EU corporate tax plan could isolate Ireland politically

EU regulators have renewed a push to create a common base for calculating taxable corporate profits with draft legislation that threatens to isolate Ireland politically as the UK prepares to quit the bloc.
EU corporate tax plan could isolate Ireland politically

The European Commission proposed a single method for multinational companies to calculate income to avoid the cost of complying with different rules in each EU country where they file a return.

Tax rates would remain in national hands under the draft law on a common consolidated corporate tax base, which the commission said could cut companies’ compliance costs by 2.5%.

An earlier common consolidated corporate tax base proposal from 2011 failed to muster the unanimity needed among EU governments largely because of opposition by the UK and Ireland, which have opposed a common European tax base for fear it would open the door to a harmonisation of rates.

With Britain preparing to leave the 28-nation EU, the fresh proposal risks leaving Ireland on its own when national governments restart deliberations on the details.

“With the rebooted common consolidated corporate tax base proposal, we’re addressing the concerns of both businesses and citizens in one fell swoop,” European Economic Affairs Commissioner Pierre Moscovici said yesterday in Strasbourg.

“Companies need simpler tax rules within the EU. At the same time, we need to drive forward our fight against tax avoidance.”

Traditionally contentious because they impinge on national powers and often futile because they require unanimous EU government support, European tax initiatives may get a boost from the UK’s vote to leave the bloc.

For Britain in particular, European tax plans over the years have been deeply unwelcome because they are politically toxic domestically.

The commission denies the common consolidated corporate tax base would be a first step toward harmonised rates, arguing the goal is less red tape and more transparency.

Reactions in the European Parliament to the new common consolidated corporate tax base push highlight the political constraints on national governments facing a populist backlash against multinational corporations and globalisation.

“The first, indispensable and most important thing to do if you want to tackle the problem of corporate tax avoidance is to harmonise the tax base,” said Burkhard Balz, a German member of the EU Parliament’s Christian Democrats.

“States that oppose these new rules want to base their economies on taking bread out of the mouths of others.”

The latest common consolidated corporate tax base proposal differs from the 2011 plan in two main ways.

Whereas the system under the previous plan would have been optional, the current draft rules would make the common consolidated corporate tax base mandatory for companies with global sales of over €750m a year.

This reflects a heightened push to crack down on tax avoidance.

Second, the new proposal creates a two-step approach in which initial agreement will be sought on the “common base” and an accord on the “consolidation” elements would follow.

This stems from the political sensitivity of consolidation, which would allow companies to file a single tax return for all their EU activities.

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