The European Commission has today proposed a common system of working out the tax base of businesses operating in the EU.
The Commission says the new system is designed to reduce the administrative burden, compliance costs and legal uncertainties that companies in the EU currently face as they try to comply with up to 27 different national systems for determining their taxable profits.
The proposed common consolidated corporate tax base would mean that companies would benefit from a 'one-stop shop' system for filing their tax returns and would be able to consolidate all the profits and losses they incur across the EU.
The EU added that member states would keep their right to set their own corporate tax rate.
Ireland has previously expressed concern about the plan, with Taoiseach Enda Kenny saying he regarded CCCTB as the 'harmonisation of corporate tax rates through the back door.'
As with every proposal involving tax, each country has a veto. The CCCTB will not be agreed at the next EU summit on March 24, but will go through the normal legislative cycle, which could take up to two years, if not more.
Plan 'would save businesses €700m'
The Commission estimates that every year the new proposals would save businesses €700m in lower compliance costs and €1.3 billion through consolidation. Firms looking to expand across borders would also benefit by up to €1 billion in savings.
'The CCCTB will make it easier, cheaper and more convenient to do business in the EU,' commented the Commissioner for Taxation, Customs, Anti-Fraud and Audit, Algirdas Semeta.
'It will also open doors for SMEs looking to grow beyond their domestic market. Today's proposal is good for business and good for the EU's global competitiveness', the Commissioner added.
On the basis of the single tax return, the company's tax base would be shared out amongst the member states in which it is active according to a specific formula. This will take into account three factors - assets, labour and sales. After the tax base has been decided, member states will be allowed to tax their share of it at their own corporate tax rate.
The new system is optional for companies. This means that those that felt they would benefit from a harmonised EU system could opt-in, while other companies could continue to work within their national systems.
When asked about the Ernst and Young study commissioned by the Department of Finance, which claimed that compliance costs would actually increase and that unemployment in Ireland would rise, the Commissioner said the study was based on assumptions which did not rely on the actual content of the proposals being published today.
He said the Commission had ordered six separate studies to ensure a fair system, and he said a safeguard clause would ensure that countries were not seeing less of corporate profits taxed at their national rates, in Ireland's case the 12.5% rate.
A Department of Finance statement said the government remained sceptical, but would engage constructively with the Commission and EU partners on the issue.
A statement from the American Chamber of Commerce to the EU said the CCCTB should reduce compliance costs and make investing simpler and cheaper for US multinationals.
But the American Chamber of Commerce in Ireland is opposed to the proposals and believes they are unworkable.
