France & Germany to Push for Tax Harmonization

France & Germany to Push for Tax Harmonization

Several media outlets reported this week that France and Germany are working together to eliminate the loopholes that have made it easy for US tech giants like Apple, Google, Amazon, Facebook and others to avoid paying taxes in the region.

French Minister of Finance Bruno Le Maire announced this week that France would be pushing to simplify tax rules and help European companies carve out a bigger market share versus the American tech juggernauts.

According to Denis Kolberg, a spokesman for the German Ministry of Finance, Germany will join this effort and discuss more specific proposals following the country’s national election to be held on September 24th.

Le Maire, who vowed to present these reforms during a September meeting in Finland involving European Union officials, said, “Europe must learn to defend its economic interest much more firmly -- China does it, the U.S. does it…You cannot take the benefit of doing business in France or in Europe without paying the taxes that other companies -- French or European companies -- are paying.”

As reported by Francois De Beaupuy, Caroline Connan and Geraldine Amiel for Bloomberg Politics, “The push reflects mounting frustration among some governments, regulators and, indeed, voters, at the way international firms sidestep taxes by shifting profits and costs to wherever they are taxed most advantageously -- exploiting loopholes or special deals granted by friendly states.”

Furthermore, this move is part of French President Emmanuel Macron’s effort to harmonize taxes across Europe and encourage other countries to raise their corporate tax rates.

Macron has declared already that he will drop the country corporate tax rate to 25 percent in pursuit of said harmonization.

On this front, Le Maire said, “The objective is a common corporate tax with Germany in 2018 which should be the basis for a harmonization at the level of the 19 member states of the euro zone.”

France & Germany’s Tax Harmonization Plan

Will European Union Follow France & Germany’s Tax Harmonization Plan?

It will be very interesting to see how this tax harmonization effort plays out considering the importance of low corporate tax rates to EU members like Ireland, Liechtenstein, Malta and Cyprus.

Gavin McLoughlin, writing for Irish Independent, says, “the move puts Irish officials in a tricky position” considering that “the 12.5pc tax rate is an important pillar of our economic model which is heavily reliant on foreign direct investment.”

McLoughlin then recommends Ireland to set forth different strategies “when it comes to advancing Ireland's interests within the bloc, and relationships with those countries that remain take on an added importance.”

An Irish government spokesperson, however, when asked about this recent tax harmonization development, said Ireland considers OECD’s BEPS project to be “the standard approach for dealing with international tax reform.”

“At EU level, we have been engaging constructively with the relaunched CCCTB but...our initial view is that the proposal for a CCCTB would narrow our base. We will continue to explore ways to keep the Irish system attractive, in a way that meets new international standards,” the spokesperson added.

Furthermore, Den Howlett of Diginomica does not see how tax harmonization will work.

“Tax harmonization in Europe might sound great in theory but just as we have seen in the the recent past, economic differences among nation states make even a holding of the line on debt extraordinarily difficult. It is, for example, a stretch to imagine that countries like Portugal, Italy, Greece and Spain – the so-called PIGS (or PIIGS if you include Ireland) are likely to agree following the hardship effectively imposed by Germany in the 2009-15 bailouts,” Howlett writes.

“Quite how France thinks it will harmonize with Germany is a mystery given that Germany imposes combined corporate tax rates of 30-33%. Even if France gets that far, anyone in France genuinely believing that tax policy alone is the arbiter of success is tilting at Quixotic windmills,” he adds.

What are your thoughts on France and Germany’s tax harmonization initiative? Will it ultimately work?

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