Margarida Vasconcelos: EC takes one more step towards tax harmonization

The European Commission has been attempting, for a long time, to introduce a Common Consolidated Corporate Tax Base (CCCTB). Several Member States such as the UK and Ireland have been showing their opposition to such a proposal. However, the economic crisis has been used as an excuse to harmoniseMember States taxation policies. Nicolas Sarkozy and Angela Merkel agreed that steps towards political integration, including the harmonisation of tax and labour policies should be taken. Germany Sarkozy and Merkel have called, in their competitiveness pact, for creation of a single company tax regime. The eurozone leaders, in their Euro Pact, indicated their intent to develop a common corporate tax base, which “could be a revenue neutral way forward to ensure consistency among national tax systems while respecting national tax strategies and to contribute to fiscal sustainability and the competitiveness of European businesses.” As expected, on 16 March, the Commission proposed a draft Council Directive on a Common Consolidated Corporate Tax Base (CCCTB).

The proposal is based on Article 115 TFEU and it is, therefore, subject to the consultation procedure and unanimity is required amongst Member States. It would be difficult for Brussels to reach unanimity. Ireland believes that the CCCTB represents a first step towards European tax harmonization. Several Member States, such as the UK, Czech Republic and Slovakia are opposed, in principle, to the proposal. Nevertheless, it is already known if there is no unanimity, the CCCTB would be pursued by the “enhanced co-operation” The EU Commissioner for Taxation, Algirdas Šemeta, has already announced, if a unanimous agreement cannot be reached at the Council, he will present the proposal under “enhanced cooperation.”

The European Commission has denied that its proposal will harmonise corporate tax rates. However, the present proposal is a step forward towards harmonising tax rates. A common tax rate will follow the common corporate-tax base. It is important to recall that the European Commission in its Communication on the EU budget review, has presented its ideas on how to reform the EU budget, including EU taxes, namely, the Commission is planning to introduce an EU Corporate Income Tax (EUCIT) as a new EU own resource, replacing current national rules and bases with an uniform EU corporate tax rate which would be applied to the common corporate base of corporations. According to the Commission “Member States could continue to apply a national rate to this new base” or “the EUCIT could be a percentage of each national company tax.

The Commission has proposed a single tax regime for calculating the tax base for companies operating within the EU. The Commission is proposing a harmonised EU system, the so called Common Consolidated Corporate Tax Base (CCCTB), for calculating the tax base of companies operating in the EU. The Common Consolidated Corporate Tax Base (CCCTB) is a single set of rules for computing individual tax results of companies operating within the EU, for the consolidation of those results and the apportionment of the consolidated tax base to each eligible Member State.

If the proposal is adopted, Member States would see their powers to decide the structure of their taxation systems restricted.

Under the Commission proposal the CCCTB would be optional for companies whereby they would be subject to common corporate tax base rules. Companies which do not optin to the CCCTB would continue to work within their national systems.

Under the draft Directive, companies which are resident for tax purposes in a Member State may opt for the CCCTB for a minimum of five years under the conditions provided in it, as well as companies, which are not resident for tax purposes in a Member State as regards a permanent establishment maintained by them in a Member State.

Companies that opt-in to the CCCTB system would cease to be subject to the national corporate tax arrangements related to all matters regulated by the common rules. Companies would have to comply with one EU system for the calculation of their taxable earnings instead of having to comply with different rules in each Member State in which they operate. Furthermore, under the CCCTB, companies that operate in more than one EUMember State would be able to file a single tax return for the whole of their activity in the EU.

Under the draft proposal the consolidated tax return as well as all supporting documents filed by the principal taxpayer would be stored on a central database to which all the competent authorities would have access.

Under the draft directive Member States would have to manage two tax schemes: CCCTB and their national corporate income tax, which entails further costs. Obviously, there are costs involved in any shift to a new tax system. According to Euractiv IBEC Director General Danny McCoy said “There is a real danger that the CCCTB will make the EU less attractive as an investment location. The proposal’s impact assessment, published by the Commission, has not proven the case that tax compliance costs would be reduced for business. The allocation mechanism will mean that many businesses could actually end up paying higher corporate taxes,” Kay Swinburne MEP, European Conservatives and Reformists group economics spokeswoman, said: “There is a reason why this policy’s strongest supporters are high tax regimes. Despite soothing words to the contrary, it is clear that certain countries want this as a first step towards harmonising tax rates.” Moreover, she pointed out “There is no evidence that this will save money for large multi-national companies who have substantial resources to deal with multinational taxation matters already.”

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