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Tuesday, January 12, 2010

Business & Finance (Ireland): EU Commissioner urges standard corporation tax laws

European Union countries face having to standardise the way they tax companies under plans to be examined by the bloc's executive, the nominee to be the EU's next taxation chief said on Tuesday.

Answering questions in the European Parliament, Algirdas Semeta said one of his priorities was to draft rules to eliminate differences in the way companies pay tax in the 27-member-state region.

"In taxation, we still have many loopholes. It's our goal -- (French internal markets commissioner Michel) Barnier and myself -- to close the loopholes," he said.

Sixteen countries in the European Union use a single currency and abide by laws laid down in Brussels by the European Commission and parliament.

Nonetheless, many are strongly opposed to surrendering sovereignty on taxation. Some, such as Britain, fear such moves could pave the way for a single European income tax.

If Semeta, a 47-year-old Lithuanian mathematician, succeeds with his plan, the depreciation of company cars, for example, or costs of entertaining customers, would attract standard tax breaks throughout Europe rather than varied treatment.

Semeta explained his plans at a special hearing as he tried to persuade parliamentarians to make him the taxation commissioner.

At the hearing, he resurrected the company-tax project, which had been abandoned by his predecessor in an unsuccessful attempt to avoid upsetting Ireland ahead of its first referendum on the EU's Lisbon reform treaty in 2008.

EU tax policy emerged as a key argument by Ireland's "No" campaigners who said plans for the so-called common consolidated corporate tax base was the first step towards single company tax rates across the EU.

RESISTANCE TO TAX REFORM

"I think that we have to move forward with this proposal as fast as possible," Semeta told parliamentarians. "The proposal itself said that it will be optional. It will be possible for companies to choose."

Jeremy Jennings, an EU regulation expert with accountants Ernst & Young, said the new commissioner would encounter difficulties. "This is trying to simplify life for larger small and medium sized companies," said Jennings.

"The problem is that in the euro zone, with interest rates set centrally, countries have very few levers to control their national economy. Setting the rate of tax is one of the main ones and they are very reluctant to give it up."

David Simpson, an EU tax law expert with accountants BDO, said the odds were stacked against such a change.

"You need the agreement of all 27 member states," he said. "The UK and Ireland have already said they are not interested. The more likely adoption is through enhanced cooperation and even still you have a host of technical issues to be resolved."

Britain's Taxpayers' Alliance, which campaigns against EU tax harmonisation, said tax competition was essential for economies across Europe to grow out of recession.

"Around the world there are countries who would love to be able to set a lower tax rate than their competitors in Europe to attract business away from us," the alliance's campaign director, Mark Wallace, said.

Several tax rulings by the European Court of Justice, the bloc's top court, have highlighted the difficulties posed by a patchwork of national rules.