PES Manifesto

EU Corporation Tax Harmonization - An Irish perspective

Publié mardi 1 juillet 2008 à 11h58
par aidanosullivan (vu 935 fois et 0 commentaires)

With attempts to harmonize corporate tax rates being vetoed by states like the UK and Ireland, the EU Commission wishes to address the tax obstacles facing companies operating across the Internal Market by implementing a Common Consolidated Corporate Tax Base (CCCTB).

The CCCTB would mean reducing the cost of working with 27 different national tax systems as they would be able to compute their aggregate profits to a single set of tax rules. The total EU profit would be then apportioned among the countries where the firm is active.

It has established a Working Group to consider first its technical definition and later details of the profit apportioning mechanism. Commissioner Kovacs had plans to bring forward proposals before the end of 2008, but this is now postponed due to the Lisbon Treaty vote in Ireland. The CCCTB will be optional and the Commission will propose its adoption under the enhanced cooperation mechanism failing unanimous agreement.

The Case for CCCTB

The Commission believes that reform of EU corporate taxation is crucial for achieving the goals of the Lisbon agenda and that an efficient, transparent and simplified tax regime will improve the functioning of the Internal Market. It believes CCCTB will contribute to the international competitiveness of EU businesses, achieving the following goals:

– avoid unnecessary or high compliance costs to cross-border economic activity

– create level-playing field for all EU companies

– substantially help SMEs who are hit hardest by tax costs

– ensure tax considerations distort as little as possible economic decisions

– resolve existing 'transfer pricing' problems

– allow cross-border offsetting of profits and losses

– help to avoid 'double taxation' problem

– increase transparency in tax rate competition

– tackle “harmful or economically undesirable forms” of tax competition

The Commission's plans are supported by the majority of EU states, the EU Parliament, the Economic and Social Committee (whose members include MEP Gay Michell and MEP Eoin Ryan), the qualified support of the European business community and noteworthy from Ireland's point of view, also from the American Chamber of Commerce to the EU.

The Case against CCCTB

The opponents of CCCTB are obviously the countries currently benefiting from lower corporation taxes in relation to their EU neighbours: Ireland, the UK, Slovenia and the Baltic states. They see it as a 'back door' to full corporation tax harmonization. Opponents argue:

– that corporation tax rates are only one side of the effective tax rate equation, and that tax base harmonization is in effect tax harmonization, which hinders tax competition

– such tax harmonization moves would lead to investment flowing to the more established economies at the center of Europe, which have infrastructure and economies of scale competitive advantages

– such proposals avoid the real issue hindering the Lisbon agenda which is lack of domestic reforms in the major Eurozone economies

Irish economic commentators add that CCCTB has the potential to severely affect Ireland's economic future by undermining the main competitive advantage upon which the Celtic Tiger was build - our low corporation tax regime. Most of the major multinationals operating in Ireland today use this regime to significantly lower their tax costs for operating throughout Europe, the Middle East and Africa.

For example Google, IBM, Microsoft as well as many of the financial companies operating here have low-profile companies, alongside their high-profile operations, which act as low-tax gateways through which billions of Euro flow. The Irish Exchequer takes a 12.5% slice of these funds. Irish opponents of CCCTB such as IBEC argue that due to the 'proportional distribution' aspect of CCCTB, Ireland could lose much of its advantage as a low-tax location.

For simple illustration, DEFRA Bank plc is a large German bank located in the IFSC, which generates most of its revenue in Germany, however pays Irish corporation tax. If under CCCTB, it has to pay a large proportion of its tax bill to the German Finanzamt at the higher German rates, it makes less sense to continue operating in Ireland, where it does little or no business.

Conclusion

In an increasingly globalised world, where the economic playing field is being flattened, where telecommunications and digitization have made location less important, where multinationals continue to see tax as a cost rather than investment, winners and losers change places quickly. Ireland has been an outstanding winner in the globalization game recently. The specific CCCTB proposals are not yet drafted or agreed, however the potential implications for Ireland going forward are clear.

Ireland's corporation tax rate has risen above purely an economic strategic decision to almost 'sacred cow' status among the general populace. Any hint of changing this policy would have severe economic and domestic political implications. The Labour Party has correctly taken the position it will not change the 12.5% (which Ruairi Quinn secured as Minister for Finance).

However, the Labour party is a strongly pro-European party which believes in supporting fully the implementation of the Lisbon strategy and boosting the functioning of the Internal Market, to the benefit of all Europeans. The essence of modern social democracy means that co-operation is often better than competition. Over the longer term, our future lies in Europe, and our economic wellbeing depends on European economies working well together, as we compete with emerging giants like China and India. Longer term, Labour needs to examine the following questions regarding Ireland's future economic strategy:

– It looks increasingly likely CCCTB will proceed, if albeit under the enhanced co-operation mechanism. If only a small number of countries stay outside and the CCCTB becomes the defector standard across the EU, as IBEC points out, many large multinationals will have a tough choice of whether to re-locate to cut compliance costs. Does our planning take account of this risk?

– Ireland has played its diplomatic cards very well over the years in Europe and in the US (until the vote on Lisbon of course!). Much of that success was based on goodwill toward Ireland and the relative Irish economic underdevelopment. Billions of Deutschmarks and Dollars were invested in Ireland. Much of the money was given in the name of solidarity. Today, as a rich country, is Ireland happy to undercut its neighbours in tax-revenue terms? Will this policy undermine future diplomatic and economic relations?

– With widely published concerns about lost tax revenue to Ireland from the US Treasury, from certain European capitals and even the UK's Inland Revenue, can a small country indefinitely maintain such a low-tax policy?

– The Celtic Tiger was build largely upon an export economy (albeit mainly FDI sourced). Today, the construction and consumer sectors are the drivers of the Irish economy. Are these the sustainable foundations of a real knowledge-based economy?

Aidan O'Sullivan (PES Activists Dublin)

* This paper is NOT Labour Party policy, and not PES Activists Dublin opinion but a solely a personal analysis.

Tags: economie, Irelande, Taxes, UE