The European Commission proposes a corporate tax’s common tax base
The European Parliament debates a proposal to create a common base for corporate tax in the European Union.
The European Commission has presented a proposal to the European Parliament to harmonize the corporate tax’s base between the 28 States members.
This Consolidated Common Corporate Tax Base (CCCTB) would allow businesses to pay taxes where they get profits and where they stimulate economic activity by diminishing performed accountable and fiscal engineering mechanisms used by businesses such as multinationals (for example, billing through branches at tax havens and paying extraordinary royalties to parent companies).
It is not the first time that the EC tries to implement a common tax base in the EU. It did, without success, in 2011 and 2014. Currently, with favorable public opinion and with investigations brought out by multinationals such as Apple, McDonald’s or Amazon on the way, the EC will try once more.
The CCCTB, as argued by the EC, would allow to create a simpler tax system at a European level and to fight against tax avoidance. This proposal is divided into two pieces: in the first one, it would implement common norms to calculate that European tax base, and in the second one, it would consolidate said tax bases. The changes that would be implemented by the CCCTB are the following:
1.- A single way to tax in the whole European Union.
2.- To establish deductions and levies that would implement the CCCTB in the EU as a whole.
3.- The assets’ depreciation rate would be common for the whole of the EU.
4.- Deductible expenses would also be the same for all the Member States.
5.- It would avoid profit transfers.
6.- It would implement R&D’s fiscal incentives up to 200% in some cases. As a consequence, investments in this field would increase up to 3.4%, especially start-ups.
7.- Corporate tax interest rates would continue to be competence of the individual Member States.
8.- Businesses would be required to provide just one yearly tax return, reducing the time spent doing said administrative activities up to 8%.
9.- Conflict resolution mechanisms on double taxation. It is calculated that there are currently around 900 unresolved cases regarding the EU, worth up to in E10.5bn in total.
10.- To avoid legal loopholes among State members’ taxation rules, which might minimize up to 70% the businesses’ profit-shifting activities.
11.- To discourage businesses from financing though debt to boost it via equities, which may reduce the risk of failure and vulnerability to the bankruptcy of such businesses.
12.- Allowance for Growth and Investment (AGI) would be created, a mechanism in which capital and debt would have the same tax treatment.
13.- This common tax base would be mandatorily applied to businesses earning more than E750m in yearly profits.
The CCCTB’s key here is that to be calculated, businesses or corporate groups would only have to add all its benefits and subtract its expenses in its branches or owned companies in the EU’s Member States. The common tax base would be applied to this net result to establish the corporate tax’s amount to be paid.
Said amount would be shared proportionally between the Member States in which the business or group of companies have activity, these shared amounts, every State’s tax authority set national corporate tax would be applied.
The fight against international tax avoidance is essential in achieving tax equality amongst all citizens, however, the State’s tax sovereignty must also be respected. Narrowing the tax avoidance field between these two principles, through consensus amongst Member States, would benefit the EU’s development greatly.
This proposal is aligned with the BEPS‘ principles that we have extensively covered on our blog.
Del Canto Chambers’ Editorial Board