EP OKs Common Corporate Tax Base, Bulgaria Likely to Frown

Bulgaria's FinMin Simeon Djankov (L) and Ireland's PM Enda Kenny (R) in Dublin a year ago. The two said they will "strand up for their competitive advantages in the EU", apparently referring to joint opposition against common EU tax rates. File photo

The European Parliament have backed a plan to introduce a compulsory pan-EU business tax system, a move that will likely be greeted with concern in Bulgaria.

The European Commission had proposed a voluntary scheme.

"This harmonized system for calculating the tax base makes it possible for companies to consolidate the results of their individual branches, which allows them to compensate for any losses a group member might have," said the lead MEP on the matter Marianne Thyssen.

"This makes it easier for companies to have and keep branches in different Member States and it reduces red tape. In addition, the system ensures that economic and social aspects are more important than purely fiscal reasons when companies choose their locations," she added.

The common consolidated corporate tax base (CCCTB) should become mandatory after a transition period, says the resolution, which was approved with 452 votes in favour, 172 against and 36 abstentions.

Initially, the CCCTB would only apply to European cooperative societies, which are by nature cross-border. After five years, it would apply to all companies except small and medium-sized enterprises (SMEs) which could opt in if they so wish. For SMEs, the Commission should work to reduce administrative burdens so as to enable those with cross-border activities to benefit from adhering to the CCCTB system.

MEPs say the CCCTB system would give companies a single set of rules for calculating their taxable profits, rather than having to comply with differing accounting rules in each Member State in which they work.

As a set of rules for computing taxable income, CCCTB does not impose any common tax rates, a statement by the European Parliament press office points out.

Opponents of the plan however claim it is practically tax harmonization by the "back door".

Bulgaria and Ireland have repeatedly expressed concerns that CCCTB would make it more difficult for multinationals to take advantage of their low corporation tax.

At present, Bulgaria has the lowest tax burden in the entire EU, and the lowest EU corporate tax rate - a flat 10% tax; this proves one of its competitive advantages in its quest to attract badly need foreign direct investment as it remains the poorest country in the 27-member bloc.

Ireland has a corporate tax rate of 12.5%, and has been under tremendous pressure by the France-German core of the EU to increase it as it is already receiving a tens of billions of euros in bailout aid from through the euro zone emergency mechanism.

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