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France has big plans for its EU Presidency

Jan 31, 2022

Originally posted on Business Post 09 January 2022.

Emmanuel Macron aims to have the 15 per cent corporate tax proposals in force by this time next year, and that’s not the half of it.

The publication in the days before Christmas of a proposed EU directive to give effect to a 15 per cent rate of corporation tax across the bloc had a particular Irish hue to it – Paschal Donohoe’s sticking point of a “minimum tax rate means 15 per cent and not ‘at least’ 15 per cent” is in the text.

If this Irish imprint came at the expense of surrendering a totem of our economic policy, the 12.5 per cent corporation tax rate, it also came at the expense of an EU totem that all companies must be taxed the same way. It was Brussels’ adherence to that principle, and its consequences for the EU state aid rules, that gave rise to the €13 billion Apple tax case which is still grinding its way through the European legal process. In future bigger companies will pay at different rates to their smaller counterparts.

It will be up to the French presidency of the EU Council to push this draft corporation tax directive through the European political system during the next six months of its tenure. The effectiveness of an EU Council presidency is a factor of the size of the country which holds it. Put simply, the bigger the country, the more civil servants it has to throw at its pet European projects and thus the greater the likelihood of success. As the second largest economy in the EU, France has plenty of resources to direct during its six-month tenure in the hot-seat.

There is no lack of ambition in the 76-page programme for the French presidency of the EU. It is not surprising that the programme commits to taking forward work on the 15 per cent proposals and aims to have them brought into force by this time next year.

The French have long been suspicious of any country which, like Ireland, used low tax rates as part of their foreign direct investment offering. Ironically, the last time France held the presidency in 2008, there was some back-pedalling on EU tax reform because Irish voters had just rejected the Lisbon treaty.

What is surprising, though, is that the promotion of the 15 per cent regime across the EU seems not to be the priority of the French economic and financial affairs agenda. Instead, the key project is the promotion of a “carbon border adjustment mechanism”. A carbon border adjustment mechanism is of course a tax by another name. The idea is that by levying additional duties on carbon intensive products coming into the EU, EU-based businesses will be deterred from outsourcing emissions-heavy manufacturing beyond the EU borders to avoid emissions quotas.

A carbon border adjustment mechanism is a solidly “green” idea, in so far as it would cost businesses rather than individuals and is likely to play well with voters – a prime concern in an election year in France. Perhaps, though, the key to understanding this French emphasis lies in where that new tax money might go.

The institutions of the EU are part funded by what are known as “own resources”. Own resources come from the excise duties collected by all the member countries on dutiable goods coming into the EU.

The EU also receives a share of Vat receipts. These sources make up only one-third of the EU budget, and the shortfall comes from direct contributions from the member countries. This shortfall is now becoming a major problem because the EU budget is mushrooming from providing grants and cheap debt to countries to tackle the pandemic and deliver on the green agenda.

The problem with cheap money is that someone, somewhere must pay for it. Proceeds from the carbon border adjustment mechanism are to be treated as “own resources” and are to go directly towards the EU budget. The mechanism is estimated at bringing in some €10 billion a year, which is no small amount until compared with the EU’s €750 billion pandemic recovery fund.

Nevertheless, the contribution reinforces the notion that the EU must get better at paying its own way. Own resources are the new EU totem. Though not explicitly mentioned in the French programme, there are EU plans to further expand these by staking a claim on part of the corporation tax paid by companies with a €20 billion turnover.

The pandemic has brought bigger government both at national and EU level – 15 per cent and global corporation tax are last year’s debates, with just some Is and Ts to be dotted and crossed. Managing and funding a bigger EU machine seems to be the priority for this French presidency.

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

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