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Irish corporation tax row colours EU harmonisation bid

17 March 2011, 00:22 CET
Irish corporation tax row colours EU harmonisation bid

Algirdas Šemeta - Photo EC

(BRUSSELS) - Europe launched plans Wednesday to give multi-national companies the choice of filing corporate tax returns just once, but a simmering row over Ireland's business tax rates left their sponsor on the back foot.

EU taxation commissioner Algirdas Semeta's legislative proposals, part of a drive to deepen the European Union's single market of half a billion consumers, would theoretically let companies balance losses in one national market with profits in another.

Semeta recognises he faces a huge battle to push through ideas that have been a decade in the making.

To begin with, they run smack into Ireland's political battle with Germany, France and others who want to wipe out Dublin's low corporate tax rate advantage before lowering the interest rate on Ireland's 67.5 billion euro ($94 billion) international bailout.

France and Germany support Semeta's new scheme, but after sparks flew as new Irish premier Enda Kenny clashed with French President Nicolas Sarkozy, the quid pro quo over the bailout cost is sure to re-surface at a full EU summit next week.

Semeta says he is simply arguing for the bloc's 20 million companies to be free to apply a Common Consolidated Corporate Tax Base (CCCTB).

He claimed compliance costs for business "when starting cross-border activity" could fall by "two thirds."

Employers federation BusinessEurope said support was possible if four conditions are met.

Companies must be free to opt in or out; the legislation should "allow for the consolidation of profits and losses from the start"; compliance costs should fall; and decisions on tax rates must be left to national governments.

Accountancy giant Ernst & Young in London cited Slovakia as another hardline objector, but said other smaller states are looking at the plans as "a blueprint for future corporate tax reforms."

Specific provisions are included in the plans for financial services, insurance, oil and gas, shipping and air transport industries.

The "key question" is "whether a single system outweighs the benefits of competition between the member states," said Ernst & Young's Chris Sanger.

Semeta said his plans would show "real effective rates" of taxation for companies across the EU.

"If the Irish tax system is so beneficial to companies... maybe they will remain with the Irish tax system," the Lithuanian commissioner underlined.

Sementa indicated that he could settle for ground-breaking change to apply to just an inner core of nations under a recent EU provision that allows nine or more countries to band together on new laws.

Ireland's 12.5-percent corporation tax rate helped fuel growth in what was once known as the Celtic Tiger economy. It sees the tax rate as critical to its attractiveness to foreign investment and job-creating industries that generate exports and economic growth.

However, EU rivals accuse Ireland of gaining an unfair advantage -- and argue that Dublin is losing out on revenue streams that could ease its debt and deficit problems.

German Finance Minister Wolfgang Schaeuble has also said US Treasury Secretary Timothy Geithner told him of frustration in Washington at the volume of American business activity that takes advantage of the Irish tax regime.

EU economic affairs chief Olli Rehn says Dublin should adopt a "constructive" attitude, the very word used by an Irish finance ministry spokesman Wednesday to characterise its approach now the detail of Semeta's plans is out.

Figures from PricewaterhouseCoopers again in London underline the problem with transparency.

Produced alongside the World Bank, the 2011 Paying Tax survey calculates total tax paid by firms in Ireland at 26.5 percent.

That brings together taxes on profit, labour, property and other areas.

In France, companies would pay 65.8 percent, the bulk of it on labour, and in the United States, 46.8 percent.

European corporate tax base - guide

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