Multinationals face higher EU bill
Published 17/03/2011 | 05:00
THE new proposals on corporation tax from the EU will fundamentally alter how multinationals pay tax.
If the proposals were accepted, companies would be assessed on their total profits from all their activities across the EU, rather than just paying tax according to the rules and rates in each individual country.
The EU brought forward its proposal for a new system yesterday, called Common Consolidated Corporation Tax Base (CCCTB).
Companies will be allowed to opt in or out of this new system. For those that opt in, it represents a fundamental shift in the taxation of their EU profits.
Under the proposal, there will be one set of rules for working out how much profit companies have made across the EU.
Once that has been worked out, one country will be chosen to receive all the tax from that company.
The tax will be charged at whatever the corporation tax rate is in that individual EU member state.
The decision on which country gets which company will be based on numbers of workers, sales and assets.
What would this mean for multinationals with operations in Ireland, in particular for IT and pharmaceutical industries?
The new CCCTB system would mean Ireland losing out on tax revenue to other countries with the same multinational groups.
Under the proposal, the majority of profits of such companies would be allocated to the member state where most employees are and/or where the most products are sold, as opposed to Ireland.
This would see taxable profits moving to the larger markets and away from Ireland.
Each member state would tax its allocation of profit at its domestic rate, resulting in a loss of tax revenue for Ireland and, more than likely, in an increased overall EU tax bill for the multinational in question.
Carmel O'Connor is a tax partner at PriceWaterhouseCoopers