Charles Flanagan (Laois-Offaly, Fine Gael)

I move:

That Dáil Éireann:

(1) notes the Report of the Standing Order 103 Select Committee on the Proposal for a Council Directive on a Common

Consolidated Corporate Tax Base (COM(2011)121) which was laid before Dáil Éireann on 12 May, 2011 in accordance with Standing Order 105(3)(b);

(2) having regard to the aforementioned Report, and in exercise of its functions under section 7(3) of the European Union Act 2009, is of the opinion that the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base does not comply with the principle of subsidiarity for the reasons set out in paragraphs 6 to 10 of the Report, and

(3) notes that, pursuant to Standing Order 105(3)(d), a copy of this Resolution together with the aforementioned Report

shall be sent to the Presidents of the European Parliament, the Council and the Commission."

I am pleased to move the motion on the Order Paper in my name and on behalf of the Select Committee on the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base, which is commonly known as the CCCTB. Under new provisions set out in the Lisbon treaty, each national parliament has eight weeks from the publication of proposed new EU legislation to consider formally if it complies with the principle of subsidiarity. That eight week deadline concludes tomorrow and seven other national parliaments are expected to agree reasoned opinions by then that the draft directive breaches subsidiarity.

In the EU context, subsidiarity is a concept about the level of governance, whether EU, national, regional or local, at which action should be taken. It is based on the presumption that action should be taken at the lowest level of governance consistent with the subject matter and the objective to be attained. The subsidiarity principle acts as a check on the need to take action at Union level and ensures that, where it is needed, effective action is taken at the EU level.

Having considered the proposal in great detail, the recommendation of our committee is that the proposal breaches the principle of subsidiarity for the reasons set out in paragraphs Nos. 6 to 10 of our report. If the draft reasoned opinion is agreed by the Dáil, it will constitute the House's formal response under the Lisbon treaty.

This proposal has had a long genesis going back as far as 2001. The European Commission first made clear in a communication in October 2001 that it hoped to introduce harmonisation of direct taxation for companies, in particular by establishing a common consolidated corporate tax base. In further communications in April 2006 and May 2007, it reported on efforts to develop a proposal for a CCCTB. In February 2007, in its annual policy strategy for 2008, the Commission announced its intention to introduce a legislative proposal for a CCCTB in 2008. The draft directive published on 16 March this year is finally the culmination of that process.

Since 2001, previous Irish Governments consistently made it clear that direct taxation is primarily a matter for member states and fair tax competition, not tax harmonisation, was the basis on which the EU could compete with the rest of the world. In that context, it is not surprising that the draft CCCTB directive has met opposition in Ireland among the business sector, political parties, and policy makers. Within a week of the publication of the directive, a Private Members' motion was discussed in the Dáil on 22 and 23 March. Opposition was expressed on all sides of the House to any efforts to interfere with Ireland's right to set its own corporation tax rates, and the Dáil recognised the Government's sceptical view of the CCCTB proposal.

The specific policy objectives of the directive, as expressed by the Commission, are to eliminate the remaining tax obstacles in the internal market, to reduce compliance costs for companies trading internationally and avoid instances of double taxation or over-taxation, and to reduce tax distortions in investment decisions. The CCCTB proposes that companies would be able to opt for a single set of rules within the EU to calculate their taxable profits. The CCCTB would allow companies to consolidate all profits and losses across the EU, thereby recognising their cross-border activity. The single consolidated tax return would be used to establish the tax base of the company, after which all member states in which the company is active would be entitled to tax a certain portion of that base, according to a specific formula based on three equally-weighted factors, namely, assets, labour and sales. This would all be done through the tax authorities of the company's principal member state, by means of a one-stop-shop.

The Dáil set up the select committee at its first sitting after the election on 9 March. The committee was given responsibility to carry out the parliamentary functions associated with the Lisbon treaty and legislated for in the European Union Act 2009. It is an interim committee pending the setting up of the new committee system for the 31st Dáil. The committee met first on 21 April for an initial assessment and decided that the CCCTB proposal required detailed scrutiny, given its potential implications for subsidiarity. The committee met in public session with the Department of Finance at its second meeting on 4 May to assess the proposal in detail. This was very informative and we are grateful to the officials for engaging openly with the committee on that occasion. It was stressed to the committee that the Minister for Finance remains very sceptical about the CCCTB proposal. The Government is totally opposed to tax harmonisation and is determined to protect Irish interests in the substantive negotiations that will take place on this proposal.

The Department of Finance commissioned an independent study by Ernst & Young, which was published in January of this year. The study finds that the proposal will disproportionately lead to winners and losers among member states. Most worryingly, Ireland is identified as one of the group which would experience reductions in GDP, employment and foreign direct investment.

It was clear from our meeting with the Department officials that this proposal has little, if any, benefit for this country, or indeed for a number of other member states. As stated by one official: "As evidenced by our economic impact assessment, the Commission's proposed cure could be worse than the disease."

The committee met last week for the third time and agreed the report now being debated which finds that the proposal breaches the principle of subsidiarity. The committee has produced a clear and concise report which sets out the grounds for the Dáil to send a reasoned opinion under the provisions of the Treaty of Lisbon. This will be the first time the Dáil has considered the adoption of a reasoned opinion under the treaty.

For the benefit of the House, I will summarise briefly the reasons the committee came to its conclusion. First, the Commission has not adequately met the procedural requirements in the treaty - Article 5 of Protocol 2 - to provide a detailed statement with sufficient quantitative and qualitative indicators to allow national parliaments to assess fully all the subsidiarity implications in a cross-border proposal of this nature. Second, it is not established by the Commission's impact assessment that EU legislation is entirely justified as the best way to meet the broader objectives of the proposal - much of the justification for the proposal is based on assumptions and there is insufficient data available on the implications of this new policy. Third, it is clear from the impact assessment that the proposal may have significant and possibly unequal cost implications between individual member states but there is little clarification as to why this is regarded as a necessary policy outcome. Fourth, this is, in effect, asking member states to agree to legislate based on a leap of faith to redistribute the EU corporate tax base amongst member states based on new allocation factors. Fifth, there is also a potential blurring of the competency responsibilities involved. Under the treaties the Commission does not have competence in the area of direct corporate tax. No EU legislation should be proposed that indirectly impacts on national sovereignty as a means of remedying any negative financial impact.

The procedure set out in the Treaty of Lisbon is that if one third of national parliaments send reasoned opinions - under the yellow card procedure - indicating that the proposal does not comply with the principle of subsidiarity, the draft directive must be reviewed by the European Commission. The Commission can then decide to maintain, amend or withdraw the directive, and must give reasons for its decision.

Each national parliament has two votes. In the case of a bicameral parliamentary system, each of the two chambers has one vote.

It is clear that the proposal has divided opinion across member states. As of today, from contacts with other parliaments, it is expected there will be 11 votes across seven different member states against the proposal on subsidiarity grounds: Bulgaria, two votes; Malta, two votes; the Netherlands, one vote; Poland, one vote; Slovakia, two votes; Sweden, two votes; and the UK House of Commons, one vote.

If the Dáil agrees a reasoned opinion, it will increase the number to 12. To meet the one third threshold for the yellow card procedure, it would need 18 votes out of a total of 54 by the deadline tomorrow, and it now appears unlikely that the threshold will be reached. However, given the level of opposition raised, it will be incumbent on the Commission to respond clearly to the concerns raised by national parliaments before the legislation goes any further.

I will give brief details of some of the reasoned opinions to reflect the range of points being made by fellow parliamentarians throughout the member states. In the UK, the House of Commons found that the proposal has significant and possibly unwelcome implications. They are concerned about five matters: the basic justification for the proposal, its legal base and its actual legality, the detailed content of the proposal, its failure to meet the principle of subsidiarity, and concerns about its proportionality. The House of Commons finds that the detailed statement by the Commission "falls a long way short of the level of detail required to substantiate action at EU level", and that this constitutes a failure to discharge the obligations placed on the Commission by the treaty.

The Dutch House of Representatives found that the proposal breaches both the principles of subsidiarity and proportionality, and it also has some doubts over its legal basis. They find insufficient evidence that greater benefit would arise from EU action. They argue that the proposal will actually reduce GDP unevenly across the EU. They also find the potential shift of direct taxation from national to EU level as undesirable.

The Lisbon treaty only gave national parliaments the power to seek to ensure compliance with the principle of subsidiarity. While Protocol 2 of the treaty also refers to proportionality, the procedure for reasoned opinions is only laid down for subsidiarity concerns. However, it is clear in this case that some national parliaments have found the CCCTB proposal deficient on a number of grounds. They feel strongly enough about the weaknesses of the proposal to signal their other concerns at this early stage, including proportionality and legal basis.

It is unusual for a new legislative proposal to raise this level of concern across member states. New legislative proposals go through a detailed process of consultation and major concerns, in subsidiarity, proportionality and overall legality, tend to have been ironed out in advance of publication.

While the principle of subsidiarity may be clearly stated in the treaty, its application is complex. Subsidiarity is a legal concept but assessment depends essentially on policy and political judgment.

The Lisbon treaty recognises the democratic importance of national parliaments by entrusting them with the initial responsibility for ensuring the principle of subsidiarity is fully respected in all draft EU laws. We have a responsibility as legislators to make our best assessment of subsidiarity based on the evidence available to us. One of the most consistent themes of political debate recently is the need for national parliaments to be seen to be more relevant and responsive to the concerns of their citizens.

It is the considered view of the committee that the CCCTB proposal is deficient in its current form for the reasons given in our report. In summary, first, the Commission has not met the legal requirement to justify substantively what precise problem the proposal is seeking to address, how the proposal will impact on individual member states and why EU legislation for an optional CCCTB is clearly the most effective form of action. Second, the proposal will have a negative effect on the GDP of the EU and may well encroach on the area of direct taxation in how member states will be required to address that negative outcome. Third, it is now clear that a significant minority of member state parliaments have concerns about the proposal which go much further than merely its potential non-compliance with the principle of subsidiarity. Accordingly, I commend the committee's draft reasoned opinion that the CCCTB Directive does not comply with the principle of subsidiarity as set out in the Lisbon treaty.

See this speech in context