Company tax base could be unified in Europe

The support follows the Commission’s Communication on company taxation of October 2001, which argued that such an EU-wide tax base is the only systematic remedy to the various tax obstacles in the Internal Market and the current costly inefficiencies resulting from the operation of fifteen different sets of tax rules.

During the conference, more than 500 high-level tax specialists from the public and private sectors in the EU, candidate countries and beyond debated four options that the Commission had presented to achieve this objective and their political and technical implications.

Discussions will continue with Member States and all interested parties and the Commission will at the same time work on the technical aspects. The Commission will publish a progress report in early 2003.

"Without determined action on the tax front, the EU will fail to achieve its self-imposed objective of becoming, in this decade, the most competitive and dynamic knowledge-based economy in the world", said Taxation Commissioner Frits Bolkestein today. "The concept of a common consolidated tax base for the EU-wide activities of companies, which is the subject of today's conference, is ultimately the only means of tackling the various tax obstacles in the Internal Market 'in one stroke'."

Many participants, including the European Parliament, UNICE and ETUC representatives, agreed with the Commission's view that, while targeted legislative measures should be agreed at EU level to resolve individual tax obstacles, in the long term only a common EU tax base would provide greater efficiency, simplicity and transparency in company tax systems.

The perceived options are as follows:

• Common Consolidated Tax Base - where a multinational group would be able to opt to calculate the taxable profits for all its EU operations according to a new common set of tax rules applicable across the EU. This appears to be the most popular option.
• Home State Taxation approach - where a multinational group would be able to opt to calculate the taxable profits for all its EU operations according to the tax rules of the Member State where its headquarters are based, i.e. its 'Home State.' This was a less popular option, but found some interest among SMEs.
• European Corporate Income Tax - viewed as unfeasible at this time.
• Compulsory harmonisation of existing tax bases - viewed as unfeasible at this time.

A number of specific issues were identified for further research. These included the potential for using the International Accounting Standards (IAS), which will be binding for the consolidated accounts of EU listed companies from 2005, as a starting point for developing a common tax base.

Another issue that requires research is the possible competition and discrimination problems that could arise from having an optional common tax base running alongside traditional national tax bases.

Above all, it would be necessary to develop an appropriate mechanism to apportion a common EU tax base between Member States which would, regardless of the technical approach chosen, continue to apply their individual company tax rates.