Common tax base proposed for EU by Brussels

The European Commission is to propose a mandatory common corporate tax base next month as part of a wide-ranging clampdown on corporate tax avoidance.

Under a discussion document to be looked at by EU commissioners in Brussels today, and seen by The Irish Times, the European Commission is proposing that a mandatory common corporate tax base be introduced on a staged basis, though the "consolidation" element of the proposal will be postponed. The revised proposal will be presented within 18 months, when it then must go to member states for approval.

The idea of a common consolidated corporate tax base (CCCTB) has been circulating for years in the European Union but a 2011 proposal failed to garner sufficient support from member states. But the Luxembourg Leaks scandal, which shone a spotlight on how countries use tax rulings to attract multinationals to locate their tax base in their countries, has increased public pressure on the EU to clamp down on corporate tax avoidance.

The proposal comes a day before a European Parliament committee set up to examine tax rulings travels to Dublin. Representatives of the committee will meet Minister for Finance Michael Noonan, members of the Finance and European Affairs committees, and officials from the Irish Tax Institute and financiers.

The proposal for a CCTB, to be considered by EU Commissioners today, is that the “consolidated” element of the initial CCCTB proposal, which deals with how profits and losses are treated across countries, be omitted. The discussion document says that by postponing consolidation “losses can be carried forward and offset against current and future profits only within the same country”.

Transfer pricing

The proposal also aims to tighten up transfer pricing rules, to ensure that transactions within a cross-border company are taxed based on a comparable market price.

“The current rules for corporate taxation no longer fit the modern context,” the document states. “ Corporate income is taxed at national level, but the economic environment has become more globalised, mobile and digital.”

The proposal for a common corporate tax base, which would streamline the way companies calculate and allocate their profits, is the latest effort by the European Commission to clamp down on corporate tax avoidance.

In March the Commission announced new disclosure rules which will oblige countries to share information about tax rulings with other member states and the EU’s top commissioners have vowed to move the EU towards greater tax harmonisation.

Competition

Separately, the European Commission’s competition arm is investigating a number of EU countries – including

Ireland

, Luxembourg and the

Netherlands

– for their use of tax rulings, or ‘comfort letters’, offered to companies.

A European Commission spokesman declined to comment on reports in Germany business daily Handelsblatt that the EU is considering introducing minimum rate of tax on companies across the European Union, saying that today's discussion is an "orientation debate".

Ireland is one of a number of countries opposed to greater harmonisation of EU tax rates or bases arguing that it is a national competency of member states. While generally EU tax legislation needs the unanimous approval of member states, other taxation measures, such as the Financial Transactions Tax are progressing through the EU legislative system through a process known as “enhanced cooperation” which allows a sub-set of member states to proceed with legislation if they have a required majority.

Ireland has long argued that other EU countries offer a lower effective tax rate than their actual corporate tax rate.