The center piece in the reform, the Common Consolidated Corporate Tax Base, aims at reducing administrative burdens and tax obstacles for cross-border companies in the EU, both multi-nationals and small and medium sized companies. They will be able to use a single EU system to compute their taxable income, rather than having to deal with multiple national rulebooks.
A version of a Common Consolidated Corporate Tax Base (CCCTB) was first tabled in 2011. The tax package that was announced today (25 October) by the European Commission consists of three separate initiatives: the CCCTB, mechanisms to resolve double taxation disputes, and measures to tackle loop-holes with non-EU countries.
“With the rebooted CCCTB proposal, we’re addressing the concerns of both businesses and citizens in one fell swoop,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.
“The many conversations I’ve had as Taxation Commissioner have made it crystal-clear to me that companies need simpler tax rules within the EU. At the same time, we need to drive forward our fight against tax avoidance, which is delivering real change. Finance Ministers should look at this ambitious and timely package with a fresh pair of eyes because it will create a robust tax system fit for the 21st century.”
The CCCTB is described as “perhaps the most ambitious corporate tax reform ever proposed in the EU”. If the CCCTB would already have been in place, the Apple tax scandal – moving profits from sales in Europe to a fictitious “head office” in Ireland – would probably not have been possible.
It is a harmonised system to calculate companies’ taxable profits in the EU. It offers one set of rules for companies to determine their tax base, rather than multiple national ones. It will enable businesses to file a single tax return for all of their EU activities.
Companies in the CCCTB system will also be able to offset losses in one Member State against profits in another, thereby enjoying the same treatment as purely domestic companies. The CCCTB will make it easier, cheaper and more attractive for companies to operate across the Single Market.
The CCCTB will enable companies to offset profits in one Member State against losses in another, which is particularly important for smaller and start-up companies. The CCCTB will be a stable, transparent EU-wide system, enshrined in EU law. This will provide companies with much greater legal certainty and reduce tax obstacles such as double taxation.
According to the Commission’s calculations, with the CCCTB, time spent on annual compliance activities should decrease by 8% while the time spent for setting up a subsidiary would decrease by up to 67%, making it easier for companies, including SMEs, to set up abroad.
Once a company’s consolidated tax base has been established, each Member State in which the company has activities will have the right to tax part of this base. The proportion of the company’s base that a Member State can tax will be decided based on 3 equally weighted factors:
– The assets the company has in that Member State (e.g. buildings, machinery).
– The labour the company has in that Member State (i.e. the number of employees and employment costs).
– The sales that the company made in that Member State. The sales factor will be calculated on the basis of destination (i.e. where the goods are sold/dispatched to or where the service is carried out).
Corporate tax rates are not covered by the CCCTB, as these remain an area of national sovereignty. However, the CCCTB is expected to create a more transparent, efficient and fair system for calculating the tax base of cross-border companies, which will substantially reform corporate taxation throughout the EU.
The tax proposals will now be submitted to the European Parliament for consultation and to the Council for adoption.
The Brussels Times (Source: The European Commission)