Revised plans to make sure companies operating in the EU pay tax in some jurisdiction in the union got a mixed reception after the European Commission outlined the details.
While the commission insists the plans would not interfere with each country’s right to decide its own corporation tax rate, they will affect how much tax will be collected by member states.
The main elements are a common corporate tax base that would harmonise what companies can offset against tax throughout the EU, a revised transfer pricing system, public disclosure of certain tax information by firms on a country by country basis, and stricter rules for preferential tax regimes.
It will also introduce an EU blacklist of countries seen as tax havens — Ireland is one of 13 countries that does not have such a list.
The proposals will affect Irish-based multinationals that have been able to shift profits to low or no tax countries and to cut their liability through transfer pricing, with one company branch charging another for things like components or intellectual property.
Brian Hayes, Fine Gael MEP, was critical of the proposals for the common tax base: “This will not curb the large divergences between effective corporate tax rates and headline corporate tax rates which exist in many EU member states. Ireland’s transparent tax regime ensures that our effective corporate tax rate remains close to the headline rate.”
Others accused the commission of watering down its original plans and putting off taking action by not producing draft rules until next year. Member of the left GUE/NGL group MEP Fabio De Masi who sits on the committee looking into governments’ collusion with multinationals on tax said they were “kicking the can further down the road while citizens were losing up to €1tn a year through tax avoidance and evasion”.
The Government welcomed the plan and said it looked forward to working with the commission and EU states in processing the individual elements but that global action was needed.
Economics commissioner Pierre Moscovici said he discussed the measures with Finance Minister Michael Noonan when in Dublin recently and he believed there was “room for discussion” on the new proposals.
He acknowledged that Ireland was completely against one aspect of the original plan for a common corporate tax base, that of consolidation, which was omitted from the new document but which Mr Moscovici said it would be pursued later.
Consolidation means all profits and losses from the companies of a group in different member states would be added up, to reach a net profit or loss for the group’s entire EU activity. Based on this net figure, the common rules would be used to decide the group’s final tax base.
Next year will see publication of the draft, which would see a single set of EU rules on what is allowed to be offset against taxable income, such as the duration of asset depreciation or entertaining expenses.
On transfer pricing responsible for 70% of profit shifting, the commission plans to set up a database of comparable prices for goods and services sold between entities of the same group to try to match market price.
This is one area where Ireland’s multinationals have infuriated other countries and Apple’s pricing of its intellectual property is one aspect under review by the Commission.
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