One consultation concerns the possibility of using International Accounting Standards (IAS) as a starting point to develop an EU-wide consolidated tax base for companies. The other involves a "Home State Taxation" pilot project for SMEs to allow an SME to account for its EU-wide profits in one tax declaration which it would submit to the Member State where its main seat is located.
"These consultations aim to examine ways to tackle the tax obstacles hindering companies from benefiting fully from the Internal Market" said Taxation Commissioner Frits Bolkestein. "The development of a common consolidated tax base for the EU-wide activities of companies is in our view the only really effective means of tackling these obstacles. We would greatly welcome the views of stakeholders on these possible first steps towards achieving that goal".
IAS as a possible starting point for a common EU tax base
The Commission's services have prepared a consultation document which sets out in detail the various arguments and technical issues related to using the IAS as a starting point for an EU-wide tax base for multinational companies.
All listed companies, including banks and insurance companies, will be required to prepare their consolidated accounts in accordance with the IAS from 2005 onwards. The challenge is to plan how this development can be exploited for taxation purposes.
Issues raised in the consultation document include whether the IAS are too investor orientated for use as a source for determining the tax base; whether the IAS principles of materiality, fair value and "substance over form" conflict with taxation principles; and to what extent the existing Community endorsement procedure for IAS could be developed, or modified to provide a model, for taxation purposes. Comments are invited by 4th April 2003.
"Home State Taxation" pilot project for SMEs
The concept of "Home State Taxation" involves allowing businesses to opt to compute their consolidated tax base at EU level according to the rules of the Member State where their headquarters are based.
The paper on the basis of which the Commission services have launched the present consultation floats the idea of a pilot scheme allowing SMEs to benefit from such a system and discusses in detail the relevant technical points and alternative possibilities.
The suggestion is that SMEs as a group would particularly benefit from a home state taxation system because of the specific tax problems they encounter when engaging in cross-border and international activities.
For instance, tax compliance costs in an international context seem to be regressive in relation to the size of the company and are often, therefore, disproportionately high for SMEs. The administrative tax formalities and book-keeping requirements are relatively harder to sustain for SMEs than for larger enterprises.
Furthermore, the absence of rules in many Member States allowing the offsetting of cross-border losses hit SMEs particularly hard, especially as regards start-up losses that almost by definition occur in the first years of an international investment.
Comments are invited by 31st March.
Follow-up
The Commission will use the results as input into a report on progress on its company tax reforms which it intends to present in October 2003.