Germany hopes to see progress on EU corporate tax strategy

THE GERMAN government has said it hopes to see progress on a controversial EU strategy to agree a common method of computing corporate taxes across Europe this year.
But it has still not decided whether it would join a small group of EU states that want to implement a harmonised corporate tax base if the measure is vetoed by the Republic.
"We would prefer to see progress in the CCCTB [common consolidated corporate tax base] field . . . not so much because of German competitiveness but more because of enhancing the competitiveness of companies actively engaged in Europe," said Thomas Mirow, state secretary at the German Federal Ministry of Finance yesterday, while noting it was a politically sensitive issue.
Asked if he felt that a harmonised corporate tax base would inevitable lead to harmonised tax rates, Mr Mirow said: "There might be such a tendency. But on the other hand, it is apparent that a welfare state like the one we have in Scandinavia, or to a certain degree in Germany, has other financial demands compared to the situation in the Baltic states. So I think no one can envisage for any reasonable future that we would see completely comparable rates."
Asked whether Germany would join a group of states that wished to go ahead on their own with a CCCTB plan under an EU procedure known as "enhanced co-operation", Mr Mirow said it was too early to say until the French had advanced their proposals.
He also confirmed that the EU was aware that the issue could hurt the upcoming EU referendum in the Republic.
"I will be very cautious on that because we will take into due consideration important political developments in one country of the EU which I think is a little sensitive to these questions, if I am well informed," he said
CCCTB is the acronym used to describe a draft European Commission plan to harmonise the corporate tax base throughout the EU. Tax commissioner Laszlo Kovacs plans to propose the measure in the autumn as a way to cut compliance costs for EU companies and France has pledged to promote the plan during its six-month-long EU presidency.
The core of Mr Kovacs's plan is that the profits of businesses operating in more than one EU state should be calculated according to a single EU-wide formula, rather than the 27 formulas currently used.
Profits would then be reallocated to the countries in which the businesses are active, to be taxed at the tax rates of those countries.
But he is also considering consolidation, which could see profits being allocated between countries using measures including size of payroll, value of asset base within a particular country, sales or other measures.
One device under consideration by the commission is the introduction of a "sales factor" into the formula, which should be based on "sales by destination".
Under the "sales by destination" formula, a member state such as the Republic with a small population would lose substantial tax revenue. This is because it would divert a portion of a company's corporate tax payments to the EU state where the consumer buys the product, rather than the state where the firm is based.
The Government fears the plan would undermine tax competition and its own 12.5 per cent corporate tax rate, which has supported the Republic's economic success.
Mr Mirow downplayed the conclusions of a recent consultancy report commissioned by his finance ministry, which suggested a CCCTB system may not be good for Germany. "I see lots of reports," said Mr Mirow, who added that he felt it would boost the competitiveness of Europe.
"I personally believe that the discussion is too often seen from the perspective of the competitiveness of certain member countries and too seldom seen under the aspect of competitiveness of Europe as a whole for companies who could invest either in Europe or in Asia or in Latin America."