With the British gone, can the EU push on towards tax integration?

What do you mean, you’ve never heard of the common consolidated corporate tax base? It’s all the rage in Brussels, and represents a typical example of how Eurocrats are still increasing centralisation of the EU. Public concern about multinational companies avoiding tax has provided the cover to resurrect a plan for a Europe-wide corporate tax system. It was originally booted into the long grass in 2011, but Eurocrats are a patient lot and have been waiting for an opportunity to bring it back.

At the moment, companies operating in Britain calculate their taxes according to legislation introduced by the British Parliament. Likewise, German companies have to follow the rules from the Bundestag, and Irish companies the laws passed by the Dáil. Under the Eurocrats’ plan, all multinationals operating in the EU will have to calculate their taxable profits according to rules set centrally by the European Commission. The profits would then be divided up between the countries in which the multinational operates and subject to those countries’ corporate tax rates. Corporate groups would also be allowed to set off their losses in one European country against their profits in another country, depriving the country with the profitable business of tax revenues.

EU member states would be allowed to continue setting their own corporate tax rates. But in practice, the ability to do this also requires control over the tax base, which Brussels would determine. In any case, tax rates would be the next item on the agenda for centralisation. As far as Eurocrats are concerned, tax competition between member states is an unacceptable distortion of the single market.

The British Government has consistently stated that it would block the plans and does have a veto over corporate tax measures. However, Brexit has put paid to this obstacle. Eurocrats have also split their proposals into two parts. They will first try to get agreement on an common corporate tax base (CCTB) harmonising the rules under which multinationals operating in the EU have to calculate their taxable profits. Only then, when the same corporate tax rules have been imposed by Brussels on all member states, will the common consolidated corporate tax base (CCCTB) be launched. This will effectively treat the EU as a single country for company tax purposes.

Eurocrats are hopeful that by dressing the plans up as a way to combat tax avoidance by multinationals, they can exert political pressure on unwilling EU member states to swallow the pill. It is true that the measures would help prevent multinationals from using differences in the tax systems of various countries to reduce their tax bills. However, those differences are the product of decisions by sovereign Parliaments trying to ensure their tax systems are competitive and well-adapted to local circumstances. Even with the British out of the picture, expect strong resistance from smaller countries like Ireland and the Baltic States, which have used tax policy as a central plank of their economic offering to foreign investors.

In the interim, the European Commission is pushing forward with a directive specifically on corporate tax avoidance, which obliges member states to bring in a raft of measures that would previously have been the preserve of national Parliaments. Again, public concern about the activities of multinationals has provided the excuse for this power-grab. In this case, even the UK is on board, in large part because we are introducing most of the rules ourselves in any case.

Under the EU treaties, direct tax has been a matter for national Parliaments. However, if they can achieve unanimity in the Council of Ministers, Eurocrats can still extend their competence into this area. In that case, they don’t need treaty change with the attendant risks of triggering referendums. And once Brussels has the powers it wants, the ratchet has turned and member states can never get them back. The European Court is then be able to further erode national sovereignty through its programme of judicial activism. Already, it has decided old UK rules on taxing dividends and foreign subsidiaries are incompatible with the single market. This has left the British taxpayer with a bill for billions of pounds in compensation payable to the businesses that had suffered the taxes in question. Brexit is unlikely to mean these refunds can be cancelled.

Like many of the machinations in Brussels, the common consolidated corporate tax base is probably too obtuse to be easily understood by European voters. But it shows that the European Commission’s hunger for centralisation is as sharp as ever, especially now that the UK has left the building.

Leave a Comment