Speaking at an IIEA event in Brussels entitled ‘Ireland’s corporate tax regime and possible future game changers from within EU27 and outside’, Brian Hayes MEP this evening said that it is becoming increasingly obvious that the European Commission’s hard-line approach to corporate tax issues is not working.
“If one considers the European Commission’s headline taxation proposals in recent years – the Common Consolidated Corporate Tax Base (CCCTB), Financial Transaction Tax (FTT) and the digital tax – they have all failed to get support from a majority of Member States.
“The EU’s hard-line approach of trying to force a shift of corporate tax revenue from smaller Member States to bigger Member States is wearing thin on several countries, particularly Ireland. There is no denying that the Commission and some Member States do not like our open and transparent corporate tax system. That will not change.
“Given that the hard-line legislative approach has not worked, there’s no reason why the Commission cannot take a new approach to corporate taxation issues, especially around setting out what tax measures are good for jobs and investment and what are not.
“The best way that the EU can achieve fairness in corporate tax matters may be through an annual process of EU Country Specific Recommendations (CSRs) on corporate tax policy. This would be a non-binding approach where the Commission would annually look at each country’s corporate tax policy and make recommendations on how improvements could be made.
“Currently, the Commission conducts a CSR process from a macroeconomic perspective which does assess some taxation elements. However, a CSR process that specifically focuses on corporate tax issues may give clarity to Member States. The OECD carries out a similar process and its recommendations are a useful benchmark for Member States.
“For some time, the Commission has pushed for a campaign to reform the EU’s corporate tax system but it is often unclear what practices the Commission is aiming to tackle. There is nothing stopping the Commission from providing clear guidelines to Member States on what it believes is fair and unfair. Nobody wants a race to the bottom in corporate tax policy. That’s why with clear EU guidelines, we could have explicit benchmarks which Member States could work towards.
“This would be a useful way of stamping out harmful tax practices in all Member States. It would be a way of addressing why in some Member States, the headline corporate tax rate is so different to the effective corporate tax rate. The Commission may well have more effect in rooting out harmful tax practices in Member States as a persuader rather than trying to create a corporate tax super state.
“There is a principle that we must not forget in all this – Member States are the ones that retain control when it comes to legislating for corporate tax matters. This has always been the case and it should remain that way.
“Additionally, taxation matters are still and always have been subject to a unanimous vote at the European Council. This means that Ireland on its own has the power to veto any piece of EU tax legislation and does not require the backing of any other Member State.
“We know our red lines on corporate tax and we will stubbornly defend our right to set corporate tax rates. There will always be various Member States lining up to take a slice of Ireland’s FDI success.
“Moving ahead of the OECD on this issue creates the idea of an EU that appears to be unwilling to work at an international level to tackle aggressive tax planning. Much has been achieved in recent years in clamping down on unfair tax practices by the largest of multinationals, and much more remains to be done. But driving investment out of Europe is not the way to achieve. Europe needs to remain competitive and open for business.”