THE EUROPEAN Commission is preparing new plans for pan-European rules on the taxation of business profits, measures certain to be opposed by the Government.
Documents seen by The Irish Times say new legislation on corporation tax will form part of a drive by the EU executive to revitalise the union’s internal market.
This raises the prospect of the Government being forced into a battle with the commission and powerful states such as France at a time when it needs the goodwill of the EU authorities to help weather the economic crisis.
“The commission will take steps to improve the co-ordination of national tax policies, notably by proposing a directive introducing the common consolidated corporate tax base ,” states a draft of an imminent communique from the EU executive.
The policy would not harmonise corporate tax rates. It would, however, introduce a common European formula for the calculation of tax on the profits of firms operating in more than one member state.
Dublin has often argued that this would undermine tax competition in Europe, dimming the lustre of its own 12.5 per cent corporation tax rate. One of the main arguments against a CCCTB, as it is known, is that it would reallocate tax receipts to countries in which revenues are received. This would lessen scope to maximise the profits that companies record in Ireland.
EU tax commissioner Algirdas Semeta will introduce legislative proposals early next year. He plans to brief Minister for Finance Brian Lenihan on the proposal on Monday week.
The plan was first aired in 2001. Agreement proved elusive and it was withdrawn in mid-2008 in the wake of Ireland’s rejection of the Lisbon Treaty. Now, however, the commission believes the conditions are ripe for its reintroduction.
Changes to European tax policy must be unanimously endorsed by member states before they take effect so the Government could veto the plan.
Still, Mr Semeta is prepared to invoke an “enhanced co-operation” procedure under which countries that favour a set of measures can introduce common EU rules to apply only to them. This could put non-participants at a disadvantage.