Corporation Tax An Issue Again

EU passes corporation tax changes, but what does it mean for Ireland?

The EU claims the introduction of CCCTB will cut red tape for businesses.

Ireland's 12.5 per cent corporation tax is famously low and is helping secure the services of large businesses to its shores, including Apple and Google, in addition to making it more attractive for people to set up their own small business.

However, following a European Union vote earlier this month, such an attractive tax rate could be under threat again as other member states push for closer economic ties.

MEPs are keen to introduce a pan-EU business tax system that would see companies pay only one corporate tax figure, if they work across more than one EU country, instead of paying tax in each individual nation.

Proposals for this - which have been debated for several years - were adopted by the EU on April 19th following a vote that saw 452 for the proposals, 172 against and 36 who abstained.

But how will this affect Ireland in the coming years?

While this does not immediately mean the 12.5 per cent corporation tax rate will need to be changed, the EU claims it will cut red tape for businesses and help save them in the region of €700 million a year in compliance costs. 

However, changes will not come in for a five-year period, reports the Irish Times, giving Ireland a chance to assess its options about whether to change its rate of corporation tax. Its status as an attractive place to business looks unlikely to be affected in this time frame.

When the plans do come into force, small and medium-sized businesses will be able to opt into whether they would like to pay only one corporate tax across the EU. Large companies, however, will be forced to adopt the rules.

The EU, and in particular France and Germany, have for a long time been calling for changes to be made. A Common Consolidated Corporate Tax Base (CCCTB) was first discussed in 2004 and the working group has held more than 13 meetings since.

Explaining the need for CCCTB, member states say: "The European Commission believes that the only systematic way to address the underlying tax obstacles which exist for companies operating in more than one Member State in the Internal Market is to provide companies with a consolidated corporate tax base for their EU-wide activities.

"Targeted solutions have many merits and would go some way towards remedying the tax obstacle."

The successful vote is certain to have pleased France's President Nicolas Sarkozy and German Chancellor Angela Merkel.

In a letter to EU president Herman Van Rompuy last year, both said that all member states must work together to help improve the wider economy.

"We must strengthen growth through competitiveness and convergence of the economic policies of eurozone members at least," they explained.

"Alongside the single currency, a strong economic pillar is indispensable, building on enhanced governance to foster fiscal discipline as well as stronger growth and enhanced competitiveness."

While the effects of CCCTB on Ireland's economy will not be felt for many years, the medium-term picture is still positive. The World Bank and International Finance Corporation said last week that the country is one of the cheapest places to start a business.

Whether this will remain the case in five years' time, we are yet to see.
 

Date published 1 Feb 2012

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