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Common corporate tax base wins strong support across EU

Banking

FDs polled by KPMG are strongly in favor of a unified EU corporate tax base, citing lower compliance costs and advantages for trading outside the EU – though few believe a common system will arrive by the target date of 2010.

European FDs are overwhelmingly in favor of creating a common European base for corporation tax, according to as survey released this week by KPMG. Overall, 78% of a 400-strong sample from the EU-27 expressed support for the EU Commission’s common consolidated corporate tax base (CCCTB) proposals. Over one-third were willing to say that they would definitely approve and implement the EU plan, even though its final details will not be revealed until next year. Some 69% went further and endorsed a uniform rate of tax, even though this is not something that Brussels has ever proposed.

The CCCTB would enable companies operating in more than one EU country to calculate their liability using an EU-wide formula, instead of the present separate rules for each member state. Profits would still have to be calculated within each country, to be taxed at the local rate. The Commission sees this as “the only systematic way to address the underlying tax obstacles which exist for companies operating in more than one Member State.” FDs’ support is mainly motivated by the expectation of easier budgeting and planning, and reduced compliance costs. It comes despite 22% believing their company would pay more tax under the proposals, and only 21% expecting less, the rest expecting little change.

Over 40% of companies also believe that standardized tax treatment within the EU would make them more competitive in exporting outside it. “If EU member states are able to consolidate their low rates and simplify the compliance system, they have an opportunity to win a potentially lasting competitive advantage for European companies,” says Sue Bonney, KPMG’s head of European tax. However, the averages conceal a divergence of opinion across the EU. The unified base gets unanimous support in Spain, Denmark and the Czech Republic, but is favored by only 62% of UK respondents, and support drops below 50% in Ireland and Slovakia. Most UK finance and tax chiefs also oppose the unified rate, along with counterparts in Ireland and Poland.

And despite their general enthusiasm, most of those polled believe the Commission is being far too optimistic in believing it can get the single system implemented by 2010. One in three believe it won’t be ready even in 2015, and 15% suspect it will never happen. The CCCTB working group has identified various obstacles to standardization, especially member states’ different approaches to social security funding, with some imposing tax-deductible social security contributions and others funding welfare from general taxation. But the main obstacle could well be political rather than practical, with opposition from countries like Ireland, Hungary and Luxembourg that currently use low corporate tax rates to attract business, and from the footloose companies that have gained a cost advantage within the EU by locating there. (financeweek.co.uk)

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