Commerce committee wants EU to ditch corporate tax reform

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By Stelios Orphanides

The parliamentary committee for energy, commerce, industry and tourism said that it objects to the European Commission proposals for a corporate tax reform in the European Union.

The parliamentary committee which prepared an opinion on two proposed directives, tabled by the EU Commission in October last year, to introduce a common corporate tax base (CCTB) and a common consolidated corporate tax base (CCCTB), after it consulted stakeholders, including the executive branch earlier this year, asks “EU institutions to take into account” Cyprus’s concerns related to the “specificities” of member states.

“The necessity and legal basis of the proposed regulations have not been sufficiently supported,” the committee said in a document seen by the Cyprus Business Mail.

The proposed directives aim at countering aggressive tax planning by multinational companies and provide that they will pay taxes in the jurisdictions they generate their profit, address base erosion and profit shifting which facilitate tax avoidance and encourage companies to finance their operations with equity instead of borrowing. It also encourages innovation via tax incentives for research and development.

The proposals could eliminate the comparative advantages of Cyprus’s business services sector comprised of accounting and audit firms as well as law companies which rely on a clientele seeking to benefit from the Cypriot corporate tax rate of 12.5 per cent as well as the double taxation avoidance treaties Cyprus signed with 60 other jurisdictions. Cyprus’s wealth defence industry is estimated to account for roughly 15 per cent of economic output.

The introduction of CCTB will limit the “autonomy and sovereignty of member states” with respect to tax policy affecting both tax revenue and economic and social policy, as well as their competitiveness, the committee said. In addition, it is up to a member state to decide on the fairness of a tax system, including the balance between equity and loans.

“The CCTB proposal may negatively affect foreign investment, employment and the gross domestic product of certain member states,” the committee continued. The reference to advantages with respect to investment, employment and economic output in the EU as a whole included in an impact assessment of the EU Commission has neither factored in nor evaluated how each member state will be affected by the CCCTB, it continued.

“An additional tax system complicates and increases operation costs for tax authorities of each member state, given that corporate groups not falling under CCTB (and CCCTB, should it be implemented) will continue to be subjected to national tax rules of determining the tax base,” the committee said. The parliamentary committee also disputed the EU Commission’s finding that the proposed rules would reduce compliance cost for companies and added that neither measures taken by individual member states nor through cooperation can help multinationals reduce administrative cost.

The proposed rules may also “alter the balance achieved via bilateral double taxation avoidance treaties signed either with member states or with third countries, as at the time of the signing the provisions of a probable CCTB had not been taken into account,” the committee said. “The EU failed to sufficiently support its CCTB proposal with respect with its compliance to the principles of proportionality and subsidiarity”.

“According to the principle of subsidiarity, the Union has to take action only if and to the extent that the aimed targets are impossible for member states to meet sufficiently,” the commerce committee argued.

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Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Jeremy Rigg

    “A common corporate tax base.”………..ye sure. Very nice for France and Germany but it would completely stuff countries like Cyprus.

  • Didier Ouzaid

    Im not gonna go into the philosophical connections between taxation, the very idea of Nation and democracy and how the raising of taxation is one of the first (if not THE first) rights of a sovereign Nation, for it allows democracy to function according to the People’s will and voice. Obviously these directives favor the larger countries that have the market size to take the hit (it would even probably be a status quo for higher tax countries like France) and a diversified economic structure that can even allow them to target selected sectors with lower tax incentives (to boost innovation, etc).

    Cyprus is a like a safe. It offers tax incentives for shell purposes, and even though it contributes to overall growth, it is nothing unique. It doesnt drive R&D, it doesnt drive innovation, it just makes money. Whether or not these directive projects materialize, it’s high time Cyprus shifted its model a bit and moved away from that grandfather, wealth preservation model.

    It’s not enough to complain, even though you’ll probably have heavier-weight allies such as Luxembourg and Ireland. Cyprus doesnt weigh much in these types of negotiations, they need to be proactive before the storm actually happens.

  • alexander reutersward

    consideriong that all MPs is lawyers, i can see them fighting this as much as possible. Pretty sure they will unite with Malta and Ireland who also live on other countries taxmoney.