Moscovici’s CCCTB proposal proves unworkable both in theory and in practice
Lucinda Ritchie // 21 July 2017
The European Commission seems unable to decide the primary function of the CCCTB; is it mainly an anti-tax-avoidance scheme or is it an exercise in harmonisation? What is clear, however, is that such indecision and plurality of function allows for more extensive and diverse criticism. As we have underscored in another recent blog post, in trying to make CCCTB all things to all Member States, the resulting legislative proposal underscores the polarisation of interests and concerns for European economies.
The most damning appraisal of the proposal can be drawn through examination of these variances in criticism. Doubt and hesitation is expressed by such a diverse set of Member States that it can be easily surmised that the problems with the CCCTB proposal are significant in their breadth and depth.
Firstly, Cyprus’s Minister for Finance has pointed out the difficulties that small economies, such as their own, will have in implementing the CCCTB measures. Such difficulties would be likely to result in the creation of two different tax systems – one for larger economies that attract greater investment and corporate activity, and one of smaller economies with more localised considerations.
It is not only small economies that are sceptical of the motivations behind this new effort in tax harmonisation, the UK’s European Scrutiny select committee emphasised the more abstract threat that the CCCTB poses to individual States’ tax sovereignty. Furthermore, no doubt with an eye towards Brexit, the Committee suggested that the Euro-centric nature of this proposal is a serious weakness; tax avoidance problems are global, the EU should not isolate itself from international currents and norms.
It is significant that the UK should attach such importance to the potential flaws of CCCTB considering that according to the 2011 EY report on the policy, the UK would be set to increase its tax revenues by 2% under it.
Objections have also been raised by Sweden and Denmark. This is notable since both of these countries have a track record of being relatively open to integrative policies, and inclusive economic measures. Both nations are dubious about the narrowing of their tax bases, and the implications that such a restriction would have for their budgetary revenues.
It is inevitable that countries such as Ireland and Luxembourg should be extremely nervous about the imposition of CCCTB, since many of the features of this directive seek explicitly to target their existing tax systems. The Commission’s legislative summary of 21st June 2017 refers to the persistence of ‘unfair tax competition amongst Member States’; a phrase likely to send chills down the collective spine of Irish free-marketeers. Although Moscovici has half-heartedly attempted to allay Irish worries by stating in front of the Irish parliament that the Irish loss of revenue would amount to a paltry 0.2%, Ibec has set the figure at a more realistic 7.7%.
While it is easy to disregard Ireland and Luxembourg’s protests as self-interested whining with a questionable moral footing, Luxembourg’s Minister for Finance Pierre Gramegna has raised noteworthy and persuasive points. Indeed, the assertion that many of the clauses of the proposal overlap with existing directives is shared also by the Netherlands.
Also, if one were to begin to disregard the opinions of Member States’ based upon their difference to other States then the EU would be in a very dangerous position. The EU should celebrate the diversity of Member States, to find common ground within a multinational framework rather than to artificially create a centralised and bureaucratic notion of what Europe’s common ground is.
Such is the variety of critics and criticisms that it seems doubtful that Moscovici will be able to overcome them without the Commission sacrificing its own credibility.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).
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