IP/06/11

Brussels, 10 January, 2006
(see also MEMO/06/4)
The European Commission has adopted a Communication that presents a possible solution to the compliance costs and other company tax difficulties that Small and Medium Enterprises (SMEs) face when doing business across borders. The Commission suggests that Member States allow SMEs to compute their company tax profits according to the tax rules of the home state of the parent company or head office. An SME wishing to establish a subsidiary or branch in another Member State would as a result be able to use tax rules and file tax returns in a country with which it is familiar. The “Home State Taxation” system would be voluntary for both Member States and companies and would run for a five-year pilot phase. The Commission's 2004 European Tax Survey (see IP/04/1091) showed that cross-border activity leads to higher company tax and VAT compliance costs for companies and that costs are proportionately higher for SMEs than for large companies.

“Heads of Government and Member States last March highlighted the important role of SMEs in the economic development of the European Union” said László Kovács, EU Commissioner for taxation and customs. “I urge Member States, therefore, to take this opportunity to eliminate some of the tax complications that inhibit SMEs from participating in the Internal Market”.

The concept of Home State Taxation presented by the Commission is based on the idea of voluntary mutual recognition of tax rules by EU Member States. Under this concept, the profits of a group of companies active in more than one Member State would be computed according to the rules of one company tax system only, i.e. the system of the Home State of the parent company or head office of the group.

An SME wishing to establish a subsidiary or permanent establishment in another Member State would therefore be able to use only the tax rules with which it is already familiar.

The definition of an SME would be that commonly used in the EU – companies with less staff than 250, with a turnover of €50 million or less and/or with a balance sheet total of €43 million or less.

The Home State Taxation scheme would not mean taxation in the Home State only. It would simply mean that an SME's tax base (i.e. taxable profits) would be calculated in accordance with the rules of the Home State. Each participating Member State would then tax at its own corporate tax rate its share of the profits determined according to its share of the total payroll and/or turnover.

Introducing the scheme on a pilot, time-limited, basis would test the practical merits of the concept for SMEs and its broader economic benefits for the EU while limiting the administrative costs and potential risks for Member States.

The Commission's Communication provides detailed elements of such a Home State Taxation pilot scheme.

Member States that agreed to introduce this scheme could do so via a bilateral or multilateral agreement, by temporarily supplementing existing double taxation treaties or multilateral conventions, or by concluding a new multilateral convention.

In the Commission's opinion, the concept of Home State Taxation appears to be a very promising way of tackling the tax problems that hamper SMEs when they are expanding across borders. The most common problems are compliance costs and absence of relief for cross-border losses.

The potential overall economic benefit for the Internal Market from such a measure could be considerable. The Commission has in its Lisbon Action Plan (see IP/05/973) given a new impetus to achieving the Lisbon objectives, including in the tax field. It has repeatedly highlighted the important role of small and medium-sized enterprises in the EU's economic development and has called for broad policy actions in favour of SMEs. The European Council of 23 March repeated this call.

For further information see:
http://europa.eu.int/comm/taxation_customs/taxation/company_tax/home_state_taxation/index_en.htm

Quarterly settlement of PAYE/PRSI

Revenue e-Brief No. 4/2006

New Simplified Payment Arrangements for Employers PAYE/PRSI

Following the recent Budget announcement, a new simplified payment arrangement for employers PAYE/PRSI is being introduced by Revenue. The new arrangement will apply to those employers where the total PAYE/PRSI payments for the year are €30,000 or less. Under the new arrangements, such employers will be able to make their PAYE/PRSI payments on a quarterly basis rather than monthly.

This new arrangement will apply from the 1st April 2006 and is part of Revenue's ongoing customer service and simplification programme.

How will the changes be implemented?

Revenue has identified over 70,000 employers who are eligible under the new arrangements to change from the current monthly payment arrangement to a quarterly arrangement. On a phased basis, commencing in February 2006, Revenue will contact eligible employers and advise them of the new arrangements. Revenue will subsequently provide the necessary form [P30] to accompany the payment under the new arrangement.

Employers who receive a notification from Revenue regarding the new Quarterly Filing of P30 returns and do not wish to avail of this new arrangement will be able to contact our special 1890 70 70 71 helpline.

THERE IS NO NEED FOR EMPLOYERS TO TAKE ANY ADDITIONAL ACTION IN RELATION TO THIS CHANGE.

The future schedule for PAYE/PRSI payments for eligible employers will be as follows:

TAX PERIOD	FREQUENCY	FILE AND PAY
February 2006	Monthly as usual	Monthly P30 return and payment by 14th March 2006
March 2006	Monthly as usual	Monthly P30 return and payment by 14th April 2006 (this will be your last monthly payment)
April–June 2006	Quarterly	Quarterly P30 return and payment by 14th July 2006
July–September 2006	Quarterly	Quarterly P30 return and payment by 14th October 2006.
October–December 2006	Quarterly	A separate Quarterly P30 return is NOT required for the last quarter of the year.Please include payment for the last quarter with your P35 by 15th February 2007
Payment arrangements will continue on a quarterly basis thereafter
FOR ALL OTHER EMPLOYERS, THERE IS NO CHANGE TO EXISTING MONTHLY PAYMENT REQUIRMENTS