France in renewed push for EU-wide corporate tax

Economy Minister Christine Lagarde said she would push to introduce a common consolidated corporate tax when France takes over the EU Presidency in July this year.

“It has been going on for a long time, it’s an issue that we are determined to push,” Lagarde said on the margins of a tax forum organised by the European Commission on Monday (7 April). 

The idea has received the backing of EU Taxation Commissioner Laszlo Kovacs, who said he would put forward the proposal in the autumn.

Under plans currently being considered by the Commission, businesses operating in several EU states would calculate their tax base according to a single EU-wide formula with profits re-distributed to countries in which the company has operations. The profits would then be consolidated – or re-allocated – according to a number of criteria determining the size of operations in each country: payroll, value of assets, sales, etc.

But smaller countries fear they could lose out under the “sales by destination” formula currently being examined by the Commission. Under the formula, taxes would be levied in the country where the sale is made instead of the country where the product is manufactured, resulting in losses of tax revenue for smaller EU nations.

The proposal, which has long been under consideration in Brussels, is certain to run into opposition from a number of countries, including the UK, Ireland and several newer EU member states which have a lower corporate tax base (EURACTIV 11/04/07). 

Under current EU rules, taxation issues need to attract the unanimous backing of all 27 member states in order to win approval.

A spokesperson for the Irish Ministry of Foreign Affairs told the Irish Times: “Ireland has a veto on tax so regardless of what the French talk about, it is irrelevant. There is no mechanism by which our taxation system can be changed without our consent.”

The proposal, which was initially planned for the first half of 2008, was delayed due to fears that it might frustrate the ratification process of the Lisbon Treaty in Ireland, EU officials said.

But Kovacs has already made it clear that he would not allow the veto power of a few countries to block the project. In comments made a year ago, he said 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.

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