Euro Tax Plans Are on the March

Article by Brian Hayes MEP which appeared in the Sunday Business Post on 7th December 2014

I’ve heard it said in Brussels that by far the most dangerous time is that six month period between the election of a new Parliament and the appointment of a new Commission. It’s dangerous because the EU’s permanent government, the Commission, have to dream up a new agenda for their soon-to-be appointed political masters, the Commissioners. Six months is a long time for a lot of clever people to develop an agenda.

I’m also told from reliable sources, that if the permanent government hasn’t got any new ideas, often older plans are served up. That is why it’s no surprise that our old friend the Common Consolidated Corporate Tax Base or CCCTB has been brought back to life in recent days.

The CCCTB is in short Europe’s attempt to harmonise corporation tax by the back door, creating a consolidated tax base across Europe for groups of companies.

Sounds great in principal. Corporation tax is gathered together and then distributed out to member states based on a complicated set of criteria.

As they say the devil is in the detail. And all of the detail we know thus far points in one direction – that the biggest countries have everything to gain while countries like Ireland and other small countries could be the big losers.

Just as in life, as is true in the collection of tax;  scale is everything. That’s why we have to box clever on this one. When this was mooted in 2011 the proposal received a very cool reception and has been largely forgotten about since. Remember the spat between Enda Kenny and former French President Sarkozy in 2011?

Are we to take anything from the fact that the idea has resurfaced by way of a letter, amongst other proposals, from the French, Germans and Italians to the new French Commissioner Pierre Moscovici? Is it really on the agenda or is it just a deliberate distraction from the Lux Leaks story which has distracted the first month of the Juncker Commission. Is CCCTB back on the table?

If countries cannot decide their own tax policies on both the income and corporation side, there is little point in having sovereign states. Little point in having national parliaments. The EU Treaties make it clear that Corporation Tax rates are not a Community competence, it is for Member States to decide. The principle of subsidiarity allows Member States to keep taxation under national legislation. The role of the Commission is to uphold the Treaties, without fear or favour!

Frankly speaking I’m just a little fed up of listening to the recent “tut tutting” from larger Member States towards small countries. One wonders if our tax rate was 30% and the French rate was, say, 15%, would CCCTB be on the agenda right now? Tax competition between countries is good for Europe and good for European investment. Tax competition keeps Europe on its toes and makes sure that businesses stay in Europe.

We have nothing to be ashamed about given the clarity of our corporation tax rate and in our success in attracting and keeping international business in Ireland. It is a key factor, but not the only one, in helping to grow our economy.  Could Ireland have the rate of growth this year, the best in the Eurozone, if we had not been a highly international economy? This year corporation tax generated about €4.5 billion, close to 11% of the total tax take.

What is really dishonest is the way that the Commission frequently forgets that the rate of 12.5% was harmonised because of the insistence of the EU Commission in the first place. They claimed that our previous system of having two different taxes was a distortion of competition.

Anyway why did George Osborne recently announce that Northern Ireland would have the power to set its own corporation tax rate? Because competing with us is good for Northern Ireland and good for the Island as a whole. A closer tax system between North and South simplifies things, encourages more Foreign Direct Investment and makes us more competitive.

Unlike many EU countries our effective rate of corporation tax is extremely close to the headline rate. Can that be said of France? The headline rate sounds great until you make all those local discounts and that’s where much of this debate is lost.

Ireland has legacy issues on tax – issues that have affected our reputation abroad. That’s why Michael Noonan was right to bring to an end the “Double Irish”. Right to embrace the OECD agenda of international corporate tax reform. Right to be one of the first to sign the new US FATCA tax arrangement where tax authorities automatically exchange information. Last week Michael Noonan set out in a speech to the IIEA in Dublin his view that the new international campaign to tackle aggressive tax planning by large corporates must not be about advantaging big countries over small countries. By taking the lead in cleaning up our act, we have sent a clear message to the world on corporate enforcement. It was very much in the realm of first mover advantage.  “Ireland will play fair but will also play to win” so said the minister with the best political antenna in the business.

It’s absolutely right that large international corporates pay their tax in a transparent and upfront way. Europe is rightly determined to meet and implement the new international standards that are slowly catching up with the new digital economy. But blaming small counties for this when bigger countries have turned a blind eye for many years is quite frankly a bit rich.

So in the midst of all this activity in Europe, at the OECD and in Ireland, we are left with the question – is our corporate tax system safe from the preying eyes of our big brothers in Europe? Probably yes but we need to be vigilant at all times and make no apology in defending our position. On the issue of personal and corporation tax policy I have a simple view of the world – what we have we hold.

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