Last week, the first joint public hearing of two significant proposals regarding a common base for corporate taxation, took place in the European Parliament. In a two-tier procedure the proposals should ensure that profits within the EU are taxed in those Member States in which they are generated. Thereby, multinational companies should be hindered from exploiting different national tax laws in order to minimise their taxes. However, there are still some significant burdens to overcome, before these proposals ultimately might enter into force.
The fight against tax avoidance practices by multinational companies is currently getting a lot of attention at European level. Last week the European Parliament debated two draft directives by the Commission: the proposal for a common corporate tax base (CCTB) and the proposal for a common consolidated corporate tax base (CCCTB). In a first step, the now discussed proposals imply that multinational companies from a certain size will be able to calculate their tax base in accordance with common EU rules and would no longer have to take 28 different national systems into account. In a second step – the so-called consolidation – taxes will be calculated for all Member States, in which the company is active and divided between those in accordance with the value creation process in respect of labour, capital and sales figures. Companies are to receive loss compensation payments for cross-border activities until the consolidation has actually been implemented. The Commission's proposal is geared towards preventing unfair tax competition within the European Single Market. However, also incentives for growth are included in the proposal. For example, investments for research and development are rendered tax-deductible and the asymmetric burden of equity and loan capital is corrected.
The first public hearing on both proposals, which took place in the European Parliament’s Committee on Economic and Monetary Affairs (ECON) last week, was also attended by representatives of employers, employees and civil society. Almost all present supported the joint adoption of both proposals – the common tax base and its consolidation. However, the question whether consolidation should be mandatory from a minimum net turnover of 750 million Euro, was hotly debated. Market-liberal parties as well as the economic umbrella association Business Europe are in favour of a voluntary consolidation from this threshold. In contrast, S&D, Greens/EFA, GUE/NGL as well as the trade union representative Katja Lehto-Komulainen criticised the minimum net turnover as being too high. Analogous to the Regner-Bayet proposal in respect of country-by-country reporting, they demand lowering this amount to 40 million Euro in order to include those companies, which minimise their tax payments by exploiting different national regulations.
Also, the growth and investment incentives through broadening tax-deductibility, planned by the Commission, were welcomed by everyone. They were unrealistic for small and medium-sized companies, said Gerhard Huemer, representative of European Association of Craft, Small and Medium-sized Enterprises (UEAPME), and apart from that would only lead to procyclical impulses. MEP Hugues Bayet (S&D faction) pointed out that a fair taxation of companies within the European Single Market would only be possible if national minimum tax rates were also included in the Directives. If these were missing, also the consolidation of the common corporate tax base would not result in fair competition. According to Professor Richard Murphy, Tax Justice Network, the efforts by the Commission would also require a harmonisation of accounting standards, without them multinational companies would be able to continue their artificial tax competition.
It remains to be seen, which items will be included in the Parliament’s position to actually ensure fair taxation. From the AK’s perspective, minimum tax rates for companies as well as a speedy and mandatory consolidation of the common consolidated corporate tax base for multinational companies from a minimum net turnover of 40 million Euro have to be included. However, the AK is critical of any tax-deductibility growth-promoting investments and the deductibility of fictive equity interest – in contrast it would be more recommendable to include effective abuse regulations in order to put an end to the use of finance companies in low tax countries.
AK EUROPA Position paper on the common consolidation corporate tax base (CCCTB)
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Europeans Parliament: Common consolidated corporate tax base (CCCTB) Briefing