Place your bets, ladies and gentlemen. Step right up. It's time to change the way corporate taxes are paid in Europe. A little slight of hand, and can you guess which member state will give you the best tax rate on your profits? Ireland, you say? That may soon be the wrong answer.
Laszlo Kovacs has it all figured out, a brilliant way to raise the tax rate for places like Ireland and Slovakia, who are doing ever so much better than everyone else when it comes to attracting multinationals and the money they shed. Ireland won't go along with raising their tax rate, so the wise men of the EU have found a way around and soon Ireland can be just as insolvent as the rest. All for one and one for all, the EU way, as long as that way is the wrong way.
Dear Mr. Kovacs is only thinking of the multinationals who have to deal with twenty-seven individual taxing bodies. The multinationals are quite all right with it, but the EU is hell bent to change it. This isn't about what's best for the large corporations, the blood-sucking capitalists. It's what's best for the member states who can't figure out how to cut their tax rates and insist that everyone else follow in their misguided path.
How to explain this, when I'm not sure I understand it myself. Part one: Businesses operating in multiple EU venues will be told by the EU, using EU formulae, what their profits are. Part the second: The EU will take those profits and distribute them amongst the member-states where the business did business. Part C: Whatever the tax rates of the member-states getting the profits happens to be, the business will pay taxes at that rate.
But wait, there's more. The EU will push for tax harmonization so that a multinational can instead treat its many entities as one business for tax purposes. That's rather like beating someone with a hammer and then expecting them to thank you when you stop. They were happier when you weren't beating them, but you've got that urge to swing away until they cooperate. I think the Mafia operates that way, actually.
How to calculate the profit distribution? Oh, perhaps, possibly, the EU could give more profits to the country that buys the most product. For example, if Waterford crystal was selling like mad in Paris, then Waterford's profits would be apportioned to France and Ireland could go scratch, or force their citizens to out-buy the French.
Alternatively, the apportionment could be based on payroll. That way, multinationals with shell offices in Ireland would lose the tax benefit because they'd have to be taxed in the land where most of their employees work. Good heavens, that's far too obvious. Better to go with the "sales factor" instead. Ireland's but a wee small island and it could never generate sales figures like France or Germany.
The EU must have harmony in corporate taxation, but that harmony must not come from a lowering of taxes. That sort of thing just makes far too much sense from an economic point of view, and there are no economists here.