Mandatory corporate tax rules to be launched within 18 months
The European Commission will produce proposals for a new mandatory EU common corporate tax base within 18 months as part of a plan to clamp down on aggressive tax avoidance.
The so-called Common Consolidated Corporate Tax Base (CCCTB) proposal was heavily debated a number of years ago and was intended in part to provide a single set of rules that companies operating within the EU could use to calculate their taxable profits. Ireland, however, was not in favour of the plans.
The Commission announced yesterday that it will present a revised CCCTB proposal by next year, which will be mandatory for multinationals.
But to assuage the concerns of member states toward the original proposal, Brussels said the revised plan will be implemented in stages, with the consolidation aspect, the most contentious from Ireland's view, delayed until the second phase.
The first phase will see the introduction of the common base, which will essentially create a single set of rules determining how companies calculate profits.
The consolidated aspect, if enacted, would mean that a company calculates profits on a consolidated basis and would then allocate taxable profits to each EU country using a set of defined criteria.
Writing in this newspaper earlier in the month, Peter Vale, tax partner at Grant Thornton, said a common tax base does not pose a threat to Ireland. But the introduction of a consolidated element would be a concern.
"The key drivers of how taxable profits would be allocated include capital, labour and sales," he wrote. "The benefits of our low rate would be lost as a small amount of taxable profits would be allocated here, with the bulk of the profits allocated to larger countries."
The renewed CCCTB plans were also accompanied by proposals for companies to disclose more information about where and how they pay tax. The Commission also released a list of 30 states worldwide that are most often cited as "non-cooperative jurisdictions," including Hong Kong, Monaco and the Bahamas.
Brussels has also proposed country-by-country tax reporting by companies and has announced a public consultation seeking industry views.
EU Vice President Valdis Dombrovskis said the plans are about ensuring companies pay their fair share of tax.
"We rule out minimum tax rates, but corporate profits need to be taxed effectively where they are actually made, not just where the company decides to register itself," he said.
However, rolling out the plans may not be straightforward as they require agreement from all 28 member states to come into force.
European Economics Commissioner Pierre Moscovici has said that a corporate tax base plan for a smaller group of nations would be a "last resort" if negotiations fail to reach a broader deal.