Kovács to study EU corporate tax

The European Commission has insisted it is not considering harmonising member states’ corporate tax rates despite launching a study which will look at the possibility of introducing an EU-wide rate.

The tender for the study, published in the official journal in July, will examine "a compulsory common consolidated corporate tax base accompanied by a harmonised corporate income tax rate". But a Commission spokeswoman said that the scenario was one of four that the study would examine and did not reflect the intention of László Kovács, the European tax commissioner.

"In any impact assessment we examine all the scenarios including the two extremes: doing nothing and doing everything," the spokeswoman said.

The study is being prepared ahead of a proposal by Kovács next year to harmonise the corporate tax base.

But Slovakia’s ministry of finance said the study should not focus on a consolidated corporate tax rate since the issue being considered by the Commission and a working group in the Council of Ministers was a corporate tax base. "The tender put out on the study is premature…that request for evaluation of the scenario’s effects with a harmonised tax rate is running over the frame of the group"

The other three scenarios which the study will examine include an optional common corporate tax base, an optional common consolidated corporate tax base and a compulsory consolidated corporate tax base.

In the fourth scenario, to harmonise the corporate tax base and rates, the tender states: "The main economic effect that should arise from this scenario …is that full harmonisation of corporate tax bases and rates in the EU27 would eliminate all corporate tax distortions of the cross-country pattern of investment and allocation of tax bases."

It adds: "This should be reflected in efficiency gains from an improved international allocation of capital within the EU."

The Commission is still considering offers to carry out the study, which must be completed in 18 months from the date of signing the contract.

While some EU states, such as Germany and France, would support Commission moves to harmonise the corporate tax rates, others, such as the UK, Ireland and Slovakia, are vehemently opposed. These states are also opposed to harmonising the corporate tax base, fearing it would eventually lead to an EU tax rate.

But a recent survey conducted by the accounting firm KPMG international has found that in most EU states, large companies would prefer to see a consolidated tax base.

Finance directors and tax managers in 403 large businesses said that a consolidated tax base would allow companies with operations in more than one EU member state the option of calculating their profits using one pan-EU formula, rather than 27 different formulae used now. Tax professionals in the UK even supported the idea with 62% in favour and 32% against. Ireland and Slovakia registered the lowest support at 50% each.

The survey also showed support for a consolidated tax rate with 69% of respondents in favour. Most respondents in the UK, Cyprus, Ireland, Poland and Switzerland said that they were against the idea.

The European Commission has insisted it is not considering harmonising member states’ corporate tax rates despite launching a study which will look at the possibility of introducing an EU-wide rate.