| Author (Corporate) | European Commission |
|---|---|
| Series Title | COM |
| Series Details | (2016) 683 final (25.10.16) |
| Publication Date | 25/10/2016 |
| Content Type | Policy-making |
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On 16 March 2011, the Commission proposed a Directive for a Common Consolidated Corporate Tax Base (CCCTB). The proposal, which is still pending in Council, is one of the Commission’s REFIT initiatives and aims to provide companies with a single set of corporate tax rules for doing business across the internal market. The CCCTB proposal of 2011 would therefore allow companies to treat the Union as a single market for the purpose of corporate tax and thereby, facilitate their cross-border activity and promote trade and investment. It has lately become clear to the international community that the current rules for corporate taxation no longer fit the modern context. Generally, corporate income is taxed at national level, but the economic environment has become more globalised, mobile and digital. Business models and corporate structures are more complex, making it easier to shift profits. Furthermore, the divergence of national corporate tax systems has allowed aggressive tax planning to flourish over the last decade. Thus, when national rules are drafted without considering the cross-border dimension of business activities, mismatches are likely to arise in the interaction between disparate national corporate tax regimes. Such mismatches create risks of double taxation and double non-taxation and thereby distort the functioning of the internal market. In these circumstances, Member States find it increasingly difficult to fight effectively, through unilateral action, against aggressive tax planning practices in order to protect their national tax bases from erosion and counter profit shifting. Given that Europe's priority today is to promote sustainable growth and investment within a fair and better integrated market, a new framework is needed for a fair and efficient taxation of corporate profits. In this context, the CCCTB features as an effective tool for attributing income to where the value is created, through a formula based on three equally weighted factors (i.e. assets, labour, and sales). Since these factors are attached to where a company earns its profits, they are more resilient to aggressive tax planning practices than the widespread transfer pricing methods for allocating profit. The discussions in Council since 2011 have shown that the CCCTB proposal, being a very ambitious project, would be unlikely to get adopted, in its entirety, without a staged approach. Thus, various elements (especially tax consolidation) have given rise to a difficult debate and could be holding back progress on other fundamental features of the system. In an effort to get round these delays in making progress, the Commission, in its Action Plan of June 2015, advocated a step-by-step approach to the CCCTB. According to this, it is suggested that work on consolidation be postponed until agreement is first secured on a mandatory set of rules for the common base, i.e. the common corporate tax base. This does not nonetheless change the fact that the Commission will submit the two proposals, i.e. for a common corporate tax base and a CCCTB, simultaneously and as part of a single initiative. The proposal of 2011 for a CCCTB, which is currently pending in Council, will be withdrawn at the same time as the Commission adopts the new proposals. In this regard, it is fundamental that tax consolidation remains an essential element of the CCCTB initiative, since the major tax obstacles faced by companies in the Union can most effectively be tackled within a consolidated group. This proposal for a Directive focusses on the so-called 'second step' of the staged approach, i.e. after the elements of the common base have politically been agreed. Until this is achieved, the proposal for a CCCTB will remain pending for examination in Council. The CCCTB lays down the conditions for being in a group, sets out the possible forms that a group can take and includes rules on the technicalities of consolidation. In addition to providing for the necessary adjustments when entering and leaving the group, the text deals with business reorganisations, focussing on the particularities of cross-border groups and more precisely, the treatment of losses and unrealised capital gains. There are also provisions on the dealings between the group and other entities; these primarily relate to the treatment of withholding taxes and credit relief for double taxation. One of the principal elements of the proposal is the formulary apportionment, i.e. the mechanism of weights used for allocating the consolidated tax base of the group to the eligible Member States. Whilst, under the rules on the common base, companies may continue to apply, as a matter of principle, their national rules for administering their tax liability, the CCCTB would require a special administrative framework in order to accommodate the structures of cross-border groups. |
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| Source Link | http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2016:683:FIN |
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| Subject Categories | Taxation |
| Countries / Regions | Europe |
