July will see a new push for proposals to introduce a European Common Consolidated Corporate Tax Base (CCCTB).
CCCTB was most recently debated in 2011, but did not get sufficient support from EU member states at the time.
So, what exactly is it?
The CCCTB would bring in a single set of rules for companies operating within the EU to calculate taxable profits. So, instead of complying with different national systems for each member state a corporation operates in, taxes would be filed under one Europe-wide system, consolidating profits and losses incurred across the EU. This is said to provide a cheaper, more straightforward way for business to operate across Europe, and also to avoid manipulating systems by channelling taxable profits through member states with lower rates.
Why is CCCTB being proposed again?
It is believed that the Luxembourg Leaks scandal put the spotlight back on the way that corporate tax is calculated and administrated in Europe, and many feel there needs to be a more level playing field to attract foreign direct investment. However, It’s not just simplification and anti-avoidance that are concerns – the aim is to bring current rules up to date with an increasingly global, digital and mobile economy.
Is it likely to be introduced?
This remains to be seen. While there remains some opposition to the proposals, this does not mean it shouldn’t be treated as a real possibility, according to KPMG. Elsewhere, economist Conall Mac Coille believes the proposals to be ‘dead in the water’ as he sees them to be driven more by politics than economics.
Justin McCarthy of the Professional Risk Managers’ International Assocation (PRMIA) explains that “as the earlier proposals were to leave corporate tax rates to each country, the CCCTB raised only a small amount of interest for EU members like Ireland. With corporate tax rates now being discussed as part of proposals, support may vary across different EU members and this may impact on if the proposals can be considered.”
How will CCCTB affect Ireland?
As the proposals stand, Ireland is opposed to the introduction of CCCTB. Taoiseach Enda Kenny made a statement earlier this year saying the plans were ‘unworkable and unfeasible’. However, Kenny did suggest they would be willing to enter conversations on a revised set of proposals and engage constructively, and the Republic has been urged by the European Commission to keep an open mind on the issue.
McCarthy believes that if CCCTB becomes a reality, Ireland needs to adjust its thinking about how it attracts foreign direct investment, and realise the strong environment it has already created.
“One can imagine some larger members seeing this as a way to remove a perceived advantage being taken by smaller members like Ireland. Ireland may now have to move beyond a value proposal for foreign direct investment that is based on a low corporate tax rate. With over 100,000 employees already working in Irish based foreign multinational, Ireland can demonstrate that it has developed a critical mass of such operations and can be seen to be an ideal location to provide highly skilled staff at a cost much lower than London or New York. In addition with a young, well educated work force, these jobs can be performed with less of the quality issues that have emerged in other off shore locations that are perceived to be cheaper.”
Kayleigh Ziolo is a freelance journalist and writer based in Ireland.