Irish Business Leader Explains Why Optional Tax Base Harmonization Leads to Mandatory Tax Rate Harmonization

Big businesses have rarely been principled defenders of individual liberty. A good example is the fight over a harmonized corporate tax base in Europe. Some multinational companies like this approach because it means one tax return instead of 27 tax returns. But this short-sighted approach overlooks the inevitable misuse of power by politicians who will want to manipulate the system for their own benefit. An Irish business leader explains in the Financial Times:

Businesses should wake up to the fact that, if work to harmonise European Union tax systems succeeds, they will face huge uncertainty regarding their tax liabilities, pay higher tax bills and face a more rigid corporate tax regime. Lázsló Kovács, the tax commissioner, is firmly set on introducing a legislative proposal by the end of 2008 to harmonise the corporate tax base across the Union. …Separate accounting for cross-border transactions within a group would be eliminated, and group profit would be shared by means of a set formula between member states and taxed at the rate applicable in each state. …To date, business has expressed surprisingly little scepticism about this untested assertion. Such a sanguine attitude is misplaced.

 …companies doing business in Europe would pay higher tax bills. …CCCTB would drive some investment to more flexible and competitive tax jurisdictions outside the EU. Business lobbies have only backed the scheme if CCCTB is optional for companies. But, for how long could it remain optional? If simplicity and a reduction in administration costs are part of the raison d’être , then running an additional system side by side with national tax regimes makes no sense. The Commission said in 2006 that: “CCCTB should initially [my italics] be proposed as optional for companies”, and on May 2 it said: “CCCTB should be optional … where these [existing rules] are maintained alongside the CCCTB by member states.” …Despite assurances that it does not intend to extend this work to cover the tax rate, the Commission has a long history of pushing for harmonised tax rates – and a common tax base is a prerequisite of tax rate harmonisation. When the Commission embarked on this initiative, France and Germany made no secret that their end-game was tax rate harmonisation.