Leaked EU directive makes CCTB/CCCTB tax scheme mandatory for large multinationals

A proposed directive for an EU common corporate tax base (CCTB), to be presented by the EU Commission next week, and the EU’s planned common consolidated corporate tax base (CCCTB) proposal, would be mandatory for multinational groups operating in the EU that have annual revenue exceeding €750 million (USD 820 million), though other firms may opt into the scheme, according to a leaked copy of the EU CCTB directive.

The EU CCTB directive is the first step of a two-step EU Commission plan to revamp the corporate tax system applicable to multinationals.

Under the proposal, tax base is defined as all revenue, though dividends or proceeds from the disposal of shares held in a company outside the group will be exempt for participations of at least 10 percent. Profits of permanent establishments are also exempt in the state of the head office.

The proposal includes limits on deductibility of interest and other financial costs, but to counteract debt/equity bias in taxation, taxpayers are given an allowance for growth and investment under which increases in equity are deductible from the taxable base, subject to certain conditions. The proposal also includes provisions to prevent tax avoidance though hybrid mismatches.

The leaked CCTB directive provides a temporary mechanism for cross-border loss relief with subsequent recapture, which would apply until the introduction of the CCCTB.

Further, the directive adds a “super-deduction” for R&D costs, which permits, in addition to a regular R&D deduction, a yearly extra deduction of 50 percent for R&D expenditure up to €20 million (USD 22 million). A deduction of 25 percent is allowed for amounts in excess of that threshold.

The EU has been trying for years to set up an EU CCCTB to reduce tax compliance costs and combat multinational corporation tax avoidance.

After the EU’s 2011 CCCTB proposal  stalled, the Commission announced, in its 2015 Action Plan, that it would reintroduce the measure in two parts, first seeking agreement among states for a common set of rules to calculate taxable profits in the EU, and then, once agreement was reached, beginning negotiations on the contentious issue of consolidation.

The intent is for both proposals, the CCTB and the CCCTB, to eventually be adopted as one initiative.

See:

• Document

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