The EU parliament has been busy on tax this week. Following Wednesday's debate on tax evasion yesterday they debated the Common Consolidated Corporate Tax Base. The following is the official report:
The use of a common consolidated corporate tax base should be made compulsory, said Parliament in a vote on Thursday outlining its position on legislation proposed by the Commission. The Commission had proposed a voluntary scheme.
"This harmonised system for calculating the tax base makes it possible for companies to consolidate the results of their individual branches, which allows them to compensate for any losses a group member might have. This makes it easier for companies to have and keep branches in different Member States and it reduces red tape. In addition, the system ensures that economic and social aspects are more important than purely fiscal reasons when companies choose their locations", said the lead MEP on the matter Marianne Thyssen (EPP, BE).
A mandatory system
The common consolidated corporate tax base (CCCTB) should become mandatory after a transition period, says the resolution, which was approved with 452 votes in favour, 172 against and 36 abstentions.
Initially, the CCCTB would only apply to European cooperative societies, which are by nature cross-border. After five years, it would apply to all companies except small and medium-sized enterprises (SMEs) which could opt in if they so wish. For SMEs, the Commission should work to reduce administrative burdens so as to enable those with cross-border activities to benefit from adhering to the CCCTB system.
Start with those in favour
Parliament's position also proposes that if not all Member States wish to take part in the scheme, then those that do could introduce it via the EU's enhanced cooperation procedure.
Minimum tax harmonisation?
The CCCTB system would give companies a single set of rules for calculating their taxable profits, rather than having to comply with differing accounting rules in each Member State in which they work.
As a set of rules for computing taxable income, CCCTB does not impose any common tax rates.
I welcome this move: the CCCTB if mandatory would be a welcome step to challenging tax abuse by multinational corporations whilst offering those that are tax compliant savings in admin costs. Country-by-country reporting would assist its operation, considerably.
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It appears to me a major result of this would be that it would be far easier to compare the rates of corporation taxes in different jurisdictions. This is currently quite difficult because different countries calculate their corporate tax base in different ways.
As such contrary to the claim in the article wouldn’t it result in far greater transparency over corporate tax rates and actually encourage companies to choose their residence for fiscal reasons?
But under the CCCTB their profits would be taxed where they arise – not by simple fact of place if incorproation
So, know it won’t
The CCCTB is unitary formula apportionment
I confess that I am not entirely sure how it is defined where profits arise, but if profits are deemed to arise where a customer is located rather than where the business is located it would make it very difficult for small businesses to trade with customers abroad. What small business would consider having a customer abroad if it meant completing a tax return for that country?
On the other hand if it doesn’t include the location of the customer then it will encourage businesses that don’t need a permanent establishment elsewhere to pick a country based on its corporate tax rate. This would include pure internet based businesses.
The issue is more sophisticated than you st – and the CCCTB specifically omits SMEs for very good reason. They are not the problem and I have long argued need very different solutions
This would be such a case
It is one thing to argue for a compulsory common tax base for Corporates it will be quite another to achieve it in practice. It should be remembered that the EU has also pushed and legislated for a compulsory common accounting framework for listed corporates with regard to IFRSs, but in practice IFRS accounting varies widely between different EU countries. A lot of lessons need to be learned from this experiment – especially given that tax accountants may well be even more easily swayed than accounting practitioners and auditors.