EU Tax Harmonization Back On Agenda

by Jason Gorringe, Tax-News.com, London

14 September 2010

News that the European Commission plans to push ahead with proposals to introduce a Common Consolidated Corporate Tax Base (CCCTB) have been met with dismay in Ireland as some fear that the proposals, whilst not immediately affecting Ireland’s 12.5% corporate income tax rate, may introduce tax harmonization in Europe through the back door.

Tax Director at the Chartered Accountants Ireland, Brian Keegan has underlined that there is no imminent threat to Ireland’s corporate tax rate stating: “The Commission proposals will focus on how much of a company’s income should be taxed, not at what rate of tax. [These reforms] do not mean that Ireland’s 12.5% rate of Corporation Tax is about to be challenged."

However, the Irish Businesses’ and Employers’ Confederation, IBEC, has said that it remains resolutely opposed to the introduction of a Common Consolidated Corporate Tax Base in the EU. The group said any such move would do nothing to improve the competitiveness of the EU and would damage the economies of smaller member states, such as Ireland.

IBEC Director General, Danny McCoy stated: "This proposal would almost certainly lead to an increase in companies’ tax bills by transferring taxable profits to the regions with large populations. This would result in lower revenue from corporation profits in smaller countries, which could lead to other taxes being increased to offset this loss of revenue. It would effectively result in a transfer of resources from smaller countries to larger ones.”

He added: “In the case of Ireland, which exports the greater part of its output to the larger central economies of the EU, companies would see part of their profits apportioned to other higher-taxed member states such as Germany or France. These large countries have long been in favour of CCCTB as a first step towards tax harmonization."

For its part, Chartered Accountants Ireland argued that the reforms would in fact increase - rather than reduce - the compliance burden for businesses across Europe. In addition, Keegan noted that "with Exchequer receipts in freefall in many EU member states, this is not the time for European governments to be experimenting with their tax systems.”

The European Commission in September 2008 deferred proposals for the CCCTB, stating that more time was needed to iron out the plan’s finer details. At the time, many member states announced opposition to the proposals. However, it has been reported that the European Commission plans to issue a new report on internal market reform next month, of which the CCCTB project forms a key part.

Urging the reforms in 2008, then Tax Commissioner Laszlo Kovacs said that 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, he said, 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.

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