Brussels, 09/02/2011 (Agence Europe) - Through EU Taxation Commissioner Algirdas Šemeta, the European Commission announced on Tuesday 8 February that it will be unveiling a draft directive on a common consolidated corporate tax basis (CCCTB) in the next fortnight. Based on Article 115 (internal market) of the Lisbon Treaty, the directive is a flagship initiative to boost the single market (see EUROPE 10311) and the commissioner says it will improve the business environment for small business and make it easier for them to expand within the single market by cutting the cost and red tape of complying with 27 separate tax systems. The Commission carefully warned that although the CCCTB directive will lay down a common base for calculating corporate tax, it will not harmonise corporate tax in the EU in any way. Member states are fully empowered to decide on the best corporate tax rates for themselves. This is a highly controversial area because a common corporate tax calculation method has always been rejected by countries like Ireland and the United Kingdom, which see it as a Trojan horse to introduce harmonised taxation through the back door.
EUROPE has obtained an outline copy of the draft of the CCCTB directive, some of which we explain below.
Consolidated common tax basis and just one tax authority
The basic idea is to introduce a system whereby the European Union can be viewed by companies as a single market when it comes to company taxation and this should make it easier for EU-registered companies to operate in more than one country and attract international investment. A common basis for corporate taxation is set, covering all business within the single market. Companies will have the option of applying a single set of tax rules and dealing with a single tax authority (the one-stop-shop approach), which means that for companies active in more than one country, income would be consolidated so that losses made in one country could be written off against profits in another without having to worry about which country the profit or loss was made in. Companies active in more than one country would no longer have to respect national rules on prices for goods transferred between subsidiaries in different countries. By eliminating intra-company transactions and differences arising from different tax law in different countries, there would be a huge lifting of red tape and the danger of double taxation would be avoided for a particular company.
This consolidation would set rules for how the company tax thus levied would be divided up between the member states where the company's subsidiaries are located. To this end, the Commission suggests a mathematical formula weighting the sales made in different countries, along with the labour force and assets located in that country. To genuinely meet the needs of the companies in question, however, the CCCTB will be optional and supplement the existing national tax systems.
Taxable and non-taxable income. All income would be considered taxable unless a specific exemption is given. Tax-free income would include dividends, income from the sale of shares in another company and the profits of subsidiaries permanently registered outside the EU. Taxable income would include interest and royalties (minus taxation at source). Business costs, R&D, maintenance and such like would be deductible from taxable income. Fixed assets should be written off against tax with a few exceptions. The list of non-tax-deductible has yet to be drawn up.
Carrying over losses. Taxpayers will be able to carry over losses indefinitely so that they are only taxed on real income, but retroactive carry-overs will not be allowed.
Eligibility for CCCTB. Group membership should be determined in accordance with a two-part test based on control (more than 50% of voting rights) and ownership (more than 75% of capital) or profit-sharing (more than 75% of rights giving entitlement to profit).
Rules on business reorganisation need to be established to fairly protect member states' rights to receive tax income when a company's tax liabilities are divided up among countries. This particularly applies to consolidation in order to calculate losses made by companies joining or leaving the group.
Šemeta says the new rules will be of value to small business because they will encourage them to operate in more than one country and take advantage of bigger markets. They should also help all companies use every euro thus saved for investment, research, innovation, professional training and job creation. (F.G./transl.fl)