Brussels, 09/06/2015 (Agence Europe) - In its action plan to make corporate taxation within the European Union fairer, the European Commission has undertaken to relaunch the project for a common consolidated corporate tax base ('CCCTB'), although the member states are eager to separate this dossier from the fight against tax optimisation (see EUROPE 11303).
In the next 18 months, the European Commission will come back with a new proposal on the CCCTB, but will remain vague on how to proceed because, according to a number of sources, it would rather not withdraw its initial proposal straightaway and create a gap between the two.
In its action plan, the European institution makes the case for the CCCTB, describing how it can respond to problems related to base erosion and profit shifting ('BEPS', the name of the OECD project). A common corporate tax base would get rid of mismatches between the national systems, which multinationals often exploit, and would rule out the possibility of making use of preferential regimes in order to shift profits, the Commission argues. Multinationals will also lose the option to manipulate transfer prices (prices invoiced for commercial transactions between different entities of the same group). The Commission also believes that the CCCTB would offer more transparency regarding the effective tax rate of each jurisdiction. Lastly, the CCCTB would allow the member states to adopt a common approach towards third countries and defend the single market from aggressive tax planning.
The Commission has taken on board its own experience and the comments of states, businesses and stakeholders to see how it can resurrect this proposal. It's an open secret: it wants to make the CCCTB mandatory for businesses, at least for multinationals. The European institution is working on the basis of the principle that businesses which manage to minimise their tax bill are unlikely to opt in to the CCCTB.
As certain EU countries oppose the 'consolidation' aspect of the proposal, the Commission will propose that this is postponed, in order to focus on laying down the common tax base as a priority.
Consolidating a bit before consolidating the lot. Before full consolidation comes into force, the Commission will propose to allow groups to offset the profits and losses they make in the various member states in which they operate. This would be a temporary cross-border offsetting of losses to allow these groups to pay their tax on their net profits in the EU.
There is nothing new about this idea. It was first mentioned in 2006 and withdrawn when the proposal on the CCCTB came about. Launched under Taxation Commissioner Laszlo Kovacs, it was based on the 'Marks & Spencer' judgment (case C-446/03). In this judgment, the Court of Justice of the EU found for the first time that not allowing a parent company to reduce its taxable profit by imputing losses made by subsidiaries established in other member states and not active in the member state in which the parent company is located was an obstacle to the freedom of establishment (see EUROPE 9088 and 9331). However, this judgment makes no mention of profit consolidation.
What the Commission has in mind, in order to make sure that the states do not transfer the burden of losses made to another member state, is to set in place a mechanism to recapture these losses once the company is in a better state of financial health. This concept will probably be one of the stages towards the consolidation of the revised proposal on the CCCTB. Right now, in order to make these changes, the European Commission needs to update the impact study carried out for its initial proposal.
'Patent boxes': member states get the benefit of the doubt. The European Commission is also hoping to bring order to the 'patent boxes', tax regimes in favour of intellectual property, which the tax experts see as the next battlefield for tax competition. At the Council, the 'Code of Conduct' group on corporate taxation has already looked at the dossier. In December of last year, the states reached an agreement on an interpretation of the criteria so as to allow businesses to benefit from these advantages, as long as they are closely linked to a genuine economic activity in the country which offers these advantages (see EUROPE 11212). The Commission plans to give the states guidelines for the implementation of these regimes in line with the new approach ('modified nexus approach') and will keep a watchful eye on how they are implemented. If, within the next twelve months, the Commission concludes that the states are not complying with this new approach, it will prepare binding legislative measures to make sure that they do.
Tackling the issue of effective taxation. The Commission aims to study and explore various options for the effective taxation of profit, whilst taking account of the need for a competitive taxation environment which is conducive to growth. This could, for instance, start in the framework of the 'Code of Conduct' group. The aim would be to give the group a mandate to carry out a peer review of the various regimes in place and verify the levels of effective taxation. The Commission also intends to look into ways of making sure that the European legislation aiming to get rid of double taxation does not lead to double non-taxation (possibly by means of amendments to the 'interest and royalties' and 'parent/subsidiary' directives). France is extremely keen for the issue of effective taxation to be discussed in the framework of negotiations at the Council on interest and royalties, which are at deadlock over this very issue.
By summer 2016, the Commission also aims to propose improvements to the current mechanisms to resolve disputes related to double taxation within the EU, as it feels that the current procedures are lengthy and expensive and do not guarantee success.
The services of the Commissioner for Taxation, Pierre Moscovici, are also hoping to improve the framework on transfer prices. These prices influence the way the taxable profit is distributed between the subsidiaries of a group established in different countries and do not necessarily reflect market prices. By working on the basis of the guidelines of the OECD's 'BEPS' project, the Commission is hoping to work with the states for concrete implementation in the EU. Proposals to increase transparency could help to identify suspect intra-group transactions. The Commission may provide guidelines and propose specific tools to optimise the use of the information exchanged by the tax administrations.
Properly balancing 'country-by-country reporting'. As announced in March, the Commission is considering whether a general publication of certain corporate tax information should be brought in. It is therefore planning to launch a public consultation on 17 June, to feed into its impact assessment. On Monday 8 June, the OECD published its own recommendations in this area: a group with an annual turnover in excess of €750 million would have to send this information to the jurisdiction of its parent company, which would then share it with the other countries involved (by means of bilateral tax treaties, the multilateral convention on administrative assistance in tax matters or tax information exchange agreements).
It is worth noting that the European Parliament decided on Monday to postpone the vote on the 'shareholders' rights' directive, which contains specific provisions on country-by-country reporting (see other article.
List of non-cooperative third countries. The European Commission will publish what it will call an 'EU-wide list of third country non-cooperative tax jurisdictions'. This list will be essentially a compilation of the national lists of the 28 member states, as there is no legal basis for a European list and the Commission is not, at this stage, expected to announce any plans to prepare a proposal. The Commission also takes the view that more work will be necessary to ensure that the standards of good governance in the tax domain are being complied with by third countries. This work, to be spread over two years, will start with the countries which crop up on the national lists most frequently.
Breathing new life into the 'Code of Conduct' group. The Commission will make proposals to reform the 'Code of Conduct' group at the Council. In debates within the states, the question of a more political mandate is raised fairly often. The Commission is believed to want to see a more political president at the helm of this group, such as the former Italian Prime Minister, Mario Monti. However, the states are reported to have blocked this. The issues of the transparency of the work and the rule of unanimity within the group could also be revisited. The NGOs fiercely oppose the opacity of this group and are concerned at what could happen if its powers were increased.
The Commission is also hoping to propose to extend the mandate of the platform on good governance in the field of taxation by two or three years. Within this platform, states, businesses and NGOs consult on tax issues and its current mandate is to expire in 2016. Reported suggestions include the creation of two chambers (one for the states and the other for non-public players), with one plenary session a year. The Commission is also reportedly ready to tighten up the proposals on conflicts of interest. Within this platform, it will launch discussions to determine a more strategic approach to tax controls and audits for cross-border companies. (Elodie Lamer)