The European Commission on June 17 said it is readying a proposal for an EU-wide common consolidated corporate tax base (CCCTB) that would be mandatory for multinationals.
The Commission also announced plans to publish guidance on intellectual property regimes and transfer pricing; launched a public consultation on whether companies should be required to make further disclosures of tax information, including public release of country-by-country reports; and published a list of non-EU, non-cooperative, tax jurisdictions.
The measures were outlined in the Commission’s Action Plan for Fair and Efficient Corporate Taxation.
CCCTB
A CCCTB would save European companies €0.7 billion annually in compliance costs because only one EU-wide system for determining corporate tax base would apply, as opposed to 28 different sets of rules, EU tax commissioner, Pierre Moscovici told reporters. He also said the CCCTB would do away with mismatches, loopholes, and internal disputes between countries.
The proposal, planned for release within 18 months, will be mandatory “at least for multinational companies,” Moscovici said. A voluntary system, such as the one envisaged in the 2011 CCCTB proposal, would not combat tax avoidance, Moscovici explained.
Because EU negotiations on the 2011 CCCTB proposal have stalled, the Commission decided it will propose a modified CCCTB in a form that is more likely to secure EU agreement. The modified proposal will provide a common set of rules to calculate taxable profits in the EU; however, unlike the 2011 proposal, it will not provide for consolidation, at least not initially, the Commission said.
Instead, the Commission said it will take a step-by-step approach, postponing negotiations on the contentious issue of consolidation until after EU states agree to other aspects of the plan.
Moscovici said he recently met with Irish Finance Minister Michael Noonan, an opponent of the 2011 CCCTB proposal. Noonan said that while the 2011 proposal remained a “nonstarter,” there was “room for discussion” on a two-step approach, Moscovici reported.
To make up for the lack of consolidation, the modified CCCTB proposal will allow for a cross-border loss offset, whereby a parent company in one state will be able to receive temporary tax relief for the losses of a subsidiary in another state. When the subsidiary becomes profitable, the Member State of the parent company would “recapture” the taxes.
The Commission said it will review all elements of the 2011 CCCTB proposal’s base. “In particular, the Commission will consider whether the beneficial treatment of research and development expenses in the current proposal should be further developed and whether to address the corporate debt equity bias in order to strengthen the capital markets union,” the Commission said.
The proposal will also incorporate provisions on permanent establishments and controlled foreign corporations agreed to in the OECD/G20 base erosion profit shifting (BEPS) plan. The Commission said it hoped to achieve legally binding consensus in the EU Council on these BEPS plan items within 12 months, before an agreement is reached on the revised CCCTB.
Public release of country-by-country data
The Commission also launched a public consultation into whether companies should be required to disclose more information about their tax affairs – either to tax authorities or to the public – including the possibility of public release of country-by-country reports by multinationals. Currently, public release of country-by-country data is required in the EU only of companies in the extractive and banking industries.
Feedback is requested by September 9. The consultation will inform an impact assessment, to be concluded by the first quarter of 2016.
Asked whether Commission was stalling on public release of country-by-country reports, Moscovici said that the consultation is needed to make certain that added transparency will not cause companies to stop investing or creating jobs. Moscovici added that his personal view is that country-by-country reporting would not harm business.
IP regimes & transfer pricing
The Commission also intends to provide guidance to member states on implementing a 2014 agreement establishing a modified nexus approach to determine if intellectual property regimes are harmful or not.
The Commission said it will monitor states’ implementation of the agreement and if, after 12 months, states are not properly applying the new approach, the Commission will propose binding legislation on the subject.
The Commission also said that it will begin to work with member states and business to improve transfer pricing rules. Moscovici said that transfer pricing and intellectual property location issues account for over two-thirds of all profit shifting. “So, you can see why they need to be addressed,” he said.
The Commission also said it would put forth proposals to improve current mechanisms to resolve EU double taxation disputes by summer 2016.
Non-cooperative countries
The Commission also published a list of non-EU countries deemed non-cooperative, as identified by the member states.
The list, published on the Commission’s website, is designed to offer member states a tool “to compare their national lists and adjust their respective approaches to non-cooperative tax jurisdictions as necessary.” The Commission said it would update the list on a periodic basis.
Moscovici said that the current approach to tax havens in the EU varies from state to state and fails to stop countries’ bad behavior. The initiative is designed to give EU states “collective weight” to put an end to external threats to their tax bases, he said.
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