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EU Relaunches Common Consolidated Corporate Tax Base Plan

by Ulrika Lomas,, Brussels

26 October 2016

On October 25 the European Commission released its proposals for the relaunch of its common consolidated corporate tax base initiative and announced two other corporate tax reform measures – on hybrid mismatches and dispute resolution.

The CCCTB had earlier been proposed in 2011 but was rejected by member states. In the hopes of gaining approval this time, the CCCTB has been broken down to a two-step process. First, harmonized rules would be introduced on how to calculate a company's tax base in all member states. After that, tax revenues would be collected and distributed among member states under a formulary apportionment approach, whereby revenues would be allocated based on factors such as turnover, sales, and employment levels.

The Commission said the primary goal of the CCCTB proposal is to strengthen the EU Single Market by making it easier and cheaper for companies to operate cross-border in the EU. It argued that it would enable them to file a single tax return for all their activities in the EU through one tax authority, rather than having to file a tax return in every country where they operate. In addition, after the second phase, companies would be able to offset losses in one member state against profits in another.

The Commission said, under the CCCTB, the time spent by companies on annual compliance activities should decrease by eight percent, while the time spent setting up a subsidiary would decrease by up to 67 percent, making it easier for companies, including SMEs, to set up abroad.

The CCCTB would eliminate mismatches between national systems and preferential corporate tax regimes, and the formulary apportionment approach would remove the need for transfer pricing rules for related-party dealings within the EU.

The CCCTB would be mandatory for the biggest multinational groups operating in the EU. The Commission said companies with global revenues exceeding EUR750m (USD820m) a year will be taxed "where they really make their profits."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation, and Customs, said: "With the rebooted CCCTB proposal, we're addressing the concerns of both businesses and citizens in one fell swoop. The many conversations I've had as Taxation Commissioner have made it crystal-clear to me that companies need simpler tax rules within the EU. At the same time, we need to drive forward our fight against tax avoidance, which is delivering real change. Finance Ministers should look at this ambitious and timely package with a fresh pair of eyes because it will create a robust tax system fit for the 21st century."

Alongside the release of the CCCTB, the Commission has proposed an improved system to resolve double taxation disputes in the EU. It has proposed that current dispute resolution mechanisms should be adjusted to better meet the needs of businesses. In particular, a wider range of cases will be covered and member states will have clear deadlines to agree on a binding solution to double taxation.

The final proposal is intended to prevent hybrid mismatches between the tax systems of member states and non-EU countries. Hybrid mismatches occur when countries have different rules for taxing certain income or entities, and this can be abused to achieve double non-taxation. The Anti-Tax Avoidance Directive, agreed in July, already addresses mismatches within the EU, but the new proposal would also tackle mismatches with non-EU countries.

TAGS: environment | compliance | tax | investment | business | European Commission | tax compliance | tax avoidance | tax incentives | law | tax authority | agreements | multinationals | legislation | tax planning | transfer pricing | tax reform | standards | regulation | legislation amendments | trade | European Union (EU) | research and development | Europe | Tax | BEPS

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