Common Consolidated Corporate Tax Base: a critique

I presented this paper on CCCTB to the Kenmare economics conference back in 2008. Many in attendance felt that it was unlikely to come to pass. It is clearly on the agenda now though it is not yet certain that it will meet the requirements associated with “enhanced co-operation” (which, under Lisbon, requires nine countries rather than the eight mentioned in the paper, which was correct at the time. Nothing else, as far as I can see, needs updating).

I characterise the proposals as a “Trojan horse”. The logic is similar to that of Bettendorf et al., writing on “Corporate Tax Harmonization in the EU” in the journal Economic Policy in 2010. They say “consolidation with formula apportionment does not weaken incentives for tax competition. Tax competition instead offers a rationale for rate harmonization, in addition to base harmonization.”

21 replies on “Common Consolidated Corporate Tax Base: a critique”

As noted previously, I concur – reached similar a few yrs ago.

Presently back on agenda as part of the German/French ‘power play’ in focus on ‘competitiveness’ march 24/25 while hoping that everyone will admire Nicky’s spin bowling and Angie’s boundary trouncers while both hope that noone will notice The Massive Elephant of a Wicked EURO BLACK KORE HOLE Keeper in both their banking systems.

Certain fielders in the Commission, and some other EU states, are too smart to fully fall for this one – but with level of denial in ECB/EU at the mo it is difficult to be sure of anything.

Angela’s quote in the IT today “IT IS SIMPLY fair to say we can only give our commitment when we get something in return,” ”

But Germany and France got the something/continue to get the something every time we put another billion of taxpayers money into our banks so German and French banks don’t take a hit.

@ Sarah

I agree. It’s disappointing that that point is not being made more loudly and more frequently. I’ve heard the words “baling Ireland out” all to many times without this qualification.

@ Sarah Carey

This is an increasingly popular refrain but unfortunately it will not wash.

Nobody was forced to take the money from the banks in question and nobody complained while most were enjoying the high life while spending it (and putting much of it into the pockets of many fellow-countrymen who still have it).

Expecting the same banks to now forego their legal rights and make us a present of their money is, as the modern saying goes , a big ask.

Of course, putting responsibility for these loans on the back of the Irish taxpayer was not the best move but a majority re-elected the government that started the party and which took this unfortunate decision. We cannot reasonably ask other governments to take responsibility for it.

What we can do and, it seems, what we are doing, is having discussions with the countries many and varied creditors to work out a scheme which will actually enable us to pay the money back over time. One element will be further cutbacks (and they includes the hallowed groves of academe) in the level of public expenditure which we could not afford at the height of the boom and which we certainly cannot afford now.

That need not be equated with strangulation of the economy but the very opposite as long as the productive sector of the economy continues to be encouraged. Inalienable rights to a certain level front-line services, to use another term in vogue, do not exist.

It seems to me that Angela Merkel is very careful in her choice of words and does not define what she means by “something”. But is is easy enough to guess. What she wants are strengthened austerity measures (or at least an indication of a strengthened level of commitment on the part of a new coalition government which is evidently deeply divided on core issues and is more likely to slip back than to go forward) which increase the chances of her getting her money back.

TINA rules OK.

@Sarah Carey – one could also say that that they gave us no presents yet, after all the bailout has to be repaid and with hefty interest. I can’t see them loosing anything here.

I’ve seen the accounts of some multi-nationals that do transfer pricing.

The easiest (transfer pricings) to spot were the ones where the managing director in the country where tax was to be reduced didn’t argue the costs (wasn’t in his/her targets). The managing director usually has a target to reduce all costs with one exception: the one that facilitates the moving of profits to a jurisdiction with lower taxes……..

Royalties & patents are difficult to value, comparing the value between jurisdiction gives some indication but one brand can have a good reputation in one jurisdiction and a bad in another. The brands that only exist in one jurisdiction and the royalty rights are held in another jurisdiction, those seem like obvious to have been set up solely for transfer pricing.

It would be interesting to see the detailed mechanisms for the distributing of the tax-take. Are they available to the public?

Although we’re heading off-topic, I find it reassuring that a few voices (DOCM’s in this case) still counsel against cavalier treatment of property rights. If there is an infringement of these rights, any ‘takings’ (in US parlance) may not be made without due process. But when due process exists and is pursued, the takings can be significant and rapid – as under the US FDIC regime. We didn’t have this due process for the infringement of specific property rights in banks – either at the national or EZ (or EU) level, it is almost impossible to apply retrospectively and the burden inevitably falls on the citizens who permitted lax governance.

But, back on thread, we need to shift the narrative away from this futile CT rate reduction/easing of EU/IMF deal trade-off. We could point to the futility of imposing taxes on mobile MNCs, the resources and techniques they employ to evade it, the effective tax recovery rate in other states, etc. Shifting taxation to ‘bads’ – e.g., pollution and carbon emissions – and on to rents makes far better sense.

As I predicted on here a few months ago, Corporation Tax in N. Ireland is on the way to being harmonised with the rest of the country, and will soon be different from that in the rest of the so-called United Kingdom.

This is a great step forward. Not only does it cut the ground from under the feet of Merkel/Sarkozy axis, it is a forerunner of All-Ireland tax harmonisation, which should be followed up in other areas, and a clear sign that the London Government sees Ireland as one economy.

Regarding Corporation Tax rates, Sarkozy seems to have lost his marbles completely. I would advise any posters from the site who plan to go boating in Dublin Bay this summer to check carefully under the hull before setting off. Bombing the boats of peaceful opponents of French Government policies is one of their favourite methods of ‘persuasion’ when they aren’t getting their way.

Regarding France’s effective CT rate of 8.5% that is being quoted, are the brains on this site happy that is the case?

I though I would take a look at the Frech company , St Gobain, a supplier to the building trade, in particular the glass trade. Its origins go back a long way. Its 17th / 18th century mirrors are to be seen in the Hall of Mirrors at Versailles palace.

Tax as % of operating profit for the year 2008 was 17.5%
Tax as % of operating profit for the year 2009 was 8.8%.

I am sure there are several other examples of low French corporate tax rates. I have seen reports that the effective French corporate tax rate is approx 8%.

looks like Lucinda Creighton is opting for the nuclear option according to the IT. I think there is enough of real nuclear meltdowns on the horizon at the moment.

@John the Optimist


“The 26th and final report of the Independent Monitoring Commission has been presented today to the British and Irish governments,” an IMC spokesman said. “The report documents changes, impact and lessons during the period from January 2004 – March 2011.”

Now that the IMC are unemployed – might we get a few bank/developer/ff/pd debts decommissioned?

@ Sarah Carey (and Jesper below),
Effective tax rates are computed by building a hypothetical company with particular characteristics and computing what it would pay in each state. Different hypothetical characteristics can lead to very different effective rates.

For example, the paper at:
finds France to have a much higher effective rate than Ireland.

Other work by ZBW (for 2005) found the French effective rate to be in the high 30s while Ireland was found to be close to 12.5. I don’t think I’ve ever encountered a study that found France to be as low as in the recent World Bank/PWC report.

The OECD data on profits tax revenues as a share of GDP (for 2007) show
France only a little below Germany and the UK, and substantially below Ireland, which again raises questions about how general the WB/PWC findings might be. (This is sometimes used as an alternative measure of the effective rate, but if you think about the Irish case the problems with this will be readily apparent).

@ Jesper,
If by “detailed mechanisms for the distributing of the tax-take” you mean under the proposed CCCTB, the proposed apportionment formula remains as set out in my paper, but is not yet set in stone. On the implications for different EU countries see the paper by Bettendorf et al that I cite in the original post.


I have to confess I don’t have the access to the Bettendorf report.

The apportionment formula I could find is for the manufacturing industry & while it includes the high profit margin pharmaceutical industry it might leave out others:

If transfer pricing is being targeted then the industries with the highest profit margins seems to be the ones to focus on. Software & services tend to have high profit margins, are there some rough apportionment formulas available for them as well?

@ Sarah Carey

The source of the 8.5% figure is a report by the French Cour des Comptes in respect of “niches fiscales” (fiscal loop-holes) which established that were so many in respect of company taxation that this was the percentage amount that could effectively be raised against what should theoretically flow from the nominal rate.

@ David O’Donnell

The WSJ article will cut no ice with the French but it is helpful. They will simply attribute the high percentage to effective tax planning by the companies concerned i.e. we are in their eyes getting money which should be in the French exchequer. The only problem for them is that there is nothing that requires Ireland, or any other member state for that matter, to harmonise its direct taxes with other Member States, and the operation of the Irish tax regime is totally transparent and without any discrimination between companies.

However, the CCCTB is supposedly a different matter as it would deal primarily with the method of assessing taxation under the company law provisions of the internal market (decided under qualified majority voting and in co-decision with the European Parliament).

There is little chance of the necessary majority being found – even if participation by companies is on a voluntary basis – which is why the new provisions in the Lisbon Treaty allowing for enhanced cooperation between nine Member States are being trotted out. The supposed underlying logic is that such company tax measures should be essential in the context of a monetary union. This is, of course, total rubbish. The EU has been trying to establish an EU-wide VAT system for business since its foundation but exports between Member States remain zero-rated i.e. each country jealously guards its VAT receipts (other than in respect of the relatively minor purchases made by individuals from anywhere in the EU) and these, of course, dwarf receipts from company taxation.

It is well known among political leaders that one of the golden unwritten rules of the EU, and which has made it successful, is that no leader should attempt to place an opposite number in a political position which would cost the latter his or her job politically. Sarkozy breaches this rule incessantly. Merkel’s language is much more subtle. Germany is as attached to sovereignty in tax matter as any other Member State. It was years before it finally agreed – because of competition fears – to having France introduce a lower VAT rate for services in restaurants. (Indirect taxes are a matter for the EU but unanimity applies). This measure costs France, according to a figure I saw recently, 3 billion euros annually.

@ Frank Barry

Herwith a link to the report by the Cour des Comptes.

P.S. I do not think that this issue of the French rate deserves much attention as a study of any of the member states, as you know, would throw up the same variety – but not identity – of loopholes, especially in the Netherlands. (U2 did not move their business headquarters there out of a love of polders and tulips).

The CCCTB seems to be confusing. At the moment the profits of corporations in the EU are consolidated and some they apportion them themselves according to where the tax is lowest. Therefore the issue isn’t about if a CCCTB should be introduced it is about who and how the profits should be apportioned.

Currently the profits are apportioned by corporations, the new apportionment will be on something different and how the profits are being apportioned is the most central item in that debate.

I’m not sure how much a new apportionment formula would affect Ireland. My reasoning:
Corporations doing transfer pricing is doing so to minimise tax.
Best way to minimise tax is to avail of the ‘double Irish’ or the ‘Dutch sandwich’. If used well, the corporation tax bill is reduced to close to zero. Ireland get the benefit of the ‘double Irish’ – probably net corporation tax received is close to zero from that.

It might be that corporations that do the transfer pricing don’t close it off with a ‘double Irish’, it should be investigated. If they at the end of all the transfer pricing use the ‘double Irish’, then Ireland will not lose much on the introduction of the CCCTB.

The introduction of CCCTB would close the tax loophole of the ‘double Irish’ and the ‘Dutch sandwich’ for profits apportioned to have been earned outside of Ireland. That would leave a loophole in the corporation tax for profits apportioned to have been earned in Ireland only and that loophole would affect Ireland only.

The form of ‘transfer pricing’ that we need to address in Ireland is the transfer of the sweat and blood labour of the Irish citizen serfs to appease the bleed1n originators of dodgy capital flows in the EU Kore.

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