Cantillon: The intricacies of the CCCTB proposal is a subject people don’t usually enjoy

Apparently, it’s just like taking candy from a child


Taxing multinationals and the intricacies of the European Commission’s proposed common consolidated corporate tax base (CCCTB) proposal, are not the type of subjects that tend to bring smiles to people’s faces, but Ronald Davis, professor of economics at UCD, made a good stab at bringing some levity to the proceedings of the tax and economics conference in Dublin yesterday organised by the Department of Finance.

Say you give two children a load of sweets, outside, the house, and tell them they can come in the front door or the back door. At the front door will be dad, collecting one sweet in 10, and at the back door will be mam, collecting half of all sweets being brought in. One child must come in through each door.

The children will soon work out that it is in their interest to have one child carry all the sweets in through the front door, for sharing once they are inside the house. Prof Davis knew this was so, because he had tried it.

He told the story to illustrate how multinationals approach the global tax system as it currently stands.

If the CCCTB proposal was brought in, the tax collected from multinationals would be assigned to the different jurisdictions in which a company operated, using a formula that took into account the sales in the jurisdictions concerned, the number of staff in each of the jurisdictions, and so on.

In other words, no matter what door the sweets were brought through on their way into the house, they would be put on the table and then apportioned between the two adults.

The conference heard that lower corporation tax rates have a strong effect on the allocation of foreign direct investment, but Prof Davis said that the CCCTB proposal would also influence multinational decision-making.

For instance, he said, as the formula to be used to apportion the tax take among the jurisdictions in which multinationals operate, includes the workforce a particular multinational has in each country, the system would create an incentive for some companies to shift their labour force from countries with a higher corporation tax rate, to ones with a lower corporation tax rate. Or, as the professor said, from Germany to Ireland.

Perhaps the CCCTB proposal is not such a bad one after all.

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