EU plan for common tax base greeted with caution

A PROPOSAL to allow multi-national companies to use a common EU base for corporate taxes was condemned as the thin end of the tax harmonisation wedge by government and business yesterday.

A paper issued by the European Commission, to be debated at a meeting of finance ministers in Holland in September, does not suggest harmonising corporate tax rates.

But it makes a case for harmonising the method by which tax would be calculated and proposes that companies with branches in different member states could save on administration by availing of a common EU system.

It also says that having a harmonised system would also cut down on fraud by companies with operations in more than one state.

However, a spokesperson for Finance Minister Charlie McCreevy said yesterday that Ireland is firmly opposed to harmonising the tax rates or the tax base.

Chief Economist with IBEC David Croughan said it could be the thin end of the wedge and would lead more easily to harmonising tax rates.

Mr McCreevy and the British Chancellor Gordon Browne have been joined by a number of the new EU member states in opposing any attempt by the EU to stipulate either a minimum rate of corporation tax or impose harmonised rates.

A spokesperson for Taxation Commissioner Frits Bolkestein said he was firmly against harmonising tax rates as he wished to encourage competition.

However, France and Germany, both high corporate tax countries fearful of losing investment to the new member states, are anxious to impose a minimum corporate tax rate.

“France and Germany appear to have hi-jacked the Commission paper for their own ends. The Commissioner is not proposing to harmonise the tax rates, he would prefer to see competition, but he does believe that to have competition there needs to be a common tax base”, said Mr Bolkestein’s spokesperson.

A small group of countries could agree to operate a common tax rate under the enhanced cooperation arrangement. However member states opposed to this believe they could veto such a proposal.

The paper adds that an optional system leaving companies the choice between the existing national base and a common EU tax base presents a number of practical advantages. Applying the new system in parallel to existing national bases would avoid a potentially risky “big bang” changeover, leaving more control with states.