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Irish Parliament Rejects CCCTB

by Jason Gorringe, Tax-News.com, London

19 May 2011


The Irish parliament has passed a motion denying the legality of European Commission proposals for a Common Consolidated Corporate Tax Base (CCCTB), after a debate in which the measure was slammed as an attempted assault on the country's 12.5% corporate tax rate.

The debate took place on May 17, in response to the release of a report on the plans's compliance with European Union treaty stipulations.

The report had been prepared the previous week by members of an interim committee, convened to consider whether the proposals comply with the principle of "subsidiarity", as laid down in the Lisbon Treaty. As defined in this document, "subsidiarity" means that the European Union will only act if and insofar as the objectives of its proposed action cannot be sufficiently achieved by the member states, but are better carried out at the Union level. This, in turn, is evaluated through questioning whether EU action is necessary in the first instance, and whether, if taken, it would provide greater benefit than at State level.

The conclusion, agreed to unanimously by the committee, was that the proposals fail to meet with subsidiarity requirements. The report argues that the Commission did not adequately establish that EU legislation is entirely justified as the best way to meet the broader objectives of the proposal, and that the proposals were unable to determine that the operation of 27 separate national corporate tax systems impede the proper functioning of Europe's internal market. In addition, the plans were found to be lacking in logic, with the Committee stressing that member states were unlikely to legislate for the provision of unequal cost implications across individual countries. Finally, it held that "no EU legislation should be proposed that indirectly impacts on national sovereignty as a means of remedying any negative financial impact that flows therefrom", thus affirming the principle of national sovereignty in direct taxation.

Based upon these observations, the motion declared that the Irish parliament "is of the opinion that the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base does not comply with the principle of subsidiarity". It was introduced by committee member Charles Flanagan, who argued that a CCCTB offers little benefit to either Ireland or any of the EU's member states. He noted that Irish governments past and present have consistently made it clear that direct taxation is the preserve of individual countries, and that the EU ought to compete on the world's stage with fair tax, not harmonization - CCCTB is evidently regarded by the Irish as the latter. Flanagan pledged that "the government is totally opposed to tax harmonization and is determined to protect Irish interests in the substantive negotiations that will take place on this proposal".

Each national parliament was given eight weeks from the publication of the CCCTB proposals to consider their subsidiarity compliance, with the deadline set for May 16. As Flanagan explained, were one-third of these parliaments to provide the EU with reasoned opinions stating that the proposal fails to conform, the draft directive must then be reviewed under the auspices of the European Commission, which would decide whether to maintain, amend or withdraw the plans.

Nevertheless, in spite of indications that countries such as the Netherlands, Sweden and the UK will vote against the proposals on subsidiarity grounds, Flanagan feels it is now unlikely that the required opposition threshold will be met. "However, given the level of opposition raised, it will be incumbent on the Commission to respond clearly to the concerns raised by national parliaments before the legislation goes any further", he said.

There was a considerable degree of unanimity in the condemnation voiced during the debate, with politicians of all allegiances voicing their criticism. Most focused on the damage it would do to Ireland's own corporate tax regime. It was argued that the 12.5% corporate tax rate remains a "vital national interest" and "a cornerstone of economic policy", possessing financial and symbolic significance to extent that any advantages currently brought by it would be negated by a CCCTB. Ireland's ongoing battle to secure a more favourable deal on its EUR85bn bailout deal was repeatedly referenced, with CCCTB condemned by one member as a strategy to attack the country's corporate tax "through the back door", and another alleging that some European ministers were using the proposals as a "negotiating ploy".

The resolution, along with the report on which it is based, are to be sent to the Presidents of the European Parliament, Council and Commission.

TAGS: compliance | tax | business | European Commission | Ireland | Netherlands | corporation tax | United Kingdom | legislation | tax rates | Sweden | tax reform | standards | regulation | European Union (EU) | Europe

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