Kieran O'Donnell (Limerick City, Fine Gael)

I commend Deputy Charlie Flanagan on the efficient manner in which he conducted the committee's business and on producing a comprehensive and relevant report. CCCTB has been discussed in very abstract terms but the proposal put forward by the European Commission breaches subsidiarity rules because there is insufficient information to make a proper evaluation of the proposals and, by the Commission's own admission, it veers into the area of Ireland's effective corporation tax rate. The Commission's explanatory memorandum on the directive states that its effect on the revenues of member states will ultimately depend on the policy choices they make with regard to the combination of taxes levied or the rates applied. In other words, if the Exchequer experiences a decrease in corporation tax revenue, the State would have to change its tax rates to compensate for the loss. Europe does not have competence over our corporation tax levels but this directive encroaches on this area.

In layman's terms, individual countries will set their tax rates according to certain criteria. A way will first have to be found to combine all the profits for companies over Europe and then each country will tax a proportion of this amount based on its share of sales, employee numbers and assets. As each of these factors are weighted at one third, the profits made by the large number of multinational corporations located in Ireland will be taxed in the country in which they make their sales. That means we lose as a country and our capacity to meet our EU-IMF requirements will be diminished. The multinational sector looks for certainty but this proposal provides uncertainty by calculating overall profits across the EU before dividing it into shares that can be taxed according to the rates applied by individual member states. Clearly it is not in the interest of Ireland or its large multinational base to face this degree of uncertainty.

Furthermore, the proposed directive is outdated. It was originally proposed in 2000 to deal with inequities between member states. In the subsequent 11 years, we have introduced transfer pricing regulation, double taxation agreements and various measures recommended by the European Court of Justice. As a small country, we will lose out to larger member states on sales, employee numbers and capital investment. The directive deals with a number of issues that have already been addressed more efficiently elsewhere. Even by the EU's own admission, it is questionable whether it will benefit the EU. The Commission states that employment will be reduced by 0.1% and that GDP and foreign direct investment will decrease. In its current incarnation, therefore, CCCTB is not good for Europe.

Our corporation tax rate of 12.5% is applied on trading profits. Rental and investment income is taxed at 25%. While France levies a corporation tax rate of approximately 33% it also provides a special SME rate of 15% for profits under €38,000. Companies resident in certain French territories, such as French Guiana, do not have to pay corporation tax for the first ten years of operation. Exemptions are also provided to ailing companies in certain designated areas. In the case of capital allowances for fixed assets, for every €100 spent on fixed assets in Ireland in year one there is a tax saving of €1.56. In France the corresponding tax saving is €6.60. Contrary to what may be the popular view put out by France, it probably has an effective lower corporate tax than Ireland. The French authorities should sit back and look carefully at what is being proposed under the CCCTB because the rates they are providing are not far off what are provided in this State.

Our 12.5% corporate tax rate is one of the cornerstones of our economic policy. It is what primarily attracts multinationals to the State. I was a practising accountant for many years and recall small companies struggling to pay corporate tax at 40% before it was reduced to 12.5%. Those companies were then able to retain staff, recruit new staff and invest in their business. The CCCTB proposes a system of standard capital allowances for countries and a standard write-off of credits for research and development. These are two integral parts, along with our corporate tax rate, in terms of economic policy. The CCCTB will change how member states arrive at a base for taxation, based on the overall volume of revenue. On that basis we could retain our rate of 12.5% but the amount of profits we can tax will be reduced, the capital allowances we can use will change and research and development tax credits will be altered. In other words, under the CCCTB the effective corporate tax rate will change.

The European Commission acknowledged this when it stated that member states will have to make adjustments in their own mix of taxation based on what they lose under the CCCTB. There is a recognition that Ireland will lose out under the proposed scheme. The Commission does not have a competence in the area of direct corporate tax rates and no EU legislation should be proposed that indirectly impacts on national sovereignty. Our corporate tax rate is fundamental to our future in terms of our economic base. The current CCCTB document does not meet the subsidiarity requirement.

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