Department plays down German-French move on corporation tax

The Department of Finance has played down moves by France and Germany to advance plans for a common corporation tax regime across the euro zone, a move that is seen as inimical to the Republic's interests.

Both countries yesterday agreed a joint proposal for corporate tax harmonisation among EU member states to raise transparency and level the playing field for companies doing business in the bloc.

According to the German finance ministry, German finance minister Olaf Scholz and French counterpart Bruno Le Maire nailed down a deal to facilitate discussions with other member states and enable the swift adoption of a European Union directive.

"Europe needs a common framework in tax policy. This is the only way to prevent unfair tax practices and a harmful tax race to the bottom, and to create transparent and fair conditions of competition for European companies," a statement from the ministry said.

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The German-French position paper suggests that the European Commission’s proposal for the Common Corporate Tax Base (CCTB) should apply to all corporate taxpayers.

Appropriate

“France and Germany therefore consider that it would be appropriate to extend the scope of the CCTB Directive to make it compulsory for all companies subject to corporate tax, irrespective of their legal form or their seize,” it read.

The tax base should be determined on the basis of accounting principles and calculated by applying the business asset comparison method so as to have a simple and comparable method and avoid as much bureaucracy as possible, it said.

A spokesman for the Department of Finance, however, said discussions on harmonising tax across the euro zone were at a relatively early stage and “much more” technical analysis and discussion was needed.

“Member states are still trying to identify the potential implications the proposal would have if it was to be introduced,” he said, noting that unanimity would be needed before any such proposals could be agreed.

Opposition

The chair of the Irish Fiscal Advisory Council, Seamus Coffey, has warned that the State could lose up to €4 billion or 50 per cent of its current corporation tax base if the proposals are adopted.

Brussels proposed a voluntary common consolidated corporate tax base (CCCTB) in 2011, but it ran into opposition back then from the Republic and the UK, who saw it as a forerunner to a common corporate tax rate.

However, the plan has been revived on foot of the outcry over corporate tax avoidance particularly by big tech multinationals, many of which are based in the Republic.

The commission’s proposal is the second attempt at introducing a common tax base across the EU, and the Franco-German initiative is likely to meet resistance from other member states besides Ireland.

No tax incentives

The finance ministers of Germany and France, the euro zone’s two biggest economies, also agreed that a harmonised corporate tax base should not feature any tax incentives.

“Thus France and Germany are not in favour of provisions regarding tax incentives for research and development and equity financing,” the position paper said.

Both countries are against introducing provisions on cross-border loss relief as they should be discussed at a second stage. They suggest a transitional period of at least four years due to the technical complexity of the issue.

Concerning revenues and expenses, France and Germany propose the deduction of all taxes and duties other than corporate tax and similar taxes on profits. But both consider that special purpose levies such as bank levies should not be deductible.

The tax exemption of distributions and capital gains should provide for a flat-rate deduction of non-deductible operating expenses representing five percent of the exempt income.

Inclusion

“It could also be helpful to consider the impact on venture capital and start-ups,” the paper said.

France and Germany also want the CCTB directive to include a definition of hidden profit distributions to capture cases where a taxpayer has waived appropriate payment for goods and services, and provide for their inclusion in the tax base.

On tax losses, both countries suggest there should be a minimum taxation of profits whereby loss carry-forwards are limited to a certain percentage, between 50 and 60 per cent, of the taxable profit after deduction of €1 million. A one-year loss carry-back of up to €1 million should also be allowed. – Reuters