The European Commission has announced its revised plans for a common consolidated corporate tax base (CCCTB), together with two further proposals for dispute resolution on double taxation in the EU and to address hybrid mismatches with non-EU countries.
The European Commission has announced its revised plans for a common consolidated corporate tax base (CCCTB), together with two further proposals for dispute resolution on double taxation in the EU and to address hybrid mismatches with non-EU countries. See here.
The proposed CCCTB has been broken down into a two-step process: beginning with member states’ agreement to the common base, which will provide a single set of rules; and then working on the more complex consolidation aspect, allowing a group to reach a net profit or loss for the entire EU using an apportionment formula.
Compared to the previous proposal in 2011, the new CCCTB will:
be mandatory for large multinational groups with global consolidated revenues exceeding €750m a year, with companies below that threshold able to opt in to the CCCTB;
tackle loopholes currently associated with profit shifting for tax purposes, by eliminating mismatches between national systems and removing transfer pricing and preferential regimes;
encourage companies to finance their activities through equity, rather than through debt, by providing for an annual tax deduction of a set rate applied to new company equity; and
support innovation through tax incentives for R&D activities linked to real economic activity, allowing companies a 100% deduction on their R&D expenditure, plus a 50% deduction for expenditure of up to €20m and a further 25% deduction for R&D spending over €20m. Start-up companies will receive a more generous deduction of up to 200%.
Corporate tax rates are not covered by the CCCTB, as these remain an area of national sovereignty for member states.
The Commission says that, under a CCCTB, time spent on annual compliance activities should decrease by 8%, while the time spent setting up a subsidiary would decrease by up to 67%. It also says that R&D investment and equity financing could raise total investment in the EU by up to 3.4%. Furthermore, companies would be able to offset profits in one member state against losses in another, once consolidation is implemented, with a temporary system of relief proposed for the losses of a subsidiary in another member state until consolidation is in force.
Commenting on this proposal, Tim Wach, global managing director at Taxand, said: ‘As with a number of plans to increase harmonisation in tax policy, the CCCTB has been fraught with political tensions and difficulties in implementation, with Ireland and the UK strongly opposing the regime. The proposals will demand the support of all 28 countries, or possibly 27 with the UK’s imminent plans to trigger article 50. However, with the UK’s reduced influence and leverage within the EU following the Brexit vote, Ireland may be left out in the cold, alone and politically isolated in resistance to the proposals.' Wach added: 'Sceptics will eye the proposals with the usual eye of disdain, but the removal of the UK’s leverage in these negotiations, may be the approval tipping point.’
The Commission’s second proposal, for an improved system to resolve double taxation disputes, would cover a wider range of cases and will include a mandatory binding dispute resolution mechanism.
The Commission’s third proposal, for preventing hybrid mismatches with non-EU countries, complements measures included in the EU anti-tax avoidance directive, agreed in July, which addressed mismatches within the EU.
The European Commission has announced its revised plans for a common consolidated corporate tax base (CCCTB), together with two further proposals for dispute resolution on double taxation in the EU and to address hybrid mismatches with non-EU countries.
The European Commission has announced its revised plans for a common consolidated corporate tax base (CCCTB), together with two further proposals for dispute resolution on double taxation in the EU and to address hybrid mismatches with non-EU countries. See here.
The proposed CCCTB has been broken down into a two-step process: beginning with member states’ agreement to the common base, which will provide a single set of rules; and then working on the more complex consolidation aspect, allowing a group to reach a net profit or loss for the entire EU using an apportionment formula.
Compared to the previous proposal in 2011, the new CCCTB will:
be mandatory for large multinational groups with global consolidated revenues exceeding €750m a year, with companies below that threshold able to opt in to the CCCTB;
tackle loopholes currently associated with profit shifting for tax purposes, by eliminating mismatches between national systems and removing transfer pricing and preferential regimes;
encourage companies to finance their activities through equity, rather than through debt, by providing for an annual tax deduction of a set rate applied to new company equity; and
support innovation through tax incentives for R&D activities linked to real economic activity, allowing companies a 100% deduction on their R&D expenditure, plus a 50% deduction for expenditure of up to €20m and a further 25% deduction for R&D spending over €20m. Start-up companies will receive a more generous deduction of up to 200%.
Corporate tax rates are not covered by the CCCTB, as these remain an area of national sovereignty for member states.
The Commission says that, under a CCCTB, time spent on annual compliance activities should decrease by 8%, while the time spent setting up a subsidiary would decrease by up to 67%. It also says that R&D investment and equity financing could raise total investment in the EU by up to 3.4%. Furthermore, companies would be able to offset profits in one member state against losses in another, once consolidation is implemented, with a temporary system of relief proposed for the losses of a subsidiary in another member state until consolidation is in force.
Commenting on this proposal, Tim Wach, global managing director at Taxand, said: ‘As with a number of plans to increase harmonisation in tax policy, the CCCTB has been fraught with political tensions and difficulties in implementation, with Ireland and the UK strongly opposing the regime. The proposals will demand the support of all 28 countries, or possibly 27 with the UK’s imminent plans to trigger article 50. However, with the UK’s reduced influence and leverage within the EU following the Brexit vote, Ireland may be left out in the cold, alone and politically isolated in resistance to the proposals.' Wach added: 'Sceptics will eye the proposals with the usual eye of disdain, but the removal of the UK’s leverage in these negotiations, may be the approval tipping point.’
The Commission’s second proposal, for an improved system to resolve double taxation disputes, would cover a wider range of cases and will include a mandatory binding dispute resolution mechanism.
The Commission’s third proposal, for preventing hybrid mismatches with non-EU countries, complements measures included in the EU anti-tax avoidance directive, agreed in July, which addressed mismatches within the EU.
