On Tuesday, 25 October, the European Commission presented its renewed proposal for a Common Consolidated Corporate Tax Base (CCCTB). After the first proposal in 2011 on the EU-wide harmonisation of calculation and consolidation failed in the Council, the Commission made a new attempt concerning a fair taxation of European companies. The proposal aims at those major corporations that engage in cross-border activities. In a press statement, Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs, declares that this is a positive step for European companies and EU citizens. Companies will see a harmonisation of cross-border tax regulations. EU citizens will benefit from the closure of loopholes, which is a contribution to combatting tax evasion.
The proposal obliges all multinational companies with an annual turnover of over EUR 750 million - hence those, for whom it is easiest to engage in aggressive tax planning - to calculate their taxable base in accordance with standardised rules. All other companies may voluntarily participate in CCCTB if they wish to. In contrast to the proposal of 2011, this time CCCTB will be implemented in two steps. The first step is to harmonise the tax base of the Corporation tax in all Member States. The second step is to implement consolidation.
Consolidation means that in future companies will be able to file one tax return for all their economic activities in the EU in one single Member State. According to this tax revenue will be shared between Member States via an added value key. Based on this, profits will be taxed where they have been generated and a stop shall be put to the fictitious shifting of profits across national borders. In addition, the asymmetric burden of equity and outside capital shall be corrected and tax incentives for research and development spending shall be set. National corporation tax rates shall not be affected.
A step in the right direction
The proposal of the EU Commission has to be welcomed in principle, in particular if it puts an end to the random shifting of profits between Member States. In order to actually guarantee this, consolidation, i. e. the location-independent calculation of the total consolidated profit, has to be implemented as quickly as possible. Hence, a fixed schedule for a speedy implementation of the two-stage process would be necessary to prevent any delay due to particular interests. As without consolidation the proposal would be rather toothless.
In the opinion of the AK, a third step is definitively required to curb tax competition within the Single Market: the introduction of an EU-wide minimum tax rate for corporation tax. The deductibility of fictive equity interest rates is also questionable. Here, effective abuse regulations would be better to put a stop to the use of financing companies in low tax countries.
In the medium-term, the European Union should aim at harmonising corporate taxation. Only then tax competition between Member States and aggressive tax optimisation can be stopped in an open Single Market. For the benefit of all EU citizens.