22/03/17

Cabinet opposes new EU tax rules

The cabinet has issued a decision opposing the EU’s Common Consolidated Corporate Tax Base, arguing that this would negatively affect the island’s economy, the Cyprus News Agency (CNA) reported on Tuesday, reports Cyprus Mail.

According to the agency, the decision was rubberstamped on Friday and it will guide government policy from now on.

In October 2016, the European Commission announced plans to overhaul the way in which companies were taxed in the Single Market, delivering a growth-friendly and fair corporate tax system.

Re‑calibrated as part of a broader package of corporate tax reforms, the CCCTB will make it easier and cheaper to do business in the Single Market and will act as a powerful tool against tax avoidance.

First tabled in 2011, the CCCTB was designed to strengthen the Single Market for businesses. While member states made considerable progress on many core elements of the previous CCCTB proposal, they were unable to reach a final agreement.

The Commission wants companies to be taxed in the country where the revenues were generated and not at its tax base.

Smaller countries like Cyprus, Luxemburg, Malta, and Ireland, whose economies are based on the services sector, fear that the move would hurt them.

So far they had the UK as an ally, but the country’s imminent exit from the EU makes things harder.

“As a matter of principle, the Republic of Cyprus does not agree with the start of the discussion of the proposal,” the decision said, adding that its implementation would mean loss of taxable income for the economy.

Nicosia disputes the EU’s argument that implementation would lead to a rise in growth by 1.2 per cent.

“It doesn’t look like this growth concerns all member-states, since at first glance, it seems Cyprus and other small economies will be negatively affected.”

The original CCCTB proposal was optional for all companies and groups of companies. The re-launched CCCTB system will be mandatory for large groups, to cover those with the greatest capacity to tax plan. The system will remain optional for those not captured by the mandatory scope.

In the decision, the cabinet argues that the directives concern the states’ tax policy, which falls under the national authority but also the sovereign right of a member to define its tax base and tax rates.

CNA said Belgium, Ireland, Luxemburg and Malta were also voicing concerns while six parliaments – Ireland, Holland, Denmark, Malta, Luxemburg and Sweden – have already sent reasoned opinions to the EU arguing against the proposals.

The Cypriot parliament has also taken a similar decision and is expected to convey its position to Brussels soon.