Czechs Put Brakes On Common EU Corporate Tax Base

by Ulrika Lomas, Tax-News.com, Brussels

23 January 2009

The Czech Republic, which recently assumed its six-month presidency of the European Union, does not intend to progress plans to introduce a common corporate tax base across the EU, the country's Finance Minister, Miroslav Kalousek, has revealed.

The European Commission had been due to present its much-vaunted plan to introduce the common consolidated corporate tax base (CCCTB) in the latter half of last year, but the project was dealt a lethal blow by Ireland's rejection of the new European constitution, known as the Lisbon Treaty, in a referendum earlier in 2008, largely on fears that it would lead to an erosion in tax sovereignty.

With another Irish referendum on the treaty scheduled for the autumn of 2009, it seems that the European Union is happy to keep its plans quiet for at least another year for fear of tipping the balance of voter opinion against them.

"We will not address this issue during our presidency,” Kalousek disclosed at a recent briefing on the Czech presidency's priorities.

A CCCTB impact assessment should have been unveiled by the European Commission last year, but the EU's executive arm decided to delay the proposals in September 2008 because, according to Tax Commissioner Laszlo Kovacs, certain "detailed technical areas" still needed further work, in particular those related to the financial sector.

Kovacs, a firm supporter of the CCCTB, is insistent, however, that the project is on track and when complete could be rolled out with or without those member states which are opposed to tax harmonisation.

All tax-related legislation in the EU must gain the backing of all 27 member states before it can be written into law, but Kovacs has suggested the veto system could be by-passed through a procedure known as "enhanced cooperation."

The CCCTB would enable companies to follow the same rules for calculating the tax base for all their EU-wide activities rather than in accordance with the existing 27 systems, thereby, it is argued, simplifying procedures, improving efficiency and reducing compliance costs.

According to Kovacs, companies would benefit substantially from the CCCTB because it would do away with the need to determine arms length transfer prices for intra group transactions and provide a consolidation mechanism to offset profits and losses of the same company in different member states.

However, several EU countries, most notably those with the lowest rates of corporate tax in the EU, such as Ireland, Estonia and Slovakia, are strongly opposed to the idea of any kind of harmonization of EU member state tax regimes, despite assurances that no plans are in the pipeline for harmonizing tax rates, which is what these countries ultimately fear.

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