Michael McGrath (Cork South Central, Fianna Fail)

I very much welcome the opportunity of making a contribution on the deliberations of the Standing Order 103 Select Committee on the proposed directive from the European Commission on the introduction of a common consolidated corporate tax base.

I strongly support the decision reached by the committee, namely 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 by Deputy Charles Flanagan in his contribution and in the report which has been prepared by the committee.

I take this opportunity to thank Deputy Flanagan for his chairmanship of the committee. It had a tight timeframe within which to conclude its deliberations. It worked efficiently and made the deadline which, I believe, is tomorrow for submission of the final report.

In line with the resolution passed by this House, the committee had a narrow focus in that it was requested to examine whether the proposal complies with the principle of subsidiarity. Obviously, this Parliament and any Oireachtas committee established by it is a political forum as well and the committee certainly took the opportunity to examine the wider context of the CCCTB proposal while, of course, complying with the requirement to report on its compliance or lack of compliance with the principle of subsidiarity. I welcome that this particular initiative follows from a provision in the Lisbon treaty which greatly enhances the role of the national parliament, and gave this Parliament and every parliament throughout the 27 member states the opportunity to report back on the compliance of this proposal with the principle of subsidiarity. The clear advice available to the committee from the beginning of its deliberations was that this would be a political judgment rather than a legal judgment. It is fair to state the committee made a political judgment having considered all of the facts it deemed relevant.

It is important to state that during the second Lisbon treaty referendum in this country, the issue of sovereignty with regard to corporation tax was a key issue in the campaign. Clear commitments and assurances were given that direct taxation would remain in national competence, which it does in line with the EU and EC treaties. This proposal must be seen in the context of the political desire among some of the larger and more powerful member states in the European Union to secure tax harmonisation. While successive Governments have been very clear on the issue of Ireland's corporation tax rate, the issue of CCCTB presents an equally dangerous threat to Ireland's economic and industrial policy. I agree with what the Taoiseach stated previously, that effectively this proposal represents an attempt at tax harmonisation through the back door. This sums up very well what CCCTB is about.

As most Members of the House will agree, having an attractive corporation tax regime has been a cornerstone of this country's economic and industrial policy for many years. This regime is one which we must defend in all respects, not only the headline corporation tax rate itself but also the tax base. The European Commission's proposal on CCCTB is a direct attack on the independence of this and every other member state to have its own system of calculating the tax base. This is why we need to be very clear with regard to our position on the subsidiarity aspect, which has been dealt with in the report. When this enters the political realm, which it will when the working group gets into detailed analysis of the proposal and when it is dealt with at Council level, the political opposition from this country should be clear and unambiguous.

With regard to the committee deciding on the subsidiarity principle for this proposal, the guidance we received was to examine it in line with Article 5.3 of the Treaty on European Union. In effect, this is a comparative efficiency exercise involving a necessity test and a greater benefits test. The necessity test is whether the action by the EU is necessary to achieve the objective of the proposal and the greater benefits test is whether the objective would be better achieved at EU level and whether EU action would provide greater benefits than action at member state level. To assist parliaments in their evaluation of subsidiarity compliance, Article 5 of Protocol 2 to the treaty provides explicitly that any draft legislative Act should contain a detailed statement making it possible to appraise compliance with the principles of subsidiarity and proportionality. The committee found this proposal fails this test.

As has been stated inside and outside the House, this proposal is about the EU seeking to achieve its long-standing goal of tax harmonisation. It represents a direct threat to Ireland's successful policy in the area of foreign direct investment. All commentators agree that an export-led recovery will be at the heart of this country's effort to come out of economic recession and build sustainable economic growth. Anything that brings into question our corporation tax regime, or puts a cloud over or an element of uncertainty about Ireland's commitment to having an attractive corporation tax regime, will be damaging to our prospects of continuing to attract foreign direct investment.

While the proposal is for an optional common consolidated corporate tax base, in many respects having such an optional parallel system sitting side-by-side with the individual corporation tax regimes that exist at present in the 27 member states would complicate the administration of corporation tax throughout member states. Having examined this in the broadest possible sense, it seems that CCCTB is a lose-lose situation for Ireland and it is not a proposal we should countenance in any meaningful way.

As Deputy Charles Flanagan stated, the proposal for CCCTB goes back to 2001 when the Commission put it forward as a long-term comprehensive measure for providing companies with a common consolidated tax base for their EU-wide activities. CCCTB would involve new common rules for calculating company taxation throughout the EU and would replace the system of separate accounting with arm's length pricing methods for allocating group profits across borders with a sharing mechanism. The guidance given by the Department of Finance officials when they came before the committee was that such a new sharing mechanism is essentially a formula which proposes the individual taxable profit or base of each company in an international group would be aggregated or pooled to form a consolidated tax base. This consolidated tax base would be re-attributed to those same companies based on their presence in any member state, that presence being measured by the scale of assets, employees, payrolls and sales in any member state compared to the group as a whole

One would not need to be an economist to realise that re-attributing any multinational's profits across European member states based on that methodology would not favour Ireland, given that we have attracted most of the top multinationals in life sciences, IT, pharma and medical devices. Many of them have channelled much of their activity to Ireland. If we were to reapportion their profits across the European Union on the basis of the number of employees, payroll and, in particular, with regard to where they achieve their sales and turnover, then self-evidently this would not be a change that would bring any advantage to Ireland. Clearly, it would disadvantage us in terms of the corporate tax base we have.

While each country would continue under the CCCTB proposals to tax at the national corporate tax rate, the amount of taxable income would be arrived at under these common rules. While we might retain the appearance of having sovereignty by keeping the 12.5% rate, if the taxable income on which the 12.5% rate was applied was much reduced as a result of this proposal, of course the net impact would be that corporation tax income for the Exchequer would be greatly reduced. This is the context in which we must consider this proposal. The CCCTB would certainly remove any advantage Ireland has with regard to the 12.5% corporation tax rate it currently utilises.

The draft directive was published by the Commission on 16 March 2011. Its passage would require unanimity among the member states. This is the ultimate power we have as a country. I know in terms of how politics works in the European Union with regard to the spirit of co-operation and the way consensus is reached on individual issues that countries do not want to threaten to use the power of a veto, but if it comes to it and if the European Union is determined to persist with this proposal and bring it to the Council for a vote then Ireland should exercise its power of veto to block it.

An economic assessment of the proposed directive was carried out on behalf of the Department of Finance by Ernst & Young, one of the big four accountancy firms. It pointed out that the impact of the CCCTB proposal would be an overall reduction in employment and foreign direct investment in the EU under both a voluntary and mandatory CCCTB. There would be a reduction of economic activity in the EU and a change in the relative competitiveness of the EU compared to non-EU countries, as Europe would become less attractive for new foreign direct investment. It would also create significant winners and losers among member states through the redistribution of tax bases and among individual taxpayers, increasing uncertainty and instability for business.

There is no proof that the introduction of a CCCTB would assist the European Union as a whole to attract inward investment. The report referred to by Ernst & Young points out that it is likely having a CCCTB would be close to a zero sum game and that it would do little to increase the size of the overall economic pie within the European Union, with little change in terms of efficiency. It further states the debate has focused on the redistribution of the tax base among member states, the impact the new system would have on business decisions and the increase in investment or employment among member states. In addition to the report mentioned, a further report commissioned by the employers' group IBEC found that a CCCTB would result in higher compliance costs, higher effective tax rates, uncertainty about tax rates, damage to the European Union as an investment location and that the Commission's proposals were based on an old economy model and that optionality would be unlikely in practice.

According to the impact assessment accompanying the Commission's directive, the Commission has acknowledged that while the anticipated impact of the proposal is described as negligible at EU level, it would be large for some countries, especially Ireland. Simulations of the effect of the optional CCCTB carried out as part of the impact assessment by the Commission suggest that while EU GDP might fall by 0.17%, in Ireland it would range from a decline of 3.16% to 3.19%. When one considers these figures in the context of the very modest economic growth we hope to achieve in this country this year of 0.8%, clearly the impact of the proposal would be very serious.

I understand the proposal will now be considered by a Council working group which will be tasked with examining the proposed directive, article by article and line by line. I reiterate my party's position on the CCCTB proposal. We are absolutely opposed to it. We opposed it in government and oppose it in opposition. We urge the Government to use every tool at its disposal to express its opposition to this Commission proposal and will support it in that regard. The Taoiseach said recently that the Government had a very healthy scepticism towards the CCCTB proposal but that it would engage constructively on it at EU level. As Deputy Charles Flanagan pointed out, other member states' national parliaments have adopted an adverse or a negative position on the subsidiarity aspect. There is an opportunity for the Government to build alliances with these countries in its opposition to the proposal.

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