Brussels, 15/01/2008 (Agence Europe) - On Tuesday 15 January, the European Parliament adopted the own initiative report by Piia-Noora Kauppi (EPP-ED, Finland) on tax treatment of cross-border corporate losses, in response to the Commission communication of December 2006 (see EUROPE 9331). The report argued for the adoption of “targeted measures” at European level in this area, defined “on the basis of a multilateral, common approach and coordinated by Member States in order to guarantee the coherent development of the internal market”. These targeted measures, MEPs said, would provide only a “temporary solution” before the introduction of the Common Consolidated Corporate Tax Base (CCCTB) which would provide “a comprehensive long term solution for tax obstacles linked to the cross-border off-setting of profits and losses” for transfer costs and for merger, acquisition and restructuring operations.
MEPs made virtually no changes to the draft report put forward by the Parliamentary economic and monetary affairs committee at the end of 2007. They rejected the amendments proposed by the GUE/NGL group fearing for example, that permitting cross-border losses to be compensated could cause groups to declare their profits in low-tax countries. The report said, too, that additional work was needed to take account of SMEs and their particularities, to define the concept of “corporate group” and consider the setting up of an automatic information exchange system, similar to the VIE system for Value Added Tax.
During the plenary session debate the previous day, the rapporteur set out the difficulties encountered by European companies which operated across borders. “The situation of a group which operates in one single member state is by far preferable to that of a group with cross-border activities. In one single member state, a company can offset losses made by its subsidiaries through taxation applied to the parent company. However, when the subsidiaries are located in another member state, national laws are very different,” she said. Thereafter, she said, came “distortions when it came time to make investment decisions” as well as “obstacles to access to certain markets”.
Welcoming MEP's backing, European Taxation Commissioner László Kovács said that “the non-consideration of foreign losses results in double taxation and discourages SMEs from investing in other member states”. He added that the initiative envisaged would complement the CCCTB, notably for those companies which did not opt for the CCCTB. In the “Marks & Spencer judgment” (case C-446/03), the European Court of Justice took the view that refusal to allow a parent company to reduce its taxable profits by setting it against losses made by subsidiaries established in the EU was an obstacle to freedom of establishment. (M.B.)