| 15 May 2007
Imagine your company does business across a union of some dozens of states
each of which sets its own profits tax rate - but they all use the same formula
for calculating profits. Now imagine life in a similar union where not only
are the tax rates different, but every state has wildly different sets of rules
for calculating taxable profit.
Which would you prefer? Of course it's a no-brainer: you prefer the simplicity
and transparency of the first model. Wrong!
The USA has the first model, the European Union the second, and some member
states, notably the UK and Ireland, are desperately trying to hold on to their
individual tax-base calculation methods as the European Commission rather reasonably
suggests that business would benefit enormously from a standard set of rules.
This is strange, especially given that the UK has been an enthusiastic leader
in building international consensus on financial reporting standards for listed
companies (IFRS). The EU's proposed 'CCCTB' (Common Consolidated Corporate Tax
Base) would have a lot of similarities to IFRS.
Yet responses from UK and Irish professional bodies to the EU's plans, as evidenced
once again this week, typically reach for the dreaded 'H' word, complaining
that the CCCTB will lead to harmonization of tax rates at higher levels, and
greater compliance costs. “The more you harmonise taxes, the more tax rates
will rise, the more compliance costs will rise and the more unemployment will
rise," said one Irish professional body. How so? State corporate income tax
rates in the US vary from zero to 12%, generally with a downward trend, and
there is fierce competition between the states for corporate investment.
It is fair to assume that such groups of experienced professionals don't get
confused by the difference between the tax base and tax rates. So why are they
trying to convince us that a harmonized tax base will lead to higher taxes,
against all the evidence and against all economic logic? Is it possible that
they have some agendas of their own which they are not telling us about?
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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