Later this autumn and five years after its first attempt, the European Commission will be re-tabling its proposal for a common (consolidated) corporate tax base (CCCTB). The presentation is currently scheduled for 9 November, but the services of the commissioner responsible for the dossier, Pierre Moscovici, hope to publish the proposal ahead of the Ecofin Council of Tuesday 8 November.
The presentation will be anything but brief, as it will probably coincide with the Commission unveiling its proposals for a tax dispute resolution mechanism, but also for hybrid mismatched situations with third countries, in other words amendments to the brand-new anti-tax avoidance directive (ATAD), which up to now covers only situations between EU countries. Readers may recall that hybrid mismatches are financial instruments allowing an entity to have a different tax category in two different jurisdictions, leading to situations of double non-taxation.
CCCTB – what is it? This common tax base breaks down into a single raft of rules to calculate the taxable profit. In other words, it will allow companies to comply with just a single regime within the EU to calculate its taxable profit, rather than with each of the different regimes of each of the member states in which it deos business.
Eventually, if the tax base is consolidated, groups subject to the CCCTB will be able to fill in a single consolidated tax statement for all of their activities within the EU, probably in the state of the parent company of the group. The consolidated taxable profit would then be divided between each of the companies making up the group using a distribution key that allows each state to tax the profits of companies resident on its territory under its own rate.
The Commission has always been aware that the 'consolidation' aspect is the hardest for the member states to agree to. It has never hidden the fact that it will move forward in stages towards a consolidated base. This means that the 'consolidation' section of the initiative will be the subject of a separate proposal, so that the states can agree on the common tax base first of all.
Initially, therefore, the institution will propose a cross-border loss compensation mechanism for these groups. This mechanism is theoretically expected to be 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 the refusal to allow a parent company to reduce its taxable profit by allocating losses registered by subsidiaries established in other member states and not active in the member state in which the parent company is established was an obstacle to the freedom of establishment (see EUROPE 9088, 9031).
In order to make sure that the states do not carry the burden of losses registered in a different member state, the Commission is planning to set up a recapture mechanism for when the company is in better economic health.
The CCCTB, furthermore, would be obligatory for large groups with a consolidated turnover above a certain threshold. The figure of €750 million has been rumoured, as for the companies subject to the country-by-country reporting requirements to the tax administrations under the directive on administrative cooperation.
The proposal will contain a "super deduction" for costs related to research and development, with an extra advantage for start-ups. A Commission source stressed that this will not be along the same lines as patent boxes, tax regimes that are favourable to intellectual property but reasonably open to abuse, but which have no real effect on the economy.
To reinforce its planned Capital Markets Union, the Commission also intends to tackle the existing tax discrimination in favour of indebtedness over financing through own funds, better known as the 'debt equity bias'. Two member states – Italy and Belgium – use such a system. The Commission is well aware of the abuse permitted under the Belgium system and is believed to be looking at the Italian system as a model instead. (Original version in French by Élodie Lamer)