On Thursday 23 February, European employers, represented by BusinessEurope, echoed the comments of the insurance industry by expressing concern at the absence of consolidation from the new proposed common corporate tax base (CCTB).
Readers may recall that as the consolidation aspect was the hardest bit for the member states to swallow in 2011. The European Commission has proposed that this aspect be dealt with in a second stage and has made subject of a separate legislative proposal.
"The proposal (…) without consolidation would not bring sufficient benefits to the business environment to offset the reduction in competitiveness and increase in administration costs", BusinessEurope states in a document outlining its position, which was published on Thursday 23 February. The document has also been submitted to the Commissioner for Taxation, Pierre Moscovici. "Major improvements on the common base are required to make it more competitive vis-a-vis the world", the association adds.
"A common but not consolidated corporate tax base would suffer from the same complexities arising from transfer pricing and a lack of loss relief as exists today", BusinessEurope writes. The Commission has proposed a temporary loss offset mechanism, but due to its design, it would be of limited benefit to cross-border groups, the association argues.
The 'temporary loss relief with recapture' mechanism devised by the Commission provides that under no circumstances may the reduction of the tax base of a resident taxpayer be able to result in a negative amount, the institution explains. Once the loss-making subsidiary has returned to profit, this profit must be added to the taxable base of the resident company. BusinessEurope criticises this temporary aspect, which it feels is akin to deferred tax liabilities and, by its very nature, neutralises the benefit of offsetting.
The employers also note that the Commission's impact assessment anticipates that multinationals will end up spending 4% longer on drawing up their tax returns under the CCTB.
"Given that cross-border loss offset is not sufficiently comprehensive to replace full consolidation and taking the Commission's own impact assessment into account, the CCTB should, at a minimum, be optional for all firms until full consolidation", the employers' association concludes.
Certain aspects of the CCTB should, furthermore, be revised and supported by a new impact assessment, BusinessEurope argues. It considers that this should be the case with the question of flexibility. Common rules are no bad thing, but the system should not be too inflexible and should make it possible to adapt to future taxation tendencies. The association also takes the view that the tax incentives provided for by the Commission, such as a super-deduction for research and development costs, should also be reviewed.
The employers also find the anti-abuse measures of the directive far stricter than the OECD action plan to fight tax optimisation.
As for the CCCTB (in other words, the tax base once consolidated), BusinessEurope expresses concern at the allocation key selected by the Commission, as it feels that this key does not reflect economic reality and is not in line with international tax rules, the guidelines on transfer pricing or the OECD's principles on the substance and creation of value.
The association also notes that having the sales factor included in the allocation key at an equal importance as the production factors of labour and capital could result in considerable revenue losses for smaller member states. (Original version in French by Élodie Lamer)