|Mario Draghi, president of the European Central Bank, Michael Noonan Irish finance minister and Wolfgang Schäuble, German finance minister, Brussels, Nov 29, 2011.|
Germany and France announced new plans to bring together their business tax
regimes as they progress their plans for full fiscal union. The aim will be to
align their tax systems, starting in 2013.
The proposals also support the
recent Euro Plus Pact, which sets out the rules for future economic and fiscal
co-ordination between the EU members, excluding the UK, Sweden, Czech Republic
and Hungary which did not join the new treaty. One early potential change will
be France cutting its main corporate tax rate.
reforms accelerate France and Germany ahead of similar proposals from the
European Commission, which has struggled to gain consensus across all 27 EU
member states. This was held up at the end of last year by Bulgaria, Ireland,
Malta, the Netherlands, Poland, Romania, Sweden and the UK, which all see tax
harmonisation as a way to force them to raise their own low tax rates.
will also hit the Big-4 accountancy and tax law firms which provide large
amounts of tax advice for companies doing business under the different regimes.
These proposals will eliminate much of the requirement for these services,
including the highly lucrative advice around transfer pricing, which covers the
taxes on cross border trade.
Commission Plans Blocked
Commission proposed a single tax base in March 2011. This included an obligation
for all 27 EU member states to adopt the same tax base and calculation
methodologies. Known as the Common Consolidated Corporate Tax Base (‘CCCTB’),
it would enable EU and non-EU companies to present their financial results
across the region to a single, nominated tax authority, and have one tax
calculation prepared under a common set of rules.
The computed tax would then
be distributed under a complex apportionment methodology - - including location
of assets, employees and where the revenues were generated - - amongst the
countries where the company trades. This would help simplify the whole taxation
compliance regime for Europe, saving multinationals billions by rationalising
their large tax departments and outside tax advisors.
several countries voted against the proposals in October 2011. Whilst not
enough to block the progress of the measures, it served to slow down progress.
and France head towards bi-lateral fiscal union
this, President Sarkozy and Chancellor Merkel called for a “true economic
government”. They set up a joint committee to create a “common
corporation tax by 2013”. Tuesday’s announcement at ECOFIN, the committee
of European finance ministers, is a confirmation by François Baroin and Wolfgang
Schäuble, the finance ministers of France and Germany respectively, of the plans
to commence the merger in 2013.
from the joint German and French ‘Green Book’ include:
Corporate income tax rates
Rollover and offsetting of losses
offs for depreciation and amortization
- Tax on
Taxation on partnerships
change so far announced will be a potential reduction in the French corporate
income tax rate, which is 6% higher than the corresponding German rate.
proposals will be of particular disappointment to Ireland, which has fought hard
to defend its prized ultra-low business tax rate of 12.5% whilst still requiring
last year’s €85bn banking crisis bailout from other member states. Many
countries, such as Germany and France, which made large contributions to the
Irish bailout, were accused of trying to use the CCCTB to eliminate low-tax
competition in the EU.
Richard Asquith, head of tax, TMF Group concluded:“The reluctance of many low-tax countries to
back a unified tax system for Europe has been enough to push Germany and France
into moving ahead alone. Whilst the UK was always going to be the usual
vociferous opponent, this will set up a potentially
dangerous fission between Ireland and the core EU countries. With the ongoing
risks around Ireland’s debt position within the current Euro crisis, this will
build the pressure. ”
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