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EU Pushes Common Corporate Tax Base, Challenging Ireland

March 16 (Bloomberg) -- European Union regulators revived a push to create a common base for calculating the taxable profits of companies, recommending a system that would be optional for businesses in a bid to win over opponents including Ireland.

The European Commission proposed a single method for calculating income to save companies the cost of complying with different rules in each EU country where they file a return. Tax rates would remain in national hands under the draft law on a common consolidated corporate tax base, or CCCTB, which the commission says would save companies 700 million euros ($977 million) a year in compliance costs.

“The CCCTB will make it easier, cheaper and more convenient to do business in the EU,” European Taxation Commissioner Algirdas Semeta told reporters today in Brussels. The proposal by the commission, the EU’s regulatory arm, needs the support of all 27 national governments to become law.

Ireland and the U.K. have for years blocked discussion of standard EU-wide tax rates, saying the policy area is a national responsibility. The two countries have also opposed a common EU tax base, fearing it would open the door to harmonized rates.

This past weekend, Irish Prime Minister Enda Kenny failed to persuade fellow European leaders to cut interest rates on emergency loans for Ireland because he refused to pledge support for efforts to promote more tax-policy coordination in Europe. Ireland, keen to defend its 12.5 percent corporate tax rate -- among the lowest in the EU -- in November became the first nation to tap the euro area’s rescue system for countries with high budget deficits after Greece received a separate bailout.

Reservations

The Irish government expressed reservations about the new draft EU law while vowing to take part in talks on it.

“We remain skeptical about many aspects of the CCCTB,” the Irish Finance Ministry said in a statement. “But we will work constructively with the commission and other member states on the issue.”

Under the EU law, companies would have the choice of consolidating all profits and losses across the bloc. The single consolidated tax return would be used to establish the tax base of the company, after which the EU nations in which the company is active would be entitled to tax at their own rate a portion of that base according to a formula linked to assets, labor and sales, the commission said.

‘One-Stop-Shop System’

“This would all be done through the tax authorities of the company’s principal member state,” said the commission, which called it a “one-stop-shop system.”

The CCCTB would save businesses 1.3 billion euros a year through consolidation, according to the commission. In addition, companies seeking cross-border expansion would save as much as 1 billion euros, it said.

BusinessEurope, a Brussels-based lobby group representing 20 million companies, hailed the commission proposal as an opportunity to reduce costs for businesses in the EU. In a statement, BusinessEurope also said its support was conditional on the common tax base being optional and excluding “any form of tax-rate harmonization.”

Semeta said the commission’s proposal isn’t a step toward EU tax-rate harmonization. He also said he “firmly” believes tax rates are a matter for national governments.

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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