Thursday, March 17, 2011

Why progressives should support the European Common Consolidated Corporate Tax Base

The Progressive Tax Blog has a useful new post about European proposals for tax co-ordination which, despite its horrible-sounding name (Common Consolidated Corporate Tax Base, or CCCTB) is actually a most important initiative. (The EU has a quickish primer on this idea, here, which we've added to our transfer pricing webpage.)

The CCCTB proposal is a version of what is sometimes known by the (similarly horrible) names of formula apportionment, or formula allocation. The progressive tax blog notes that EU has released its proposals for this, here, noting among other things that it doesn't require countries all to harmonise their tax rates together.

The political dynamics are interesting:
"While the Commission is proposing for it to be optional (at least initially) for groups to elect into the CCCTB, it is not unreasonable to assume that after a few years of the CCCTB being in place there would be proposals to make it mandatory. We would therefore expect multinationals to lobby the UK and other governments furiously to oppose the measure (even though their tax compliance requirements would be significantly reduced), providing an excuse for the Conservative-led UK government, Irish government and others to ‘defend’ business from ‘EU bureaucrats’ (or as David Cameron might put it, ‘enemies of enterprise‘). "
Indeed. far from entailing a loss of sovereignty, as some have argued, this would allow a negotiated solution between nations to defend their sovereignty against attacks from tax havens and aggressive corporate tax avoidance.

The Financial Times covers this here. It does quite a good job of consisely summarising the proposal:

"Tax bills of companies which have offices around Europe would be calculated centrally and then divided up between the countries where they operate according to the amount of business which they do in each state. Individual countries would still decide at what rate to tax profits allocated to them."

And it notes that we don't necessarily need unanimity on the proposal for all European countries:

"It has already been suggested that the CCCTB plan could be pursued by the rarely used “enhanced co-operation” procedure, where a group of EU countries agrees to co-operate administratively even if all 27 do not take part."


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