Ireland braced for new EU corporate tax plan

A new EU corporate tax proposal could fundamentally change how multinationals pay their tax bills in Ireland.

It comes at a sensitive time for the State, following so closely after the commission ruled phone giant Apple tapped illegal tax breaks worth around €13bn.

In proposals to be unveiled tomorrow, the commission will suggest a common way for large firms to calculate taxable income in the EU, including deductions and credits.

The proposals, seen by the Irish Examiner, also suggest how multinationals’ combined EU tax take should be shared around the bloc, depending on sales, payroll and assets.

Tax rates will not be touched, and the new rules will apply only to groups with combined annual revenues of more than €750m. 

Brussels is on a mission to prevent multinationals from exploiting national tax loopholes, and has already brought in a raft of measures to tackle so-called profit shifting, a process designed to reduce their tax bills.

To date, the crackdown has been based on forging international standards agreed by the Organisation for Economic Cooperation and Development. 

But tomorrow’s proposals go further by eliminating transfer pricing, a way of booking profits and losses within a group, which the EU believes is a tool for tax avoidance. 

The draft, known as the common consolidated corporate tax base (CCCTB), is a rehash of a 2011 proposal that failed to get off the ground.

But the leak of the Panama Papers and other offshore tax scandals have bolstered support for a further tax clampdown.

By splitting the proposal into two parts — a common tax base first and consolidated tax bills only later — the commission is able to delay the most controversial elements. 

It says the rules will make life easier for large companies, who will have to file only one tax return within the EU.

And it believes a new research and development tax credit, deductions for capital injections and the indefinite carryover of losses make the draft more “business friendly”. 

Ireland has always opposed a CCCTB over fears it would reduce tax certainty and sovereignty. 

Taoiseach Enda Kenny said last week the Government would “debate these things constructively” and that Ireland’s “12.5% corporate tax rate is not up for grabs”.

Many other countries, including Sweden, the Netherlands, the UK and Poland, also opposed the 2011 draft over fears it would reduce their tax take and harm their economies. 

Estonia, Belgium and Denmark are also likely to raise objections this time. Estonia has a different tax system from the rest of the EU, while Belgium has just begun a massive overhaul of its corporate tax regime.

The Danish tax minister said earlier this month he would consider leaving the EU over a CCCTB plan. Malta, which will hold the EU’s rotating presidency from January and steer talks on the draft, also raised objections a few years ago. 

Fine Gael MEP Brian Hayes believes there is “no chance” of the consolidation part getting through, and that Ireland might even benefit from a common tax base. “

There are more problems for bigger member states in agreeing this than there are for Ireland,” he told the Irish Examiner. 

“I don’t think we have anything to worry about.”

The proposals require the unanimous approval of all 28 EU finance ministers before they become law.

From Irish Examiner (25/10/2016)