not be forced to accept the common consolidated corporate tax base.
He added: "I admire the economic miracle of Ireland…The key to this success was its 12.5% corporate tax rate and no one is looking to endanger this rate – not even the CCCTB."
He stressed that the CCCTB would make a "major contribution to the success of the internal market" and said he remained confident that "sceptical" member states would gradually give up their opposition to the plan and see it instead as "the solution to eliminate existing fiscal obstacles throughout the EU, help companies to improve their competitiveness and make Europe a more attractive place to do business".
British Conservative MEP Jonathan Evans said that governments should be wary of how the plan is being "gift-wrapped": "The plan for a common EU tax base is presented as though its purpose is to assist the single market, but the zealots who want a common tax level throughout the EU use precisely the same arguments. Imposing a uniform tax base…for the 27 countries of the EU will rob member states of the flexibility that any national government needs in setting its spending and tax raising priorities."
The Commission has long sought to harmonise national corporate-tax systems, claiming that this will contribute to the Lisbon Goals of creating more growth and jobs in Europe and boosting the competitiveness of EU companies (see 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.
- 5 June 2007: Orientation debate on the CCCTB expected in the Council of Economic and Finance Ministers.
- First half of 2008: Commission to table a legislative proposal to set up a Common Consolidated Corporate Tax Base.
- 2010: Taxation Commissioner László Kovács does not expect the CCCTB to enter into force before 2010.
EU official documents
- Commission (press release):Company taxation: The Commission presents a progress report on the preparatory work made before finalising its proposal due in 2008(2 May 2007)
- DG TAXUD:Common Tax Base [FR] [FR] [DE]