Categories European economy Fiscal Policy CCCTB Proposals Post author By Karl Whelan Post date March 16, 2011 23 Comments on CCCTB Proposals The Commission’s new proposals for a Common Consolidated Corporate Tax Base (CCCTB) are available here. Related Tags CCCTB, Corporation Tax ← Monetary Dialogue Briefing Papers: March 2011 → Central Bank PCAR Stress Scenarios 23 replies on “CCCTB Proposals” The Irish Times gives a nice summary. Why are sales included in the formula for apportioning taxes? This seems to me to penalise exporters. A common consolidated tax base wouldn’t have stopped AIB and Anglo in their dance of death . Fintan O’Toole in his Irish Times opinion piece yesterday stated that “The effective rate of tax on corporate profits here (what companies actually pay as opposed to the theoretical rate) is almost 12 per cent” Is this true? What would his source have been? I am very surprised that on average companies are only able to avoid paying about .5 to 1% of the 12.5% rate if it is true. Especially when we know that some companies can get their effective rate down to 2.4%. This 12% effective rate seems unlikely to me. Eamonn – he got it from the World Bank/PwC Paying Taxes 2011 report here: http://www.pwc.com/gx/en/paying-taxes/pdf/paying-taxes-2011.pdf @rory o ‘farrell ‘Why are sales included in the formula for apportioning taxes? This seems to me to penalise exporters. That is precisely why the French (and others) want a CCTB so as to take a greater share of company tax on products from exporting MS. Don’t be fooled by the veto argument. If a number of MS decide to go ahead with this proposal under reinforced cooperation then I am willing to bet that once it is agreed France will come and renegotiate its bilateral tax treaties with those countries that are not in the CCTB system and try to impose the CCTB on countries like Ireland. His source is the WorldBank/PWC report. Checkout today’s Irish Examiner for a relevant graphic /table. http://www.irishtimes.com/newspaper/finance/2011/0211/1224289521508.html Struggling to find the exact report at the moment though. Have a read of this article: http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html/ From the article: ‘Dublin Office That licensee in turn owns Google Ireland Limited, which employs almost 2,000 people in a silvery glass office building in central Dublin, a block from the city’s Grand Canal. The Dublin subsidiary sells advertising globally and was credited by Google with 88 percent of its $12.5 billion in non-U.S. sales in 2009. Allocating the revenue to Ireland helps Google avoid income taxes in the U.S., where most of its technology was developed. The arrangement also reduces the company’s liabilities in relatively high-tax European countries where many of its customers are located. The profits don’t stay with the Dublin subsidiary, which reported pretax income of less than 1 percent of sales in 2008, according to Irish records. That’s largely because it paid $5.4 billion in royalties to Google Ireland Holdings, which has its “effective centre of management” in Bermuda, according to company filings. ‘ Anyone believe that Google only has a 1% profit margin in Europe or might it be possible that the ‘double Irish’ transfers out the majority of profits from Ireland? Perhaps the most interesting point is that the proposal is based on Article 115 TFEU which deals with “directives for the approximation of such laws, regulations or administrative procedures of the Member States as directly affect the establishment or functioning of the internal market” as opposed to Article 114 TFEU for “measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market”. The legal distinction is somewhat obscure, I gather, but the procedural difference is both clear and fundamental. Article 115 provides for a special legislative procedure, requiring unanimity in the Council, and requiring only consultation of the European Parliament. Article 114 provides for the ordinary legislative procedure i.e. co-decision with the European Parliament and decision by QMV. If this proposal ever sees adoption, one could only imagine it happening on the basis of an enhanced cooperation among a limited number of Member States. P.S. As everyone probably knows, Ireland had six winners at Cheltenham today. @ Eamonn, Brian K has provided the link to the World Bank-PWC report, which was referenced by Peter Sutherland in the Financial Times on March 9th: http://www.ft.com/cms/s/0/2bd71700-4a87-11e0-82ab-00144feab49a.html#axzz1GgXKYa49 Sutherland noted how the real rate of corporation tax was 8.2% in France, and lower elsewhere. The real meat in the report (for the purposes of this debate) are pages 98-100 of the Pdf. This shows Table 4: “Total Tax Rate”. It can be seen that the total rate of taxation of a company in Ireland is 26.5%. Of this percentage, 11.6% is labour tax; 11.9% is corporation tax, and 3.0% is other duties. France’s “real rate” of corporation tax is 8.2%; Germany’s real rate is 22.9%. Greece have a real rate of 13.9%. Finland, who talked tough on the Irish situation over the weekend, have a real rate of 15.9%. As the eurozone countries are most salient to the debates surrounding financial stability and “enhanced co-operation”, I have listed the “real” corporate tax rates for all of the eurozone members below. It can be seen that six countries have a lower real rate than Ireland. Eight countries have a real rate lower, or else very similar, to Ireland. Looking a little closer, the average real corporate tax rate is 13.5%, a figure very close to Ireland’s real rate. Given this, one could argue that harmonisation might follow a scenario where Germany (22.9%), Italy (22.8%), Spain (20.9%) and the Netherlands (20.9%) move closer to a target of 13.5% (for real taxation). Indeed, Germany, Italy, Spain and the Netherlands are the only countries with real rates above 20%. Austria: 15.7% Belgium: 4.8% Cyprus: 9.4% Estonia: 8.0% Finland: 15.9% France: 8.2% Germany 22.9% Greece: 13.9% Ireland: 11.9% Italy: 22.8% Luxembourg: 4.1% Malta: n/a Netherlands: 20.9% Portugal: 14.9% Slovakia: 7.0% Slovenia: 14.8% Spain: 20.9% Anyone else find themselves thinking of either the Soviet Union or closed-circuit television when CCCTB comes up? I think this proposal needs a new acronmyn — time for some branding consultants … As the Google triangulation shows, the total rate of taxation in a particular country means nothing to what a company really pays in taxes. Can it not be more clear for one to see? Everything becomes clear if one looks at the whole farrago in its simplest terms; it is about the competition for foreign direct investment and nothing else, an area in which Ireland is beating the rest of Europe off the field. The elements in this success can be listed (in no particular order): (1) the English language (2) an educated workforce (with the exception of those that have been abandoned at primary level: a national disgrace) (3) membership of the EU (4) membership of the euro (5) being the Auld Sod (6) the 12.5% corporation tax rate (7) a (relatively) clean environment (8) a rock solid commitment to democracy (simplified definition; the capacity to change your leaders peacefully: ask the Libyans!). (9) a transparent and radically simple tax system compared to other countries (but tied to far too narrow a tax base, a fault which has to be corrected immediately) (10) a respect for the rule of law (hampered by an incestuous and pampered legal system). I apologise to the Gaeilgeoiri in advance. To sum up; Ireland should just say no (in the politest terms, of course). @Karl: Yup! CCCP. Does the talk of Norn Iron having it’s own rate of Corporate tax seperate to England or Wales or Scotland not mean there could be more than 27 tax systems as outlined in paragraph one of the commissions webpage? So their whole assumptions the rest is based on is groundless. I’m sure there are intra country differences in other countries – the Autonomous communities of Spain, for one. As for a non-paper? is that a pdf with printing disabled??? Convenient facts find an easy audience and often become received wisdom even though they are misleading. The World Bank teamed up with PricewaterhouseCoopers and the template for determining effective rates of tax was a 100% owned domestic new SME company that is a ceramic flowerpot manufacturer with no exports or imports. To get to an effective rate of 8.2% in France from a headline rate of over 34% would require some very attractive credits/allowances. In France, a 15% rate applies to the first €38,120 of taxable profit of companies with turnover excluding VAT of less than €7,630,000 in the tax year or tax period, reduced where relevant to twelve months. The WB’s ‘Doing Business 2011’ has an effective rate for France of 14.06% in 2009 and 9.62% for Ireland. PwC uses a slightly different base in its report. Last month, economists at the American Enterprise Institute put the French effective rate at 27.5% and the Irish rate at 10.9% — these are the figures that are relevant in respect of multinational investment. US data shows that the combined net profit of US corporations in Ireland doubled between 1999 and 2002 from $13.4bn to $26.8bn and was $48bn in Ireland in 2005, compared with $37.01bn in the UK and $74.06bn in the Netherlands. US companies in Germany made net profits of $11.22bn in 2005; French affiliates reported income of $9.52bn and Italian operations made $8.58bn. http://www.finfacts.ie/irishfinancenews/article_1021862.shtml http://www.doingbusiness.org/methodology/paying-taxes @ DOCM ‘Everything becomes clear if one looks at the whole farrago in its simplest terms’ Lets make it even simpler. Your points 2,3,4,8,and 10 are redundant. Lets not pretend that we have any greater commitment to the rule of law or democracy than other EZ members. We ought not to pretend, either, that we are somehow more educated than the average European. A relatively clean environment (7) has an obvious value for industries lkke food or pharmaceuticals, but it’s hard to see why it would attract the likes of Google. Maybe it’s just the exec lifestyles. The English language (1) is an advantage but not that much compared to somewhere like the Netherlands, where most of younger generation are quite comfortable in English. The Auld Sod (5) does mean something to the American Irish, but business is business, as I’m sure you will be the first to agree. I didn’t know that we had a ‘a transparent and radically simple tax system compared to other (EZ) countries’. Perhaps you could point me to where that point has been discussed on this blog. That leaves us with the 12.5% corporation tax rate (6), which is what those pesky Europeans seem to be focussing on. Cheeky b&*****s. . I’m not against a CCCTB on principal (if we trade it for a serious renegotiation worth tens of billions). However I’ve 2 problems with this one. First as I mentioned above it seems to penalised exporters. But more serious is the voluntary nature, which will backfire on the EU. We used to have preferential tax rates for MNEs and exporters, but the EU stopped this. The CCCTB is targetted at MNEs, and governments are allowed to apply different tax rates to firms making use of the CCCTB. So why not tax CCCTB companies at 0% (because they are more mobile), but tax non-CCCTB at the standard rate. That way you can attract the mobile companies, and milk the immobile ones. @ Paul Quigley We are talking about mobile foreign (i.e. foreign to the EU) direct investment, not mainly an investement competition for industries within the EU between Member States (although these are also important). Indeed, one of the main arguments made by the Irish government is that the introduction of harmonsied taxes and/or the CCCTB would simply see investment move to countries outside the EU. You have to look at the issue from the viewpoint of a truly international company from outside the EU contemplating an FDI investement and all the items I have listed – admittedly in a somewhat light-hearted manner – do matter in that regard. As to where matters go from here, I think the issue will disppear from the headlines and a group of unfortunate officials will have to struggle with a technical project in which many do not beliveve. The Parliament likewise as it prepares its opinion. A point will be reached where the conclusion that is evident now will be even more evident. Only a group of committed Member States can hope to succeed in adopting the proposal under the enhanced cooperation provisions of the Lisbon Treaty. Whether this places them at an advantage or a disadvantage to those not joining remains to be seen. One could imganine a scenario where some multinationals might find it attractive to participate. @ Paul Quigley P.S. To underline the point about FDI, I would quote Article 206 TFEU dealing with the common comercial policy of the EU which reads “the Union shall contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment …” The words relating to FDI were added by the Lisbon Treaty. (I recall Joe Higgins and others on the no side in the campaign making some fuss or other about it). But I mention it here simply to underline the importance that the EU attaches to the general issue of FDI and of getting reciprocal treatment for anything that it concedes. @ DOCM Fair enough. I can’t claim a familiarity with the inner workings of the EC, so your previous detailed posts are appreciated. You are certainly right to cast a cold eye on performance of the primary education system and the legal profession. @ Michael Hennigan Thanks michael. As usual separating fact and fiction like a hot knife through butter. Someone needs to tell Fintan his sources are at the “damned lies/misleading” end of the statistics scale. @all This stuff really should carry a Health Warning – I defy anyone anywhere to claim that they understand it – I first scanned it a few years ago …. The Big-4 and their equivalents are smacking their chops at the thought of all those billable-hours – all to be written off for tax purposes by the Big Corps of course …. & we do have something called a VETO …. move on. Distraction: Lets get back to Unsustainable Banking System DEBT …. time is running out …… Comments are closed.