Corporate Tax Base

Michael Tomlinson Excerpts

Tuesday 20th December 2016 General Committees

[The Chair]

Good morning, everybody. I know that you are all old hands at this, but I will just remind you of the format. We have up to two and a half hours. I will start by calling a member of the European Scrutiny Committee, which referred the documents for debate. Then the Minister will make a statement, which will be followed by questions, and we then can have a debate, if Members wish. I call Mr Michael Tomlinson.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

It is a great pleasure to serve under your chairmanship, Mr Hanson. I am far from being an old hand; this is my first time addressing such a Committee as a member of the European Scrutiny Committee. It might help the Committee if I took a few minutes to explain the background to the documents and the reasons why the European Scrutiny Committee has recommended them for debate.

As the European Scrutiny Committee’s report says, member states have a particularly strong interest in direct taxation, as it not only governs the revenue available to them but is inextricably linked to their social and other policy choices. The EU can only act on tax if member states unanimously agree to that. In the past, the European Commission has made plain its hopes of introducing harmonisation of direct taxation for companies, in particular by establishing a common consolidated corporate tax base, or, to use its wonderful acronym, CCCTB.

In 2011, the Commission sought, with a proposed Council directive, to introduce a CCCTB, which would have provided for a single set of harmonised rules for calculating the tax base for the taxable profits of companies resident in member states. It would also have allowed companies to opt into the CCCTB or continue to operate within their own national tax system. The latter would have allowed groups of companies to calculate their total EU-wide consolidated profit for tax purposes, provided for that profit to be allocated to the companies making up the group on the basis of an apportionment formula composed of sales, payroll, number of employees and assets in each member state, and provided that member states would then tax the profit apportioned to the companies at their own corporate tax rate.

This House and seven other national Parliament Chambers issued reasoned opinions to the Presidents of the Council, the European Parliament and the Commission stating that the proposal failed to comply with the principle of subsidiarity. The Commission has formally withdrawn the proposal and replaced it with the two proposed Council directives before us. One would introduce, as a first step, a common corporate tax base, or CCTB, with application from 1 January 2019, and the other would introduce, as a second step, a CCCTB, with application from 1 January 2021. I see you are following very closely, Mr Hanson—a wise move. Although the two proposals would largely repeat the content of the original proposal, the system would be mandatory for companies in large groups, while for others it would be voluntary.

The European Scrutiny Committee has kept the documents under scrutiny, pending developments in the negotiation. In its report published on Friday 9 December, the Committee recommended that the House issue a reasoned opinion for the reasons set out in the draft opinion annexed to the report, which I will summarise briefly. First, the Commission has not provided evidence that circumstances have changed since the rejection of the previous proposal, which was acknowledged to have adverse effects on investment, employment and GDP. Secondly, the tax base is an essential element of member states’ tax sovereignty. Thirdly, the fairness of the tax system is a matter for which member states are responsible, and for which they are accountable to their own people. Fourthly, regulation at EU level would be too cumbersome to react to changes. Finally, the tax avoidance that the measures seek to address goes wider than the EU and is best tackled at OECD level.

The European Scrutiny Committee is very disappointed that the Government did not schedule this Committee meeting and the subsequent “forthwith” motion in time for the House to resolve the issue and meet the deadline for sending a reasoned opinion by 3 January 2017. However, the motion notes with regret that that is at least in part owing to the inflexibility of the eight-week deadline set by the institutions. This year, it ends over the Christmas period, when the House rightly is not sitting. The motion therefore instructs the Clerk of the House to forward the motion and reasoned opinion by way of political dialogue after the deadline for reasoned opinion has officially passed. The purpose of this debate is to discuss whether the Commission’s proposals comply with the principle of subsidiarity, and whether the reasoned opinion proposed by the European Scrutiny Committee is appropriate.

[The Chair]

I am grateful to the hon. Gentleman for his introductory comments. I call the Minister to make an opening statement. I remind Members that it is a statement; there are questions after it, and no interruptions during it.