MEPs meeting in Strasbourg have today backed a plan to introduce a compulsory pan-EU business tax system, a move that will likely be met with concern in Ireland.
The introduction of a common consolidated corporate tax base (CCCTB) would allow companies to submit one centralised tax return across all EU countries in which they operate. Their taxable profits would then be split between the member states they operate in according to the size of their business in those countries, which would retain the right to set their own rate of tax.
Supporters of the proposal claim it would reduce costs and administrative burdens for businesses operating across a number of countries.
However, the initiative was once dismissed by Taoiseach Enda Kenny as tax harmonisation by the “back door” amid concerns that it would make it more difficult for multinationals to take advantage of Ireland's low 12.5 per cent corporation tax.
Despite this, the Government has agreed to constructively engage in debate on the legislation.
In the original legislative proposal, the European Commission suggested the introduction of a CCCTB on a voluntary basis. Under the revised plan, the system will be made mandatory throughout the EU for all companies except small and medium-sized enterprises, which could opt in if they so wished.
The pan-European tax plan was adopted with 452 votes in favour, 172 against and 36 abstentions.
Speaking in January, Europe's tax commissioner Algirda Semeta announced plans to accelerate the adoption on the common tax system.
He argued Ireland had nothing to fear from an EU-wide common tax base and insisted there was much to gain.
France and Germany have been pushing to speed up talks on legislation to establish a common tax base, claiming it is essential to promote economic growth in the union.
The Government came under sustained pressure from both Paris and Berlin recently to dilute the Irish corporate tax regime in return for an interest rate cut on Ireland’s EU-IMF bailout.
However, it has repeatedly said that corporation tax is not up for negotiation.
