Europe considers single corporation tax for member states
The European Commission is to relaunch proposals to establish a single set of corporation tax regulations common to all member states next week. The rules for calculating companies’ taxable profits would be compulsory for firms tax-resident in Europe and with an annual turnover of over £670m. The proposals, which aim to guarantee “business profits are taxed in the jurisdiction where value is actually created”, were initially proposed in 2011 but faced opposition from the UK and Ireland. The UK will be subject to the rules if it stays in the single market after Brexit.

The European commission will redouble its crackdown on multinational tax avoidance next week with the relaunch of proposals to create an overarching corporation tax regime across all member states.

The proposed legislation would subject companies to a single set of rules for calculating their taxable profits, according to drafts seen by the Guardian. It would be compulsory for corporations with annual turnover of more than €750m (£670m) and which are tax-resident in a European country.

Designed to curb the profit-shifting that has allowed multinationals such as Apple, Starbucks and Amazon to avoid corporation tax on substantial amounts of their income in Europe, the proposals were launched in 2011 but ran into opposition from Ireland and the UK, with the then British prime minister, David Cameron, saying he would “simply say no” to the plan.

The rules are designed to ensure “business profits are taxed in the jurisdiction where value is actually created”, according to the drafts, making it harder for multinationals to avoid tax by transferring intangibles such as brand or intellectual property to low-tax jurisdictions. European commissioners describe the proposed rules as “an extremely effective tool for meeting the objectives of fairer and more efficient taxation”.

All member states would have to sign up to the proposal for it to become law. While the UK may leave the EU before the legislation is passed, it retains a seat at the discussion table while it is still a member. If Britain remains in the single market, the new tax rules will apply to it too.

The commission plans to introduce two pieces of legislation. The first, known as the common corporate tax base, would introduce new ways of calculating where a company actually makes its money. The formula looks at where the value is created, based on three equally weighted factors: assets, labour and sales.

The second, the common consolidated corporate tax base, would put a single member state in charge of collecting all European taxes due from a particular company. Those revenues would then be shared among the other member states according to where the profits were made. This second piece of proposed legislation will be held back until the first has been agreed.

The rules are designed to target only the largest companies, and those with cross-border activities, accounting for 64% of business turnover generated within the EU. But smaller companies could elect to join the scheme, if they feel being taxed only in one country could cut red tape.

Large companies spend about 2% of taxes paid on doing the paperwork, according to the commission’s estimates, while for smaller firms the estimate is about 30% of taxes paid. The more subsidiaries a company has, and the more it trades across borders, the higher itgo s administration costs. If all multinationals paid tax through one European country, the saving could be €800m a year.

The proposals are likely to be resisted by Ireland, which has a low corporation tax rate of 12.5% and relies on tax competition to attract multinationals to set up head offices on its shores. Dublin is still reeling from a European commission ruling in August that it had granted €13bn in illegal benefits to Apple.

In May 2011, the Irish parliament passed a motion denying the legality of the commission’s original proposals, with politicians branding them an assault on the country’s tax sovereignty. A similar parliamentary motion was backed by the UK government that year.

As a next step, the proposals are likely to go to the European parliament for discussion and amendment, before being put to the council of ministers for approval.

“Britain is at a crossroads,” said the Green MEP Molly Scott Cato. “Will we follow Europe in promoting action on tackling corporate tax avoidance, or follow the route being pushed by some hard-Brexit supporters and become one of the globe’s leading tax havens? It is clear that the public interest will be best served by remaining as close as possible to Europe on tackling the scourge of corporate tax dodging.”