Representation in Ireland

corporate tax

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Commissioner Vestager addressing the committee

The EU Competition Commissioner Margrethe Vestager today addressed the Oireachtas Committee on Finance, Public Expenditure and Reform.

See below for the full text of the Commissioner's address.

31/01/2017

"I want to thank this Committee, and especially its chairman, Mr McGuinness, for inviting me to this hearing.

This year, it will be sixty years since the Treaty of Rome was signed. And competition rules – including state aid rules – have been part of the Treaty since the very first day.

Because the founders of the European Union knew that you can't have a successful single market without a level playing field.

They knew that without state aid rules, companies that were based in smaller countries would find it difficult to compete. Because their governments could not hope to win a subsidy race against big countries, with deep pockets. So when Ireland – and Denmark – joined the EU in 1973, they entered an organisation which they knew would give small countries a fair chance.

The founders also knew that without state aid rules, governments could use subsidies and special tax breaks to recreate barriers between countries.

So the state aid rules have helped to make the single market what it is. It is an open and fair market, where efficiency and innovation, not state support, are the key to success. And Ireland – with its highly educated workforce and its welcoming environment for business – has understood perhaps better than any other country how to turn membership of the single market into economic success.

I know that there is uncertainty, especially here in Ireland, about what the effects of Brexit will be. What I think is not in doubt is that the single market – even with 27 members – will continue to be the basis of our prosperity. And that it must – and will – remain a market where every company and every country, big or small, is treated equally.

This is why enforcing the state aid rules is as important now as it was when the Treaty came into force, nearly sixty years ago.

At the moment, our decisions on tax rulings are being appealed by the companies and governments involved. So it wouldn't be appropriate for me to go into the details of the legal arguments at this point. But I am very glad to have this chance to explain how we have gone about our work on state aid and tax rulings.

Our recent decisions on illegal state aid, in the form of special tax treatment, are based on principles that have been part of the law for many years. Those principles are essential to make the single market work for all countries, big or small.

The European Court of Justice made clear in the 1970s that preferential tax treatment could be state aid, in the same way as a grant given in cash. Because both undermine the level playing field, by giving some companies a benefit that isn't available to their rivals.

The Commission gave guidance in 1998 on when corporate tax rules can lead to State aid. And the European courts confirmed in 2006 that dealings between group companies had to be on market terms to avoid State aid.

So the rules on state aid and special tax treatment have been clear for a long time. What has changed recently is that multinational companies have been pushing the boundaries of aggressive tax planning.

Since that came to light, we have investigated tax ruling practices throughout the EU.

Our investigation into the Irish tax ruling began in 2013, after Apple told a US Senate hearing about what it called a “tax incentive arrangement” with Ireland. Since then, our work on tax rulings has gone far beyond that case, and beyond Ireland.

We have asked every EU Member State for information on tax rulings. And we have followed up with in-depth investigations in the most serious cases.

Those investigations have been carried out with the full involvement of the companies and governments concerned. They have led to four decisions so far, involving aid to Fiat in Luxembourg, to Starbucks in the Netherlands, to a number of large companies in Belgium and to Apple here in Ireland.

Those decisions should help the single market to work better, by giving all companies, big or small, the chance to compete on equal terms. And we will continue our work, to make sure that there is an effective deterrent against corporates' tax planning practices that are against the state aid rules.

But let me be clear about two things.

First, these cases do not mean that we object to tax rulings in principle. Tax rulings as such are perfectly legal. They give companies clarity on how their tax bills will be calculated, or how certain tax rules will be applied. We simply want to make sure  that they are not used to rubber stamp a way of allocating profits that does not match economic reality.

And second, these cases do not mean that the Commission is claiming authority over tax rules – national or international. They do not affect the sovereign right of Member States to determine their own corporate tax systems, or to set their own tax rates. They are simply about special treatment for certain companies.

I believe that fighting against aggressive tax planning practices should make countries like Ireland an even better place to invest. Ireland has a highly skilled workforce and modern infrastructure. It has chosen - and this is its sovereign right - to set a low corporate tax rate. And enforcing the state aid rules means Ireland, and other EU Member States, can also offer investors a place in a fair and open single market – at the tax rate they each decide.

Thank you very much for your giving me the chance to make this opening statement. I look forward to taking your questions."

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Commissioner Pierre Moscovici

European Commissioner for Economic & Financial Affairs, Taxation & Customs, Pierre Moscovici, was in Dublin this morning and spoke to media. His remarks are below. Later today he will speak to an Irish Times conference on Taxation (11.10 am) and meet the Oireachtas Finance Committee (1.15pm).  

24/01/2017

Good morning. I’m pleased to have this occasion to meet with you at the start of an intense day in Dublin. Later today I will address a conference on corporate taxation organised by the Irish Times, have an exchange of views with the members of the finance committee in the parliament, and have a meeting with a number of stakeholders.

I would like to share with you some thoughts on three topics – corporate taxation, on the upcoming negotiations with the UK and on the current wave of populism that is sweeping the West – before taking your questions.

Corporate taxation and Ireland

On the issue of corporate taxation, I want to say four main things.

  • First, the European Commission fully respects Ireland's tax sovereignty. This sovereignty is protected by the Treaties and reinforced by the unanimity rule. All voices are equal in EU tax policy and no Member State can be overruled. In particular, the EU poses no threat to Ireland's corporate tax rate. The only way that the 12.5% can be changed is by the Irish government itself. 
  • Second, our proposal for a redesigned Common Consolidated Corporate Tax Base has a lot to offer to Ireland, if one is willing take a fresh look at it. The CCCTB can make Ireland even more attractive to foreign investors: in addition to Ireland’s 12.5% rate – which will not be changed by this proposal – it would have a modern, simple and stable corporate tax system, which applies across the entire EU. This is a combination which, coupled with the other factors underpinning the Irish success story, would in my view boost and not undermine Ireland’s attractiveness as an investment location.
  • Third, the CCCTB is not a "diktat from Brussels". It is a proposal, which all Member States must now negotiate. Ireland must bring its best ideas to the table, and fight its corner when it needs to. Every Member State should be a winner with the CCCTB.  We will defend our proposal, but we will not stand in the way of any good compromise.
  • And fourth, the EU needs a strong Ireland and Ireland needs a strong EU. Ireland's success, Ireland's growth and Ireland's competitiveness are good for our Union as a whole. And a stronger, fairer and more competitive EU makes Ireland stronger too. We are good for each other – and we will be even more important to each other in the uncertain years ahead.

Brexit

As regards the UK, the Commission has been working hard to prepare for the upcoming negotiations. Our negotiator, Michel Barnier, has assembled a very strong team and has sounded out the other 27 Member States on the key issues.

It is not a situation we chose: it is one that we regret, but which we must deal with. And we will, in an orderly manner. I know how important this is for Ireland in particular.

We made clear from the start that there could be no negotiations before notification. And there will not be.

I will not speculate on how the various issues on the table will be addressed. But I want to make three points very clearly:

First, the Commission will defend the interests of the 27 in this negotiation. Our priority is to get the right deal for them.

Second, we will not waver on the indivisibility of the four freedoms – as Mrs May has realised.

And third, the new arrangement must be clearly inferior to membership of the European Union.

An agreement on an orderly exit is a prerequisite for a future partnership, as Michel Barnier has said clearly. The UK will remain part of Europe. We will continue to share Western values. We will still have to work together to address global challenges. In these times of global uncertainties, we need to preserve our unity as much as possible.

Dealing with populism

Lastly, a few words on populism. If you ask me how serious the current situation, I will tell you that I believe that the achievements of the past half-century are under threat as never before. Not only those of European integration, but those of the entire international trading and security architecture. How we respond to this threat will define the future of Europe and the West.

Growing numbers of our citizens feel globalisation has led them to a dead-end economically, socially and politically. They want radical change and they do not believe it can come from an establishment they see as detached from reality, geographically and socially distant from them, and indifferent to inequality.

As far as Europe is concerned, I believe that our response must be to build a more political Europe, with a strong eurozone at its heart. This more political Europe must do three things:

  1. It must better protect its citizens. I do not want a protectionist Europe: I want one that ensures that the benefits of globalisation flow to all parts of society.
  2. It must become more accessible and democratic. The inefficiencies and complexities of the EU are a gift to the populists who urge voters to “take back control". We must find a way to strengthen the political contract – and political contact – between Europe and its citizens.
  3. And it must deliver real economic dynamism. That demands a relentless focus on human capital and productivity. It means doing more to close the enormous investment gap that is one of the lasting legacies of the crisis. And it means continuing to fight for fair, transparent taxation.

In short, for voters to see the EU as legitimate, they must see it not as a problem-maker but as a problem-solver.

As regards the transatlantic relationship, we will soon know the details of the policies the new administration will pursue. The American people will then draw their own conclusions and so must we. To paraphrase two previous Republican Presidents: will this be morning in America…or a new world disorder?

What is clear is that this new chapter in the transatlantic relationship requires us to be both open-minded and vigilant. A strong EU-US relationship has underpinned our security, prosperity and liberty since the end of the Second World War. It would be a tragedy if this were undermined.

I hope, in spite of some of very discouraging signals we are already seeing, that the US will remain a reliable partner in key global fora such as the G20 on issues like trade, financial regulation, tax transparency, climate change. We will work to that end, but of course, it takes two to tango.

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Commissioner Pierre Moscovici

The Commission has today announced plans to overhaul the way in which companies are taxed in the Single Market, delivering a growth-friendly and fair corporate tax system.

Re calibrated as part of a broader package of corporate tax reforms, the Common Consolidated Corporate Tax Base (CCCTB) will make it easier and cheaper to do business in the Single Market and will act as a powerful tool against tax avoidance.

25/10/2016

First tabled in 2011, the CCCTB was designed to strengthen the Single Market for businesses. While Member States made considerable progress on many core elements of the previous CCCTB proposal, they were unable to reach a final agreement. Having sought the views of Member States, businesses, civil society and the European Parliament, we are today bolstering the pro-business elements of the previous proposal to help cross-border companies cut costs, red tape and to support innovation. The re-launched CCCTB will also create a level-playing field for multinationals in Europe by closing off avenues used for tax avoidance.

Two further proposals aim to improve the current system for dispute resolution on double taxation in the EU and to bolster existing anti-abuse rules. Taken together, these measures will create a simple and pro-business tax environment.

Vice-President Valdis Dombrovskis said: "Tax policy should support the EU's goals of economic growth and social justice. Today's proposals aim to boost growth and investment, support enterprise and ensure fairness. The current corporate tax system treats debt financing of companies more favourably than equity financing. Reducing this debt-equity bias in the tax system is an important element of the Capital Markets Union Action Plan and underlines our commitment to deliver on this project."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: "With the rebooted CCCTB proposal, we're addressing the concerns of both businesses and citizens in one fell swoop. The many conversations I've had as Taxation Commissioner have made it crystal-clear to me that companies need simpler tax rules within the EU. At the same time, we need to drive forward our fight against tax avoidance, which is delivering real change. Finance Ministers should look at this ambitious and timely package with a fresh pair of eyes because it will create a robust tax system fit for the 21st century.”

To encourage swift progress, the CCCTB has been broken down into a more manageable, two-step process. The common base can be quickly agreed to unlock key benefits for both businesses and Member States. Consolidation should be introduced soon afterwards and would allow all the benefits of the complete system to be reaped.

  1. The Common Consolidated Corporate Tax Base (CCCTB)

With the CCCTB, companies will for the first time have a single rulebook for calculating their taxable profits throughout the EU. Compared to the previous proposal in 2011, the new corporate taxation system will:

-             Be mandatory for large multinational groups which have the greatest capacity for aggressive tax planning, making certain that companies with global revenues exceeding EUR 750 million a year will be taxed where they really make their profits.

-             Tackle loopholes currently associated with profit-shifting for tax purposes.

-             Encourage companies to finance their activities through equity and by tapping into markets rather than turning to debt.

-             Support innovation through tax incentives for Research and Development (R&D) activities which are linked to real economic activity.

Corporate tax rates are not covered by the CCCTB, as these remain an area of national sovereignty. However, the CCCTB will create a more transparent, efficient and fair system for calculating the tax base of cross-border companies, which will substantially reform corporate taxation throughout the EU.

The CCCTB will improve the Single Market for businesses

Companies will now be able to use a single set of rules and work with their domestic tax administration to file one tax return for all of their EU activities. With the CCCTB, time spent on annual compliance activities should decrease by 8% while the time spent setting up a subsidiary would decrease by up to 67%, making it easier for companies, including SMEs, to set up abroad.

Growth-friendly activities such as R&D investment and equity financing will be incentivised, supporting the wider objectives of reviving growth, jobs and investment. Once fully operational, the CCCTB could raise total investment in the EU by up to 3.4%.

Companies will be able to offset profits in one Member State against losses in another. Tax obstacles such as double taxation will be removed and the CCCTB will increase tax certainty by providing a stable, transparent EU-wide system for corporate taxation.

The CCCTB will help to combat tax avoidance

The CCCTB will eliminate mismatches between national systems which aggressive tax planners currently exploit. It will also remove transfer pricing and preferential regimes, which are primary vehicles for tax avoidance today. It also contains robust anti-abuse measures, to stop companies shifting profits to non-EU countries. Since the CCCTB will be mandatory for the biggest multinational groups operating in the EU, those companies most at risk of aggressive tax planning will be unable to attempt large-scale tax avoidance.

The CCCTB will support growth, jobs and investment in the EU

The CCCTB will offer companies solid and predictable rules, a fair and level-playing field and reduced costs and administration. This will make the EU a more attractive market in which to invest and do business. The re-launched CCCTB will also support R&D, a key driver of growth. Companies will be allowed a super-deduction on their R&D costs, which will particularly benefit young and innovative companies which choose to opt-in to the new system.

Finally, the CCCTB will take steps to address the bias in the tax system towards debt over equity, by providing an allowance for equity issuance. A set rate, composed of a risk-free interest rate and a risk premium, of new company equity will become tax deductible each year. Under current market conditions, the rate would be 2.7%. This will encourage companies to seek more stable sources of financing and to tap capital markets, in line with the goals of the Capital Market Union. It would also provide benefits in terms of financial stability, as companies with a stronger capital base would be less vulnerable to shocks.

2.       Resolving Double Taxation Disputes

The Commission has also proposed an improved system to resolve double taxation disputes in the EU. Double taxation is a major obstacle for businesses, creating uncertainty, unnecessary costs and cash-flow problems. There are currently around 900 double taxation disputes in the EU today, estimated to be worth €10.5 billion. The Commission has proposed that current dispute resolution mechanisms should be adjusted to better meet the needs of businesses. In particular, a wider range of cases will be covered and Member States will have clear deadlines to agree on a binding solution to double taxation.

  1. Addressing Mismatches with non-EU Countries

The third proposal in today's Package contains new measures to stop companies from exploiting loopholes, known as hybrid mismatches, between Member States' and non-EU countries' tax systems to escape taxation. Hybrid mismatches occur when countries have different rules for taxing certain income or entities. Companies can abuse this to avoid being taxed in either country. The Anti-Tax Avoidance Directive, agreed in July, already addresses mismatches within the EU. Today's proposal completes the picture by tackling mismatches with non-EU countries and is being made at the request of the Member States themselves.

The Package also contains a Chapeau Communication, outlining the political and economic rationale behind the proposals, as well as impact assessments on the CCCTB and the dispute resolution mechanism.

These legislative proposals will now be submitted to the European Parliament for consultation and to the Council for adoption.

 

For more information:

Q&A on the CCCTB

Chapeau Communication on CCCTB

More informationon CCCTB

Video: "CCCTB – it's good for Europe"

TAXUD on YouTube

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