Commission: 'common corporate tax base' should be mandatory as part of EU-wide tax transparency package

Out-Law News | 18 Jun 2015 | 12:13 pm | 3 min. read

The planned introduction of a single set of EU-wide rules governing how much of a company's profit will be taxed would be made mandatory as part of a new 'action plan' on tax avoidance, the European Commission has announced.

It has included new plans for a common consolidated corporate tax base (CCCTB) as one of the central measures in the plan, which is intended to build on tax transparency measures published in March as well as the wider work on tax avoidance by multinationals currently being carried out by the Organisation for Economic Cooperation and Development (OECD). It has also published a central list of tax jurisdictions deemed 'non-cooperative' by the EU, and is consulting on whether companies should have to publicly disclose certain tax information.

Tax expert Heather Self of Pinsent Masons, the law firm behind, said that the introduction of a common tax base across the EU had "the potential for significant simplification for companies", as well as for helping to prevent tax avoidance. However, she said previous plans to introduce the measure had become "stuck in the technical detail".

"It is interesting that the proposals now refer to the common tax base being 'mandatory'," she said. "It is not yet clear whether this means that it will be mandatory within those countries which choose to adopt it, in the same way as the Eurozone; or whether the intention is to make it mandatory across the EU. The latter would require unanimous support, and the UK in particular has previously declined to vote in favour of greater tax harmonisation."

"The proposed measures on permanent establishment and other anti-avoidance rules indicate that the EU is fully committed to the OECD's BEPS [base erosion and profit shifting] project. It is encouraging that there is a clear intention to have consistent rules across the EU, although this may mean that the UK's diverted profits tax needs to be updated to bring it into line," she said.

The Commission first proposed the introduction of a CCCTB in 2011, although the idea dates back to the Ruding report produced for the Commission by the Institute of Fiscal Studies in 1992. If adopted in its entirety, the CCCTB would create a single set of rules that cross-border companies could use to calculate their taxable profits in the EU instead of having to deal with different national tax systems. The 'consolidation' part of the CCCTB would also allow companies to offset losses in one member state against profits in another.

Negotiations between member states have stalled on the 2011 proposal, primarily in relation to consolidation. The Commission now intends to publish a revised proposal which would be broken into "smaller, more manageable stages" early in 2016 and would not seek to introduce consolidation until the common base was secured. This would "still make it cheaper and simpler for businesses to operate cross-border" and remove significant corporate tax compliance burdens, according to the Commission, although companies would still need to file separate tax returns in every member state in which they had a taxable presence.

The Commission's 'action plan' also includes proposals to improve the transfer pricing system, ensure stricter limits on patent boxes and other preferential tax regimes, and to harmonise rules to protect national tax bases. The Commission also intends to establish a common EU approach to implementing the OECD's final BEPS recommendations, which will cover many of the same issues, when they emerge later this year. This will "prevent 28 different approaches from undermining the single market" by ensuring that all member states apply the reforms in a consistent way, the Commission said.

It is also consulting on possible public disclosure requirements for multinational companies, building on the tax transparency package published in March 2015. These requirements could mirror the country-by-country reporting requirements that currently exist for banks as part of the Capital Requirements Directive, and for the extractive industries under the Accounting Directive. The Commission is seeking views to help it deliver a policy that strikes a balance between subjecting these companies to closer public scrutiny and protecting sensitive commercial information.

As announced in March, the Commission already intends to require member states to automatically exchange information about whether they have granted any tax rulings or letters of comfort to particular multinational companies. Other member states could then request more information about particular rulings. This proposal was prompted by a series of investigations by the Commission into tax rulings provided to multinational companies in Luxembourg, Ireland, Belgium and the Netherlands.

The Commission said that none of its proposals were intended to interfere with "member states' sovereign right to decide their statutory tax rates". They would instead "ensure that profits generated in the EU are taxed in the EU" and "[create] a basis for a much-needed discussion on effective taxation in the EU, which the majority of member states are calling for", it said.