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BackOn Wednesday, the Commission presented its proposal on a Common Consolidated Corporate Tax Base. In future, companies operating in several Member States shall be able to choose whether they use the tax systems of the respective countries or a 28th EU system to calculate the corporate tax base. However, the Commission does not provide for a minimum corporate tax rate. As a result, the competition between the Member States for the lowest corporate tax rate will continue.
The proposal provides companies with the option to use a Common Consolidated Corporate Tax Base (CCCTB) for their entire activities at EU level, in which case the tax base will be calculated EU-wide via the profit and loss account. That way, companies’ profits and losses could be consolidated between several EU countries.
The introduction of the CCCTB is optional for companies; hence, a 28th system is created in addition to the existing 27 tax systems. It is the objective of the CCCTB to give companies the opportunity to save (compliance) costs, to remove tax obstacles (such as the option of offsetting foreign losses) and to make it easier for companies to expand in other EU states, as the tax base is calculated for all activities within the EU.
The EU-wide calculated tax base is allocated to all Member States in which the company is active on the basis of a fixed apportionment formula. This is made up to one third of the number of employees and the payroll costs in the respective country, to one third of the turnover/sales and to one third of all assets. Hence, the system might cause tax shifts between the countries. The rates in the individual Member States are applied as tax rates to the CCCTB. According to the EU Commission, the studies indicate that the tax bases in the Central and East European Member States and in Germany, Spain, France, Greece, Italy and the United Kingdom might rise.
The tax rates of the Member States will not be harmonised; this was once again emphasised by the EU Commissioner for Taxation Algirdas Šemeta in his speech: He said he firmly believes that corporate tax rates are an issue of national sovereignty and - so long as it is done in a fair manner – something for each Member State to decide for itself, in line with national needs. Further topics on which the Commission will provide proposals resp. communications in the near future include Value Added Tax, which is currently subject of a public Consultation, taxes on energy, double taxation, tax avoidance and tax evasion. Šemeta underlined that increased transparency should assist in fighting tax competition, as it would enable fairer competition. However, he did not explain how downward tax competition could be reduced in practice.
The system might lead to a shift in tax competition from the tax base to nominal corporate tax rates (see study of the Chamber of Labour under ‘Further information’). It is the aim of the Commission to adopt the Directive next year. However, it must be called into question whether this target can be achieved, given the fact that the Commission, having introduced an initial proposal on harmonising the corporate tax base about 5 years before, has already failed once.
Further information:
Chamber of Labour: Corporate Taxation in the European Union - Tax competition and tax harmonisation
EU Commission: Question and Answers on the CCCTB
Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB)
The introduction of the CCCTB is optional for companies; hence, a 28th system is created in addition to the existing 27 tax systems. It is the objective of the CCCTB to give companies the opportunity to save (compliance) costs, to remove tax obstacles (such as the option of offsetting foreign losses) and to make it easier for companies to expand in other EU states, as the tax base is calculated for all activities within the EU.
The EU-wide calculated tax base is allocated to all Member States in which the company is active on the basis of a fixed apportionment formula. This is made up to one third of the number of employees and the payroll costs in the respective country, to one third of the turnover/sales and to one third of all assets. Hence, the system might cause tax shifts between the countries. The rates in the individual Member States are applied as tax rates to the CCCTB. According to the EU Commission, the studies indicate that the tax bases in the Central and East European Member States and in Germany, Spain, France, Greece, Italy and the United Kingdom might rise.
The tax rates of the Member States will not be harmonised; this was once again emphasised by the EU Commissioner for Taxation Algirdas Šemeta in his speech: He said he firmly believes that corporate tax rates are an issue of national sovereignty and - so long as it is done in a fair manner – something for each Member State to decide for itself, in line with national needs. Further topics on which the Commission will provide proposals resp. communications in the near future include Value Added Tax, which is currently subject of a public Consultation, taxes on energy, double taxation, tax avoidance and tax evasion. Šemeta underlined that increased transparency should assist in fighting tax competition, as it would enable fairer competition. However, he did not explain how downward tax competition could be reduced in practice.
The system might lead to a shift in tax competition from the tax base to nominal corporate tax rates (see study of the Chamber of Labour under ‘Further information’). It is the aim of the Commission to adopt the Directive next year. However, it must be called into question whether this target can be achieved, given the fact that the Commission, having introduced an initial proposal on harmonising the corporate tax base about 5 years before, has already failed once.
Further information:
Chamber of Labour: Corporate Taxation in the European Union - Tax competition and tax harmonisation
EU Commission: Question and Answers on the CCCTB
Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB)