Charlie McCreevy - EU Commissioner, former Irish Minister of Finance.
EU battle on corporate tax looms
Sunday Business Post Sunday, May 20, 2007 - By Kathleen Barrington
The next government will have to fight Europe to keep our low corporation tax rate.
Charlie McCreevy, the Internal Markets Commissioner and former Fianna Fail finance minister, has been making no secret that he opposes Kovacs’s proposal for a common consolidated corporate tax bas e (CCTB), as he explained in a previously unreported speech to the Securities Institute earlier this month.
Kovacs wants agreement reached on common rules for taxable corporate income across the member states. To get common rules means member states have to agree on what costs are tax-deductible, what capital allowances are permitted, what accounting methods are used and so on. When all of this is agreed, the base of profits that is taxable would be clear and uniform across the member states.
For some member states, that will result in less income to tax. For others it will mean more income to tax. Kovacs is selling the proposal on the basis that it would cut red tape, enhance transparency and reduce compliance costs and is, in any case, voluntary. But McCreevy sees it as corporate tax harmonisation by stealth, and he is prepared to say so in less than diplomatic language.
‘Other things being equal, the change in the size of the tax base for each member state would mean that each member state would have to either raise or reduce its corporate tax rate to generate the same revenue as at present,’’ McCreevy said. ‘‘That’s the first reason that the claim that the CCCTB would have no impact on tax rates is unsustainable.
‘But it doesn’t stop there. The second leg of the scheme is more sinister. Having agreed the tax base on which the tax rate is imposed, agreement then has to be reached on how to share out the base between member states.”
He warned the designers of this scheme have put forward all sorts of different formulae including a share out based on criteria such as a member state’s sales or GDP.
‘Clearly, any such share out would benefit member states with large markets and big GDPs at the expense of member states with small markets and small GDPs,” McCreevy said. ‘‘This would be particularly unfair to the smaller, poorer member states of eastern Europe - and places like Portugal and Malta - who are seeking to build their economies from a low base, have small domestic markets, and relatively low GDPs.
‘Under a formula that included sales and GDP in the calculation, those member states would continually be on the back foot and find it almost impossible to catch up.”
Kovacs is arguing that the scheme will be optional, but that has not allayed McCreevy’s concerns as he worries that optionality is simply a way of getting a common tax rate in by the back door.
McCreevy reckons that after a year or two of the voluntary scheme being in place, member states would begin to complain about tax leakage. This will provide the perfect excuse to argue that the proposal isn’t working because it is voluntary and that the scheme should therefore become compulsory.
McCreevy argues that many of those who want to get towards the goal of full corporate-tax harmonisation realise that they have to be very careful.
‘But once you understand the game they are at - and the building blocks that they have in their back pocket - you get a sense of how the long-term, hidden agenda will be played out and why the current methods of a supposed ‘voluntary’ system are being used to put in place the building blocks for a longer term not-so-voluntary scheme in place,” he said.
‘The onus is on the advocates of the proposed voluntary scheme to demonstrate that it is not an unworkable charade and an underhand tactic to advance an agenda that would destroy tax competition in Europe, and with it undermine the incentive to manage individual member states’ public finances effectively and future direct foreign investment into the EU.
‘The real agenda of some of those seeking to push this agenda is one which would undermine competition, undermine small and emerging markets, undermine inward investment, and undermine the long-term growth and employment prospects of the union.”
McCreevy slams EC 'hidden' tax plan - Irish Independent, 12 May 2007
Brussels plan on common corporation tax a 'sinister idea that refuses to die'
"Optionality is not workable and it is hard to believe the designers of the proposal don't realise that," he said
"The deliberately unworkable proposals (for a common consolodated tax base) amount to a Trojan horse to enable the Commission take control of taxation", Commissioner Charlie McCreevy suggested. He said that it was part of a "long-term hiden agenda", a "sinister idea that refuses to die"
