I thank the Chairman and members of the committee for inviting us to discuss the proposal for a CCCTB in the context of the principle of subsidiarity. I will make a copy of my statement available to members. I apologise for the time constraints, the fault for which lies with me, in particular. We are due to attend a meeting in Brussels tomorrow on this issue. I will give a summarised version of my opening statement.
I will comment on what is involved in the proposal for a CCCTB before turning to deal with the specific issue of subsidiarity. Having a CCCTB would essentially introduce new common rules for calculating company taxation across the European Union and replace the universally used separate accounting with arm's length pricing method for allocating group profits across borders with a sharing mechanism under a system known as formulary apportionment. This new sharing mechanism is essentially a formula that proposes that the individual taxable profit or base of each company within an international group be aggregated or pooled to form a consolidated tax base which would be reattributed to these same companies based on their presence in a member state, that presence being measured by the scale of assets, employees' payroll and sales in a particular member state compared with the group as a whole. Each member state's share of the profits would then be taxed at national tax rates, thereby preserving national sovereignty over the rate of taxation.
The net impact on a member state's corporate income tax revenues, as well as the tax liabilities of specific groups of taxpayers, would be determined by three major differences between current law systems and the CCCTB. First, the CCCTB would change the definition of the tax base. Second, it would result in a reduced tax base for some taxpayers by allowing full offset of cross-border losses among group members. Third, it would redistribute the resulting tax base across member states based on the application of the formula referred to.
The Government's scepticism about the CCCTB is well known. Our key message is that we are totally opposed to tax harmonisation and, based on what we know about the CCCTB proposal, we are also highly sceptical of it. Nonetheless, we are willing to engage with the European Commission and other member states on the issue.
The limits of EU competence as governed by the principle of subsidiarity are set out in Article 5 of the Treaty on European Union. On the principle of subsidiarity, it states "the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the member states, either at central level or at regional and local level but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level". The Commission has a right of initiative to produce legislative proposals and is required to justify all legislative proposals from the point of view of subsidiarity. In this respect, it argues in its proposal for a CCCTB that co-ordinated action is necessary at EU level to achieve the desired end and that the fundamental concepts of a CCCTB can only be implemented by adopting a common approach within the European Union. It is maintained that the proposal deals with combating tax obstacles presented by the disparities in national systems in computing the tax base between associated enterprises and that work undertaken by the Commission has identified that the best way to tackle these obstacles would be the achievement of a common framework to regulate the computation of the corporate tax base and cross-border consolidation.
The Department has given the committee its preliminary view on the question of subsidiarity; namely, to the extent that the CCCTB proposal represents a 28th optional system for companies to choose and given the fact that it seeks to address cross-border barriers to the growth of the Internal Market, it is arguable that it does not infringe the principle of subsidiarity but, of course, this view is open to argument on both sides. I stress that this is just a preliminary view because the requirement for a unanimous vote at the Council gives sceptical member states the possibility to discuss all of their concerns as the discussion on the proposal develops.
The CCCTB proposal which was only published on 16 March is very complex and represents a far-reaching draft legislative act that will require careful and thorough consideration. We understand the process will be aided by the establishment of a Council working group which will be tasked with the examination of the proposal, article by article, in a process that could take many months or even years to complete. We understand the Standing Order providing for the establishment of this committee allows for a discussion on the issue of subsidiarity but that an Oireachtas scrutiny committee will be given the opportunity to examine the proposal in greater detail at a later date. We look forward to full engagement with that committee as the discussion on the proposal develops.
I emphasise that the Department and the Revenue Commissioners are very willing and happy to aid the committee in its work in any way that they can.