Thursday

5th Aug 2021

Opinion

The great EU corporate tax lie

  • The CCCTB is 'lacklustre, unacceptable policy-making' (Photo: ptmoney.com)

As three MEPs who take subsidiarity and proportionality seriously, we face an almost daily battle against a European Parliament and an EU Commission that, under the banner of fighting tax avoidance, are intent on rewriting the rules for corporate tax policy in the EU, exclusively for the benefit of larger member states.

Last week the Economic and Monetary Affairs Committee voted overwhelmingly in favour of recommendations to impose a Common Consolidated Corporate Tax Base (CCCTB) in Europe, a proposal that would completely change how companies are taxed in the EU.

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The commission first proposed CCCTB in 2011 but came up against significant resistance in the European Council. But if at first you don't succeed, then try again.

Thus, the commission proposed a revamped version of CCCTB in 2016; although this time instead of making it optional for businesses, they proposed that it would be mandatory for all companies with an annual turnover of more than €750m.

Harmonisation by back door

The CCCTB is in short the EU's attempt to completely harmonise corporation tax policy by the back door, creating a common system for taxing large companies across Europe.

Corporate tax is then consolidated according to a complicated set of criteria and distributed out to member states based on the level of economic activity that takes place in their jurisdiction.

The consolidation key favours – again – the larger member states where maybe the factories have been build, but not per se the place where due to high investments in research, development and innovation, the profit is actually being made.

It sounds great in principle. But in all this, it is the large member states have the most to gain and the small member states that have most to lose.

It is no secret that many large multinationals have based their EU headquarters in smaller member states like Ireland, Luxembourg and the Netherlands.

This development has not been looked on favourably by larger member states who feel they deserve their piece of the corporate tax pie. The commission seems to agree and that is why it has been on its CCCTB crusade for years, albeit with little success.

This CCCTB agenda has conveniently been associated with the whole debate surrounding tax evasion and tax avoidance which rightly must be tackled.

'Disingenuous' tax avoidance claims

But it is disingenuous to suggest that CCCTB will do much to curb tax avoidance. Pretending it will, comes close to a lie or is at least a serious misrepresentation of reality.

In fact, many tax experts have even said that CCCTB could open Europe up to more tax loopholes and create more tax mismatches with third countries.

In any case, proportional country-by-country reporting and the tackling of hybrid mismatches will go much further in the fight against aggressive tax planning.

Not surprisingly, the ECON recommendations as voted last week go further than the original commission proposal.

MEPs want the €750m threshold to be reduced to zero after seven years, meaning that eventually all European companies, even the smallest ones and those active in only one member state, would have to apply CCCTB.

Another bizarre suggestion

Sure, the report also has interesting suggestions, such as tech giants paying taxes on the basis of how much data has been used per member state, but again it is completely unclear what the consequences of this change would be.

At the end of the day, this file is for a decision by the European council, subject to unanimity voting rules. While we believe that member states should continue to discuss and negotiate this proposal, we do not agree that there should be a one-sided overhaul of corporate tax policy in the EU.

The key issue that member states will be asking about CCCTB is how much they stand to win or lose in terms of tax collection.

But one serious problem in the whole CCCTB process is that the commission has never conducted a comprehensive impact assessment on a country-by-country basis.

How does the commission really expect member states to sign up to a proposal if the impact hasn't been quantified?

Lacklustre policy-making

This type of lacklustre policy-making is not acceptable.

It is absolutely right that multinationals pay their tax in a transparent and upfront way.

The EU is rightly determined to meet and implement the new international standards that are slowly catching up with the new digital economy.

We do have to tackle aggressive tax planning but this is not only a European problem, it is a global problem. The best way to tackle this issue is on an internationally agreed basis through the OECD 'base erosion and profit shifting' (BEPS) process.

Let's have a fair and honest debate about corporate tax policy in the EU.

Consensus has always been the name of the game when making big decisions in the EU, which is furthermore crucial to maintain support for the EU in every member state.

The right to raise taxes is a core competence of a sovereign states.

A fundamental overhaul of tax systems, decided by a majority against the will and interest of a minority will in that regard do more harm than good.

It would therefore seem wise to turn this debate away from easy one-liners and over-simplification towards an approach that takes the concerns of all member states into account.

If this turns out to be impossible, then we should refocus the debate and concentrate our efforts where they can be most effective.

Dutch MEP Esther de Lange, Irish MEP Brian Hayes, and Swedish MEP Gunnar Hoekmark

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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