CHANCELLOR ANGELA Merkel’s ambitious plans for an EU “competitiveness pact” have begun to falter, with divisions in her own cabinet adding to growing resistance in other EU capitals.
Her coalition government is divided over ambitious plans to introduce a common consolidated corporate tax base (CCCTB) for companies operating in the EU.
Dr Merkel has the backing of her own Christian Democrats (CDU), even if the plan falls short of their original ambition to force Ireland and other member states to increase corporate tax rates.
Removing that demand from the cabinet table has cleared the way for the backing of the pro-business Free Democratic Party (FDP) economics minister Rainer Brüderele. "The tax rates should remain variable," he told the influential Frankfurter Allgemeinedaily yesterday. "However, the question of what we understand by profit, we should be answered the same across the EU."
Under CCCTB plans, companies operating across the EU would have their tax bills calculated centrally, under one set of rules, with profits shared by member states according to the size of the business in each country.
Mr Brüderele said such a reform made sense because, at present, “a businessman looking for a new location for a factory cannot reach a conclusion about the competitive tax conditions”.
After over a decade of EU talks, meetings, papers and non-papers, German experts have questioned the feasibility and wisdom of trying to fast-track a deal on CCCTB. After endless tinkering with Germany’s own corporate tax, many politicians here have little appetite for anything that puts at risk one of their most important sources of income.
“I wouldn’t have very high expectations about the competitiveness pact, in particular the idea of a consolidated corporate tax base,” said Dr Thomas Silberhorn, European affairs spokesman of the Christian Social Union (CSU), Bavarian sister party to Dr Merkel’s CDU. Dr Silberhorn says the CSU is “sceptical” of the chances of reaching agreement in a short timeframe given a “plethora” of questions.
“This model could bring with it serious drawbacks, depending on how it’s set up, and I’m not thrilled at pressure for consensus on such a disputed topic just because someone needs a project for economic co-ordination,” he said.
Observers suggest Dr Merkel’s corporate tax strategy – along with the rest of her “competitiveness pact” – will be of little EU-wide significance and is more for domestic political consumption.
“The common consolidated tax base is a very malleable topic that lends itself to good political point-scoring,” said Dr Thilo Schaefer, finance political spokesman of the Cologne Institute for Economic Research.
Rather than rush a consensus, he suggests Dr Merkel is looking to return home from Brussels with something that supports her idea that Germans have got something in return for their euro-zone bailout solidarity. “At the very least,” he said, “a promise that, when the rescue measures end, things won’t continue as before with risks taken by bankers paid for by third parties”.