A unified tax regime across Europe: evaluating the impact
Turbulent times in the EU have caused political leaders to consider the benefits of having a unified tax regime once again.
Politicians across the EU are under pressure to address many problems, but a particular focus for the media and many voters is the issue of tax avoidance. With EU politicians needing to show consensus on a range of issues, could the introduction of a unified tax regime, a Common Consolidated Corporate Tax Base (CCCTB), across the EU provide an opportunity for a relatively ‘easy’ win?
Two previous attempts at a unified tax regime have failed. What are the likely consequences and will it be any more successful this time?
According to the European Commission, a CCCTB would:
- be a solution to profit shifting and corporate tax abuse within the EU by eliminating the mismatches between national tax systems
- enable a common approach to non-EU countries
- provide a unified approach in countering aggressive tax planning.
Both the European Parliament and the President of the European Commission are in favour. Corporate tax as a source of tax revenue is diminishing and changes here will have less of an impact. And, of course, the EU is supposed to be a single market.
After the reduction and elimination of preferential regimes, there will be winners and losers among member states. The losers will need to raise taxes in other areas, reduce public expenditure or a mixture of both. Higher tax expenses will reduce companies’ profit margins. This could mean raising prices for customers or cutting back on operations and employing fewer people. Those investing in the corporate sector could receive a lower return on their investment. Finally, if the CCCTB is introduced successfully, attention will then turn to other taxes.
But will it succeed this time?
The answer is ‘probably not’. Regardless of whatever else is happening, sovereignty over fiscal policy is probably a ‘red line’ over which member states will not cross, particularly for those outside the eurozone. ‘Austerity’ is still a difficult issue in most parts of the EU, and competition between member states for tax revenues is likely to remain for some time yet.
Dividing EU consolidated taxable profit between member states is probably too difficult to resolve for the time being. Any benefit derived from the momentum generated by the OECD BEPS project will be put to the test as all countries involved with BEPS are requested to introduce changes into their domestic legislation.
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