EU harmonisation push tipped to shrink Irish corporate tax take

The EU has launched a corporate tax clampdown that could hit Ireland’s tax revenues.

The proposed consolidated corporate tax base (CCCTB) is the latest salvo in Brussels’ battle against multinational tax avoidance.
It contains a new system for calculating corporate taxes in Europe and a formula to decide where those taxes should be paid.

Tax rates will not be affected – the Taoiseach has said repeatedly that Ireland’s 12.5pc is “not up for grabs” – but the rules could affect our corporate tax take.
EU tax chief Pierre Moscovici said the Commission is “addressing the concerns of both businesses and citizens in one fell swoop”.

“The many conversations I’ve had as Taxation Commissioner have made it crystal clear to me that companies need simpler tax rules within the EU. At the same time, we need to drive forward our fight against tax avoidance, which is delivering real change,” Mr Moscovici said.
The proposal resurrects a 2011 scheme that foundered during talks between EU finance officials, who found the draft too complex and feared it strayed too far into national tax sovereignty.

The Commission estimates the rules could add 1.2pc to EU growth and boost total investment in the bloc by 3.4pc, via incentives such as cross-border loss relief, a R&D tax credit and deductions for equity injections.
But Peter Vale, a tax partner in Grant Thornton, said the rules would have “a significant impact on a small economy such as Ireland as they would see a major reallocation of taxable profit and erode the benefit of our low 12.5pc tax rate”.

Tax matters are always a sore subject for Ireland abroad, with the Taoiseach last week recalling how he was bawled out by France over the 12.5pc tax rate at his first EU summit in 2011.
The proposals also come at a difficult time for the Government, following the Commission’s decision on Apple.

German MEP Burkhard Balz, a member of Chancellor Angela Merkel’s ruling Christian Democratic party, said countries who oppose the new rules are dishonest.

“States who oppose these new rules want to base their economies on taking bread out of the mouths of others,” said Mr Balz, who sits in the same EU parliamentary grouping as Fine Gael. The proposals require the unanimous sign-off of all EU countries, and the Government will not be alone in its opposition.
Denmark, Sweden, the Netherlands and Poland were sceptical last time around, while Belgium has just begun a separate overhaul of its corporate tax rules that it won’t want to complicate.

Malta, which will take over the EU’s rotating presidency in January, was also opposed to the 2011 draft, as was Slovakia, which holds the current six-month presidency.
It remains to be seen how the UK, which opposed the 2011 proposals, will react.

Pierre Moscovici appealed to EU finance ministers yesterday to “look at this ambitious and timely package with a fresh pair of eyes”.

CCCTB goes much further than the OECD’s Beps (base erosion and profit shifting) rules, which targeted individual tax loopholes and is supported by Ireland.
“Crucially, this goes to the core issue of the tax base for countries, probably more substantially than Beps does,” said Fergal O’Brien of the Irish business and employers’ federation, Ibec.

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