Concern over corporate tax plans

March 22, 2020 / By mobanmarket

Concern over corporate tax plans

Ireland raises the most significant objections to the proposal.

Member states and officials from Hungary, which holds the rotating presidency of the Council of Ministers, have started a series of discussions on proposals for a common tax base regime.

Technical work on the common consolidated corporate tax base (CCCTB) began last Thursday (5 May), but agreement is a long way off and there appears little impetus for any swift conclusion.

Ireland has raised the most significant objections to the proposal and was the only country not to participate in last week’s talks. But many member states have raised concerns about perceived shortcomings in the European Commission’s proposal, which was published on 16 March.

They have expressed most disquiet about the way it defines various concepts in the calculation of the tax base, such as “expenditure” and “income”. Member states have also questioned the Commission’s impact assessment, especially the extent to which CCCTB will affect growth and employment.

Some member states have requested more time to investigate further aspects of the Commission’s impact assessment. Representatives of member states will meet to discuss the issue on 31 May.

Complex and costly

The Commission argues in favour of harmonising the 27 current systems, which it says make the corporation tax process too complex and costly for businesses that operate in more than one member state. The Commission estimates that current compliance costs could be reduced by 7%, which is equivalent to a saving of €0.7 billion across the EU.

The idea was also floated in the text of the member states’ Pact for the Euro, as part of wider reforms of the eurozone in the wake of the sovereign-debt crisis, in which it was also suggested that the process of ‘enhanced co-operation’ could be used to leave out countries that did not support CCCTB.

The plan is most controversial in Ireland, which has one of the lowest corporation tax rates in the EU, at 12.5%. Enda Kenny, Ireland’s prime minister, has vowed to protect this rate, despite criticism – notably from France – that it gives the country an unfair competitive advantage, particularly at a time when it is receiving financial support to rescue its economy.

CCCTB does not lower the rate of tax directly (this, the Commission insists, should remain an issue of national sovereignty), but rather harmonises the tax ‘base’ – the way taxable profits are calculated.