October 25, 2016 by Fiachra
The media is enjoying the recently leaked European Commission proposals for a Common Consolidated Corporate Tax Base (CCCTB), and already the cries of anguish can be heard eminating from the Irish capital. The last time the EU proposed CCCTB was in 2011, and Ireland managed to block it – with some help from the the UK government. Thanks to Brexit, the Commission is ready to initiate Round II – and this time it looks like the Irish government will be alone in the fight. Ireland’s relfex opposition to CCCTB comes almost in the complete absence of credible economic arguments. Opponents of CCCTB claim that it is the first step towards a common EU corporation tax rate, but this claim is completely baseless. The EU does not have the competency to set tax rates, and any effort to change the status quo would mean amending the EU treaties. The Irish government would of course have a veto, and ratification would require a referendum in Ireland. The chance of this happening is slim.
This leads to the question of whether Ireland wants to be a competitive location for foreign direct investment, or a tax haven and advocate for the interests of Multi-national corporations within the EU. For, if the Irish government wants to attract more FDI it should engage fully and constructively with the EU in developing a common-consolidated corporation tax base that suits Ireland’s interests. CCCTB could in fact be good for Ireland, since it determines how much tax a company should pay in each EU member state based on real economic activity. This sum it derives using a weighted formula with three variables: assets, labour and sales. What this does is provide a strong economic incentive for companies to locate their assets and labour in the country which has the lowest tax rate, and in the European Union that country is Ireland. If Ireland wants to play its cards right, it should lobby for the Commission to place the greatest weighting on assets and labour. It should also make the necessary long term infrastructural investments to ensure that Ireland remains a competitive location for FDI.
And yet Ireland’s reflex opposition to CCCTB shows that it does not understand the difference between giving MNCs what they want and attracting their investments.
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