EU To Delay Common Corporate Tax Base Proposals

by Ulrika Lomas, Tax-News.com, Brussels

12 September 2008

Proposals for a common method of calculating corporate taxes across the European Union have been put on hold while the European Commission continues to iron out the plan's finer details, Tax Commissioner Laszlo Kovacs has revealed.

In a recent speech delivered at the Congress of the International Fiscal Association, Kovacs disclosed that certain "detailed technical areas" still need further work, in particular those related to the financial sector.

Despite opposition from several member states to the idea, the Commission has forged ahead with its work on the common consolidated corporate tax base (CCCTB) and had been due to present its highly-anticipated plan this Autumn. However Kovacs told the delegates that it was more important to present "a perfectly elaborated and well justified product," than present an incomplete one "just to meet an artificial deadline."

"I remain fully committed to this project, and when the impact assessment and the proposal are properly ready I will present these to the College," he added.

The CCCTB would enable companies to follow the same rules for calculating the tax base for all their EU-wide activities rather than in accordance with the existing 27 systems, thereby, it is argued, simplifying procedures, improving efficiency and reducing compliance costs.

According to Kovacs, companies would benefit substantially from the CCCTB because it would do away with the need to determine arms length transfer prices for intra group transactions and provide a consolidation mechanism to offset profits and losses of the same company in different member states.

However, several EU countries, most notably those with the lowest rates of corporate tax in the EU, such as Ireland, Estonia and Slovakia, are strongly opposed to the idea of any kind of harmonization of EU member state tax regimes, despite assurances that no plans are in the pipeline for harmonizing tax rates, which is what these countries ultimately fear.

The result of the Irish referendum earlier in the summer, which rejected the new EU constitution, largely on fears that it would erode tax sovereignty, also dealt a blow to the Commission's plan to present its proposals this year, and it is now probable that the proposals will not see the light of day until some time in 2009.