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10 Questions

with William Morris
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April 2nd, 2008 issue

VLADIMÍR WEISS/THE PRAGUE POST
GE's resident tax expert William Morris talks of Europe's attempt to find a common corporate tax.
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THE MORRIS FILE



Job title: Senior international tax counsel and director, European tax policy, General Electric
Age: 46
Nationality: British and American
Previous position: Associate international tax counsel in the office of tax policy at the U.S. Treasury, Washington, D.C.
Education: BA and MA, Trinity College, Cambridge; LL.M., the University of Virginia
For the past several years the European Union has been developing a proposal for a common consolidated corporate tax base (CCCTB) that would level the taxes paid by companies across Europe. William Morris, a tax expert for General Electric and former U.S. Treasury official, serves as chairman of the CCCTB working group at the American Chamber of Commerce for the EU. In Prague recently to lead a seminar at a regional tax conference, Morris talks to The Prague Post about obstacles to reaching a common tax and differences between European and U.S. tax codes.
Why is the European Commission (EC), the EU’s executive arm, seeking a common corporate tax base?
The general thought is that different tax systems in different countries represent a barrier to the realization of the internal market. One important aspect of that is that the rules for calculating what income is taxable differ from country to country. For companies doing business across borders, this can lead to considerable extra costs and complexity. Also, governments are concerned that some income might go untaxed. The EC believes that having a common way of calculating the amount of taxable income will eliminate these issues. The commission has put a lot of hard work into the proposal.
In general, are businesses supportive of the CCCTB effort?
There are some studies that show business support — but they also show businesses don’t know much about the CCCTB. I think it’s actually impossible to say whether or not you support it at this stage until you see the details. The various American Chambers of Commerce have, however, made clear that, as a baseline, business is specifically looking for three things: The CCCTB should be optional for companies, it must allow for consolidation of income between companies in a group (to allow cross-border loss-sharing, for example), and it must result in genuine administrative simplicity and savings. Without those, regardless of the details, business would not be supportive.
What is the largest obstacle to reaching a CCCTB agreement?
I suspect the biggest obstacle will turn out to be political: countries worrying about revenue loss. Some type of revenue-sharing mechanism might deal with that. It should be said that if not all 27 countries agree, which they won’t, then a smaller number can go ahead under a procedure called “enhanced cooperation.” That seems more likely.
What are the largest remaining questions about the type of CCCTB system that the EC could propose?
The big issues relate to whether the system is optional and if it allows for consolidation. There is also a question as to how the income of the entire group is then allocated back to individual CCCTB countries for them to tax it. If countries were allowed to choose their own formulas (e.g. one country looks at sales in a country while another country looks at the number of employees) that could be very bad news.
Which countries are most supportive and critical of CCCTB?
France and Germany have traditionally been very supportive. In part they see this as a way of preventing tax “leakage.” Those opposed include Ireland and some of the new accession countries, which have low tax rates and view this harmonization of the tax base as simply a first step to harmonizing tax rates — upward.
What effect would you expect the CCCTB to have on Central and Eastern Europe (CEE)?
Hard to say. Some studies show that a consolidated tax base, with apportionment of income between countries, would lead to revenue loss for the CEE countries. That’s because items that go into the allocation formula, such as payroll costs, are lower per employee in the CEE than in the older member states. But again that will depend on whether the CCCTB countries accept the EC’s formula or come up with one of their own.
Speaking of the CEE, the region has been a bit of a test bed for flat tax policies, with, most recently, the Czech Republic adopting a (relatively) flat tax. Do you support these changes and how do you think they’ve gone, regionwide?
We support anything that lowers and simplifies taxes, so long as it is sustainable. However, it’s important to bear two things in mind. First, if to pay for the lowering of the “headline” tax rate you also reduce deductions from income, a business’s real tax rate (the “effective tax rate”) can actually go up, not down. Second, you really need to look at social taxes to get the true tax picture, and they are still very high in the region.
There has been some tension between EU states over jockeying to lower corporate taxes to lure business. Will the CCCTB end this competition?
Since countries that adopt the CCCTB will still be able to set their own tax rates, there will definitely still be competition. Also, some of the lower-tax EU countries will undoubtedly stay outside the CCCTB area, so they will be free to do whatever they want, subject to state aid rules.
As someone who has worked both with U.S. and European corporate tax systems, what is the most drastic difference you see between the two?
The U.S. tax system is far more complex than any European tax system — although some are trying to catch up! A complex system wastes business and government resources, while usually not raising any more revenue. The clear lesson from that is to keep the tax system simple. On the other hand, because the United States is not a parliamentary system, it is much harder to change tax law rapidly. As a result, there is relative stability in the U.S. tax system. Some European countries need to learn that changing tax systems frequently upsets business investment plans, and that will end up driving foreign investment away.
Morally, do you find it problematic when companies go out of their way to avoid paying taxes in countries where they do business through tax shelters?
I worked as a tax policy official in the U.S. Treasury for several years. I didn’t like tax shelters then, and I don’t like them now.
Want your manager to answer our 10 Questions? Contact Paul Voosen at pvoosen@praguepost.com


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