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| EU's Taxation Commissioner László Kovács |
A delegation from the business group IBEC and the Irish Bankers Federation on Monday met the EU's Taxation Commissioner László Kovács at the invitation of Fianna Fáil MEP Eoin Ryan.
The Commissioner told the group he hoped to put forward a legislative proposal next year on harmonising the corporate tax base - which is the method used to calculate what constitutes a company's taxable earnings.
The Commission says it would also increase transparency in comparing national tax regimes. Like the US, individual member states would be free to set their own tax rates.
But there is a proposed mechanism to share tax revenues between states, by applying tax where the business transaction takes place, not where the business is headquartered. For multinationals based in Ireland, this would mean a company selling goods to Europe would pay part of its tax in the state to which the goods were being sold.
IBEC says this is bad for a small exporting state like Ireland, which would lose a chunk tax revenue.
The Government argues that plans to harmonise the corporation tax base (individual country rates would still apply) across the European Union could undermine Irish sovereignty and threaten inward investment in the economy.
All the big EU countries with the exception of the UK, oppose the proposal.
A Department of Finance memorandum, which outlines the Government's opposition to the Common Consolidated Corporation Tax Base (CCCTB) proposal, says that by harmonising the way corporation tax liabilities are calculated Ireland's rate of corporation tax could end up becoming higher.
Ireland's current rate of 12.5% is among the lowest in the EU.
Instead of being calculated separately in each member state in which a company operates, as at present, if the plan succeeds, companies will have their liabilities calculated on an EU level.
The document says that problems could arise over how to calculate the shares of corporation taxes which, once levied at EU level, are repaid to member states in which such a company operates.
"The question arises as to which economic criteria would apply: proportion of assets, risk, employment, sales revenue in each member state? It is difficult to see how an appropriate division of the profit could be devised," the document states.
"This would reduce the effectiveness of our 12.5 per cent rate, with consequential negative impacts on Ireland's competitiveness and attractiveness for DFI [direct foreign investment]."
Such a plan would impact negatively on corporate tax revenue. "With the base harmonised, it will be easy to propose a common uniform EU tax rate. This is not a good feature," the document adds.
Hungary, Luxembourg, The Netherlands, Austria, France, Germany, Italy and Spain are listed as fully supporting the plan.
Common Consolidated Tax Base
The European Commission says that it believes that the only systematic way to address the underlying tax obstacles which exist for companies operating in more than one Member State in the Internal Market is to provide companies with a consolidated corporate tax base for their EU-wide activities. Targeted solutions have many merits and would go some way towards remedying the tax obstacles. However, even if all of them were implemented, they would not address the fundamental problem of dealing with up to 27 different tax systems.
The Commission´s Directorate-General responsible for Taxation and the Customs Union is currently working on two main comprehensive approaches to remove tax obstacles which companies face in the Internal Market:
- The Common Consolidated Tax Base and
- a possible pilot scheme for Home State Taxation for Small and Medium Sized Enterprises.
László Kovács, European Commissioner for Taxation and Customs says that the CCCTB would significantly reduce compliance costs and administrative burdens because companies would no longer need to comply with the tax reporting requirements of numerous national systems. Should the harmonisation take the form of a consolidated tax base, as the Commission strongly advocates, it would eliminate the huge costs and uncertainties of complying with transfer pricing rules within the EU.
It would also allow for automatic cross-border consolidation of profits and losses, thus preventing profits and losses from being stranded in different Member States as at present.
The consolidated profit would be apportioned among the countries where the firm operates and the corporate tax rate in each relevant country would be applied. Consequently a method for sharing the consolidated tax base between Member States is necessary.
Background
This policy was established in 2001 (COM(2001) 582 of 23/10/2001) and confirmed in 2003 (COM(2003) 726 of 24/11/2003).
A public consultation was held in 2003 concerning the use of International Accounting Standards as a possible starting point for a common EU tax base.
In July 2004 a non-paper on the common tax base 
was presented by the Commission and discussed at the informal ECOFIN meeting in September 2004. The discussions revealed broad support for the creation of a Commission Working Group to progress work on the common tax base.
On 5 April 2006 the Commission issued a Communication on the 'Progress to date and next steps towards a Common Consolidated Corporate Tax Base (CCCTB)' (COM/2006/157 ; see also the press release IP/06/448 and the speech by Commissioner László Kovács) giving a report on progress to date and an outline of the next steps to take, as well as drawing attention to those areas where further political support and direction is desirable without seeking commitments from Member States to the legislative proposal.
For the meeting on 12 December 2006 the Commission Services prepared, among other documents, a working paper on 'progress to date and future plans for the CCCTB' (CCCTB/WP/046 ) which summarises the work carried out by the Working Group in the various areas covered by the CCCTB.
Common Consolidated Corporate Tax Base Working Group (CCCTB WG) - Practical Information
What will the CCCTB WG do?
The overall objective of the CCCTB WG is
- to examine from a technical perspective the definition of a common consolidated tax base for companies operating in the EU.
- to discuss the basic tax principles,
- to discuss the fundamental structural elements of a common consolidated tax base and
- to discuss other necessary technical details such as a mechanism for 'sharing' a consolidated tax base between Member States.
As a group of experts the role of the Working Group is to provide technical assistance and advice to the Commission.
