McCreevy spells out opposition to EU proposal to consolidate corporate tax

EU COMMISSIONER Charlie McCreevy says there is a consensus emerging on Brussels proposals to consolidate the union's corporate tax base.

The EU has been looking at proposals to consolidate the union's corporation tax base, and a firm plan was due to have been published by now. Mr McCreevy says that this has been delayed because once the European Commission began examining the plan in depth, it found greater problems than anticipated.

Writing in the current issue of the industry magazine, About Banking, Mr McCreevy commends tax and customs commissioner László Kovács for not bringing forward a "half-baked concoction".

Mr McCreevy has already made it clear that he opposes the plan, particularly because he believes it will deter businesses from non-EU countries from investing in the union, on the basis that it will leave them with uncertainty about what their final corporate tax rate will be. "To reflect this greater uncertainty, any prudent finance director would use a higher discount rate to undertake the discounted cash-flow analysis before arriving at an investment decision, with all the negative implications for the relative attractiveness of Europe as an investment location that this could generate," he says.

He argues that the administrative burden for companies would mean them keeping books in their own member states, while dealing with issues such as 27 audits and 27 or more communications between each state's tax authority.

He also questions whether the anti-avoidance rules needed to make the system work would restrict the movement of investments between member states.

Similarly, he says that a system where tax is paid by reference to sales, payroll, property and aggregated income, instead of "appropriate income", could require the renegotiation of tax treaties, particularly with the US, a key investor in Europe.

Mr McCreevy argues that the system envisaged would "almost certainly" require replacing national treaties with a new one negotiated by the EU.

"How long would it take to negotiate that and how much uncertainty and confusion would it cause?" he asks.

Mr McCreevy says it is not difficult to demonstrate that the proposal is ill-conceived. "I hope and expect that, before long, a broad consensus will emerge, both within the commission and beyond, on that fact," he writes.

He adds that any benefits from such a system would be minimal and certainly not remotely comensurate with the risks involved.