Photo © Kati Molin – Fotolia
(BRUSSELS) – The EU Commission announced plans Tuesday for major reform of corporate tax in the EU, clamping down on tax avoidance by multinationals, who would have to be taxed where they make their profits.
The new, revised proposals for a ‘Common Consolidated Corporate Tax Base’ (CCCTB), first tabled in 2011, aim to create a level-playing field for multinationals in Europe by closing off avenues used for tax avoidance.
The revision follows consultation with Member States, businesses, civil society and the European Parliament, and bolstering pro-business to help cross-border companies cut costs, red tape and to support innovation.
A CCCTB would give companies operating in the EU a single set of rules for calculating their taxable profits. So a company would have to comply with just one EU-wide system for computing its taxable income, rather than different rules in each member state in which it operates. This reduces the risk of mismatches and loopholes, which are now widely exploited by tax advisors and multinational companies.
Two further proposals aim to improve the current system for dispute resolution on double taxation in the EU and to bolster existing anti-abuse rules. Taken together, the Commission believes the measures will create a simple and pro-business tax environment.
The rebooted CCCTB addresses the concerns of both businesses and citizens, says Economic affairs Commissioner Pierre Moscovici, with simpler tax rules and at the same time driving forward the fight against tax avoidance. “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,” he said.
Commissioner Valdis Dombrovskis said the current corporate tax system treats debt financing of companies more favourably than equity financing: “reducing this debt-equity bias in the tax system is an important element of the Capital Markets Union Action Plan and underlines our commitment to deliver on this project,” he added.
With the CCCTB, companies will for the first time have a single rule book for calculating their taxable profits throughout the EU.
The new corporate taxation system will be mandatory for large multinational groups which have the greatest capacity for aggressive tax planning, ensuring that companies with global revenues exceeding EUR 750 million a year are taxed where they really make their profits.
Companies will also be able to use a single set of rules and work with their domestic tax administration to file one tax return for all of their EU activities.
Corporate tax rates are not covered by the CCCTB, as these remain an area of national sovereignty.
The Commission says the CCCTB will improve the Single Market as businesses would be able to use a single set of rules and work with their domestic tax administration to file one tax return for all of their EU activities. It estimates that a fully operational CCCTB could raise total investment in the EU by up to 3.4%.
Large-scale tax avoidance will not be possible under the proposals, as the CCCTB will eliminate the mismatches between national systems which aggressive tax planners currently exploit. It will also remove transfer pricing and preferential regimes, which are primary vehicles for tax avoidance today.
The proposals now go to the European Parliament for consultation and to the Council for adoption.
Under the proposals, the common base could be agreed speedily, unlocking key benefits for both businesses and Member States, while consolidation would be introduced “soon afterwards and would allow all the benefits of the complete system to be reaped”.
