Regional Corporate Tax Regime

EU to Revisit Regional Corporate Tax Regime

In an effort to further curtail tax avoidance, the European Union will revisit several proposals aimed at creating a regional corporate tax regime that would apply to all Member States.

According to The Guardian, the plan is to “subject companies to a single set of rules for calculating their taxable profits” and it would apply to “corporations with annual turnover of more than €750m (£670m) and which are tax-resident in a European country.”

More specifically, the proposed legislation consists of two distinct items—the development of both a common corporate tax base (CCTB) and a common consolidated corporate tax base (CCCTB).

The common corporate tax base would create a unique and different methodology by which to “[calculate] where a company actually makes its money…based on three equally weighted factors: assets, labour and sales.”

The consolidated corporate tax base, which will not be addressed until work on the first is finalized, “would put a single member state in charge of collecting all European taxes due from a particular company” with collected revenues being  “shared among the other member states according to where the profits were made.”

The idea per a EU spokesperson is to simplify tax reporting and collection for large-scale businesses without them losing some of the breaks they already benefit from.

According to Sarah Collins writing for The Irish Independent, for instance, companies “will still be able to write off expenses, including research and development costs,” “carry losses forward indefinitely, without restrictions on the deductible amount per year,” and “enjoy temporary tax relief on losses made by their subsidiaries.”

Collins also reports that if these plans succeed, they would “end the practice used by US tech giant Apple of booking all of its European sales through its Irish subsidiaries and paying most of its taxes here” and essentially “outlaw the practice of transfer pricing.”

Ireland Reacts to EU’s Corporate Tax Plans

Ireland Reacts to EU’s Corporate Tax Plans

Overall, Irish politicians expressed their concern over the EU revisiting these proposals to establish a regional corporate tax regime.

Brian Hayes, an Irish MEP, referred to this revamped European Commission initiative as "the right approach" to tackling tax avoidance.

However, Hayes also said the plan to consolidate the tax base takes things “a bridge too far and effectively represents wide-scale tax harmonisation through the back door,” adding that “consolidating a multinational's profits across its entities in different member states according to a complex formula is not the way to proceed” since it “cuts across how member states set their tax rates and policy and is a roundabout way of addressing cross-border tax losses."

Michael McGrath, Financial Spokesman for Fianna Fail, the Irish Republican Party, took this position a step further and urged Ireland to defend itself from this EU initiative.

“The government should engage constructively with the proposals but not be afraid to fight Ireland’s corner in defending our 12.5 per cent corporate tax rate, which is non-negotiable,” McGrath said.

“With Brexit and the Apple case already putting pressure on our industrial strategy, we need to assert the rights of smaller member states to determine their own taxation regimes,” he said, adding that Ireland “must be able to compete with other countries to attract and retain foreign direct investment, which already sustains 187,000 jobs across all of Ireland.”

A similar initiative was proposed back in 2011 but EU Member States rejected it.

Is this set of proposals another EU pipe dream or would it actually work? Let us know in the comment’s box!

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