The European Commission has announced fresh plans for a unified corporate tax code to prevent member states from competing against each other on tax or offering so-called sweetheart deals to companies.
The commission's "Business in Europe: Framework for Income Taxation" bill (BEFIT) proposes a single tax rulebook for companies trading in Europe.
It contains a new formula for the allocation of taxable profits between member states, which would significantly erode Ireland’s corporate tax base that now accounts for more than 20 per cent of total tax receipts here.
The plan would see a company’s profits and losses from EU sales added up to produce a net profit for all of its EU activity. That would then be distributed across EU member states based on the company’s sales, assets and employment in those countries. This would give bigger states more rights to levy tax on income earned in their territories.
The commission's latest bid for greater alignment on tax goes significantly further than the reforms currently being considered by the Organisation for Economic Co-operation and Development (OECD) and is likely to be strongly opposed by the Irish Government, which has been at loggerheads with Brussels over tax for more than a decade.
The commission also wants large companies operating in the EU to publish their effective tax rates to ensure greater transparency. There are also proposals for new anti-tax avoidance measures to tackle the abusive use of shell companies.
The commission’s plan replaces its previous proposal for a Common Consolidated Corporate Tax Base (CCCTB) and comes amid mounting pressure on multinationals, particular in the tech sector, to pay more tax.
The commission is also planning proposals for a digital levy on big tech companies that would hit the earnings of Google, Apple, Microsoft and Facebook who use Ireland as their European base.
European Commission vice president Valdis Dombrovskis said the move would "set the foundations for a corporate tax system in Europe that is fit for the 21st century".
“Taxation needs to keep up to speed with our evolving economies and priorities. Our tax rules should support an inclusive recovery, be transparent and close the door on tax avoidance”, he said in a statement.
The Department of Finance noted that the European Commission's proposals, saying they would be "carefully examined".
“It is important to recall that the Programme for Government includes a clear commitment to the 12.5 per cent corporation tax rate and recognises that taxation is a national competence,” it said.
“Ireland is focused on achieving a global agreement this year at the OECD on reframing the international tax rules. This is the priority for Ireland, and we have a long standing position that addressing aggressive tax planning is a global issue which requires a global agreement,” it said.
The commission’s plan comes in the wake of a US proposal for a minimum rate of 21 per cent on the international earnings of US companies, which is way above the Irish rate.
At a recent event on tax, Minister for Finance Paschal Donohoe expressed reservations about the possibility of a global minimum corporate tax rate, suggesting that small countries "need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries".