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Irish Report Questions CCCTB's Legality

by Jason Gorringe,, London

17 May 2011

Proposals for a European-wide Common Consolidated Corporate Tax Base fail to comply with key European Union treaty requirements, according to an Irish committee parliamentary report, which, if accepted by parliament, could cause further problems for a government pursuing a reduction in the country's bailout loan rates.

Convened to discuss and report on the technicalities of the European Commission's proposals, the interim "Select Committee on Standing Order 103" committee released its report on May 13. It had met to consider whether the CCCTB plans 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 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 report, agreed to at a May 11 meeting of the Committee, states categorically that the proposals do not comply with these stipulations. A list of complaints are levied against the proposals, including the allegation that the Commission had not adequately met procedural requirements, namely ensuring the provision of a sufficiently detailed statement to allow national parliaments to fully consider its implications. It is argued that the proposals failed to establish that EU legislation is entirely justified as the best way to meet the broader objectives of the proposal.

Crucially, the Commission concluded that the proposals did not determine that "27 different national corporate tax systems inherently impede the proper functioning of the internal market". Instead, if implemented, the regime would introduce a second, parallel, system for operation within each member state, which, the report stresses, would improve neither efficiency or simplicity.

The proposals are also missing an aspect targeting smaller companies and start-up small- and medium-sized enterprises, says the report. This omission could see the rules benefit larger member states more, with Ireland classed as one of those six countries whose businesses would be hardest hit. Moreover, this oversight is seen as indicative of the unequal cost implications likely between individual countries. This, above all, hints at the flaw in the proposals, for, argues the report, "why would the 27 member states legislate for such an unequal policy outcome?".

Finally, the implications for national sovereignty are noted by the Committee. It is 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". This conclusion mirrors the statements recently made by the Dutch Finance Minister, who contended that direct taxation is a matter for decision by individual states alone.

The report is to be tabled in parliament this week, along with an appendixed motion stating the proposals's alleged non-compliance. A debate on the report is expected to be held on May 17, with the Dail permitted until May 18 to give its opinion on CCCTB to the European Commission.

According to the Commission, which released its proposals on March 16, CCCTB offers companies a simplified, single set of corporate tax base rules, which would then share out the company's tax base amongst the member states in which it is active, according to a specific formula. Once the tax base has been apportioned, member states will be allowed to tax their share of it at their own corporate tax rate. Corporate tax rates would remain the prerogative of individual states, who would be permitted to levy them at a level they see fit.

Commenting on the proposals, committee member and member of parliament, Damien English, said that: "This draft Directive fails the subsidiarity test on a number of counts. It is too vague and fails to establish a coherent case that CCCTB would be of benefit to Ireland and the EU as a whole. Much of the justification is based on assumptions and there is insufficient data available on the implications of this new policy. It also may have the effect of indirectly impacting on Ireland’s corporate tax rates which is a sovereign issue for Ireland only and outside the EU’s remit....It fails to meet the EU’s own criteria and could impact on the benefit of Ireland’s lower corporate tax rates.”

These conclusions once again indicate the extent to which Irish opinions on corporate tax differ from those at the heart of the European Union. Talks are due to commence among eurozone ministers on May 16, and it had been speculated that Ireland could come away with as much as a 1% reduction on its 5.8% bailout interest rate. However, following bilateral discussions between French and Irish government ministers during the past few days, it has emerged that this is now looking like an increasingly distant possibility.

Enterprise Minister Richard Bruton is reported as having said France is "hardening" its stance on the issue, pushing a "one item agenda". Ireland has come into perpetual conflict with both France and Germany over its refusal to budge on the subject of its 12.5% corporate tax rate, in return for a renegotiated bailout. Now, with the Portuguese crisis likely to dominate proceedings, Bruton does not expect Ireland to achieve a deal this week.

TAGS: tax | business | European Commission | Ireland | law | corporation tax | small and medium-sized enterprises (SME) | tax planning | tax rates | tax reform | regulation | European Union (EU) | Europe

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