What is it?
The European Commission proposed in March there would be a “CCCTB” – a common system for calculating the tax base of businesses operating in the EU. Firms would be given the option of using a single regime instead of the EU’s 27 different corporate tax systems. The tax bills of companies with offices in Europe would be calculated centrally. Their taxable profits would be split between the member states they operate in according to the size of their business in those countries, which would retain the right to set their own rate of tax.
Why is the EU so keen on a common tax base?
EU taxation commissioner Algirdas Semeta said such a tax base will “make it easier, cheaper and more convenient to do business in the EU”. It is meant to result in less bureaucracy and lower costs of administration for multinationals.
Does it mean every EU country has to have the same tax rate?
No. But the tax base would make it more difficult for international companies to channel revenues into Ireland’s low-tax jurisdiction, meaning the attractiveness of Ireland’s 12.5 per cent corporation tax rate may lessen for US firms which locate here. In May, Taoiseach Enda Kenny said he believed plans to establish such a tax base could introduce tax rate harmonisation by the “back door”.
Does the EU agree with this “back door” theory?
No. In March, Semeta said Irish criticisms of the proposals were based on false assumptions, and dismissed an Ernst Young study for the Department of Finance that warned the plan would slow Ireland’s recovery, eliminate jobs and curtail foreign investment. Semeta said the commission had conducted six studies to ensure the system was fair.
What’s all this got to do with the bailout for Greece?
Thursday’s communiqué from European leaders took special pains to note “Ireland’s willingness to participate” in talks on the tax base draft directive, and to commit to talks on tax policy issues. There is nothing new in this commitment to engage in talks. In recent months the French government has insisted Ireland make concessions on tax in exchange for a lower interest rate on the bailout.
Ireland has secured a lower interest rate as a result of the Greek rescue deal. Does this mean the days of a 12.5 per cent corporation tax rate are over?
Not necessarily. Mr Kenny said on Thursday there was no quid pro quo attached to the interest rate cut. “It’s over, c’est fini,” he said of tensions with France. As Ireland is meeting fiscal targets set under the bailout, Europe couldn’t really punish it by withholding an interest rate cut when it was granting one to Greece and Portugal. Once the debate on the common tax base begins in earnest, Ireland may again come under occasional pressure from France to make a “gesture” on its tax rate. However, engineering the tax base would prove a complex task for Europe even without Ireland’s opposition. It is likely to take a number of years before these talks wrap up.
Why does the CCCTB sometimes lose one of its Cs?
Enthusiasm for the concept is largely a French concern. Germany has always been more sceptical, while its interest in pursuing the system also lessened once it became clear the proposal risks hurting German tax revenues. It now favours a less comprehensive solution, the CCTB, or the Common Corporate Tax Base. By dropping the “consolidated” aspect, this would implement a single EU tax rule book to assist companies reduce compliance costs.
