EU Plans For Common Tax System Fail 'Subsidiarity' Test

A new draft EU Directive for a common consolidated corporate tax base (CCCTB) across all Member States does not comply with the principle of subsidiarity, a Dáil Committee has concluded.

Subsidiarity is a legal requirement in the Lisbon Treaty to ensure that the EU only proposes common actions that are necessary to bring greater benefits which cannot be achieved at national level alone. National parliaments are responsible for checking that draft EU legislation does not breach the principle of subsidiarity.

The Committee analysed the draft CCCTB Directive which aims to legislate for a uniform EU wide system of calculating the tax base of businesses operating across the EU. It would mean that the companies in the EU would be able to opt for a simplified common system of rules for calculating their tax base.

The Committee concluded that:

• The EU failed to provide sufficient detail which would allow national parliaments to fully assess the impact of CCCTB
• The Commission has not established that EU legislation was justified as the best way to meet the broader objectives of the proposals and that actions by individual Member States alone could suffice
• The plan would introduce a second parallel tax system within each Member State. This would not improve the simplicity and efficiency of EU corporate tax systems
• There is a concern that the proposal may suit larger Members States more and does not adequately address the needs of new start-up SME's

Committee Chairman, Charles Flanagan TD said: “This draft Directive fails the subsidiarity test on a number of counts. It is too vague and fails to establish a coherent case that CCCTB would be of benefit to Ireland and the EU as a whole. Much of the justification is based on assumptions and there is insufficient data available on the implications of this new policy.

“It also may have the effect of indirectly impacting on Ireland’s corporate tax rates which is a sovereign issue for Ireland only and outside the EU’s remit. There is also the concern that the proposal may suit larger member States more.”

He added: “The Lisbon Treaty gave National Parliaments greater influence on draft EU legislation and following careful consideration, we feel that the Dáil should send a Reasoned Opinion to the EU institutions that this proposal breaches the principle of subsidiarity. It fails to meet the EU’s own criteria and could impact on the benefit of Ireland’s lower corporate tax rates.”

The Committee’s recommendation will be passed on to the Dáil for its consideration early next week. A debate is expected to be held in the Dáil on Tuesday on the Committee's report. Under the European Union Act 2009, it is the Houses themselves who make the final decision to agree a Reasoned Opinion for forwarding to the EU institutions. The Committee's Report will also be forwarded to the Minister for Finance to help inform Ireland’s negotiating position on the matter.

(BMcN/KMcA)