EC denies plan is 'tax harmony' by the back door
THE European Commission has unveiled a new system for taxing companies' profits in Europe that may threaten Ireland's multinational sector.
Instead of the traditional system in which companies pay tax in various regions, it wants them to total up their profits across Europe and pay tax on these profits in just one country.
A set of rules has been worked out to select the country which gets to tax these profits.
The new system is called the Common Consolidated Corporation Tax Base (CCCTB) and has been dismissed by its critics as 'tax harmonisation' by the back door.
The EU yesterday admitted that it had not studied the effects of the new system on Ireland.
However, Finance Minister Michael Noonan's officials last night played down the significance of the new EU plans.
Germany, France and several other countries want to prevent companies from paying a lower rate of corporation tax in Ireland, without having a full operation in this country.
"The CCCTB is not about harmonising corporate tax rates," Europe's tax chief Algirdas Semeta said yesterday.
"We believe that corporate tax rates are an issue of national sovereignty."
Mr Semeta also said he "couldn't agree with" an Ernst & Young report commissioned by the Irish Government that showed the CCCTB could pose a threat Ireland's ability to attract foreign investment.
"On the contrary, from my discussions with businesses it is clear that they very much welcome the introduction of a single set of rules in corporate taxation," he said.
But the American Chamber of Commerce also warned against the EU proposals and said the Government's opposition "needs to be maintained".
A study by Oxford University and the Dutch Centre for Economic Policy Analysis released yesterday found a common tax base would shrink the Irish economy by 3pc and would trigger an economic slowdown in all EU countries bar the Netherlands, Belgium and Luxembourg.
a spokeswoman for Mr Semeta said the proposals were particularly positive for SMEs, since it would make it easier for them to expand to other countries.
The proposals must be approved by all 27 member states before they can become law.