Brus­sels pro­poses ma­jor cor­po­rate tax re­form for the EU

Malta Independent - - BUSINESS -

The Euro­pean Com­mis­sion has an­nounced plans to over­haul the way in which com­pa­nies are taxed in the Sin­gle Mar­ket, delivering a growth-friendly and fair cor­po­rate tax sys­tem. The leg­isla­tive pro­pos­als will now be sub­mit­ted to the Euro­pean Par­lia­ment for con­sul­ta­tion and to the Coun­cil for adop­tion.

Re­cal­i­brated as part of a broader pack­age of cor­po­rate tax re­forms, the Com­mon Con­sol­i­dated Cor­po­rate Tax Base (CCCTB) will make it eas­ier and cheaper to do busi­ness in the Sin­gle Mar­ket and will act as a pow­er­ful tool against tax avoid­ance.

First tabled in 2011, the CCCTB was de­signed to strengthen the Sin­gle Mar­ket for busi­nesses. While Mem­ber States made con­sid­er­able progress on many core el­e­ments of the pre­vi­ous CCCTB pro­posal, they were un­able to reach a fi­nal agree­ment. Hav­ing sought the views of Mem­ber States, busi­nesses, civil so­ci­ety and the Euro­pean Par­lia­ment, we are to­day bol­ster­ing the pro-busi­ness el­e­ments of the pre­vi­ous pro­posal to help cross-bor­der com­pa­nies cut costs, red tape and to sup­port in­no­va­tion. The re­launched CCCTB will also cre­ate a level-play­ing field for multi­na­tion­als in Europe by clos­ing off av­enues used for tax avoid­ance.

Two fur­ther pro­pos­als aim to im­prove the cur­rent sys­tem for dis­pute res­o­lu­tion on dou­ble tax­a­tion in the EU and to bol­ster ex­ist­ing anti-abuse rules. Taken to­gether, th­ese mea­sures will cre­ate a sim­ple and pro-busi­ness tax en­vi­ron­ment.

Vice-Pres­i­dent Valdis Dom­brovskis said: “Tax pol­icy should sup­port the EU’s goals of eco­nomic growth and so­cial jus­tice. To­day’s pro­pos­als aim to boost growth and in­vest­ment, sup­port en­ter­prise and en­sure fair­ness. The cur­rent cor­po­rate tax sys­tem treats debt fi­nanc­ing of com­pa­nies more favourably than equity fi­nanc­ing. Re­duc­ing this debt-equity bias in the tax sys­tem is an im­por­tant el­e­ment of the Cap­i­tal Mar­kets Union Ac­tion Plan and un­der­lines our com­mit­ment to de­liver on this project.”

Pierre Moscovici, Com­mis­sioner for Eco­nomic and Fi­nan­cial Af­fairs, Tax­a­tion and Cus­toms said: “With the re­booted CCCTB pro­posal, we’re ad­dress­ing the con­cerns of both busi­nesses and cit­i­zens in one fell swoop. The many con­ver­sa­tions I’ve had as Tax­a­tion Com­mis­sioner have made it crys­tal-clear to me that com­pa­nies need sim­pler tax rules within the EU. At the same time, we need to drive for­ward our fight against tax avoid­ance, which is delivering real change. Fi­nance Min­is­ters should look at this am­bi­tious and timely pack­age with a fresh pair of eyes be­cause it will cre­ate a ro­bust tax sys­tem fit for the 21st cen­tury.”

To en­cour­age swift progress, the CCCTB has been bro­ken down into a more man­age­able, two-step process. The com­mon base can be quickly agreed to un­lock key ben­e­fits for both busi­nesses and Mem­ber States. Con­sol­i­da­tion should be in­tro­duced soon after­wards and would al­low all the ben­e­fits of the com­plete sys­tem to be reaped.

The Com­mon Con­sol­i­dated Cor­po­rate Tax Base (CCCTB)

With the CCCTB, com­pa­nies will for the first time have a sin­gle rule­book for cal­cu­lat­ing their tax­able prof­its through­out the EU. Com­pared to the pre­vi­ous pro­posal in 2011, the new cor­po­rate tax­a­tion sys­tem will:

Be manda­tory for large multi­na­tional groups which have the great­est ca­pac­ity for ag­gres­sive tax plan­ning, mak­ing cer­tain that com­pa­nies with global rev­enues ex­ceed­ing EUR 750 mil­lion a year will be taxed where they re­ally make their prof­its.

Tackle loop­holes cur­rently as­so­ci­ated with profit-shift­ing for tax pur­poses.

En­cour­age com­pa­nies to fi­nance their ac­tiv­i­ties through equity and by tap­ping into mar­kets rather than turn­ing to debt.

Sup­port in­no­va­tion through tax in­cen­tives for Re­search and De­vel­op­ment (R&D) ac­tiv­i­ties which are linked to real eco­nomic ac­tiv­ity.

Cor­po­rate tax rates are not cov­ered by the CCCTB, as th­ese re­main an area of na­tional sovereignty. How­ever, the CCCTB will cre­ate a more trans­par­ent, ef­fi­cient and fair sys­tem for cal­cu­lat­ing the tax base of cross-bor­der com­pa­nies, which will sub­stan­tially re­form cor­po­rate tax­a­tion through­out the EU.

The CCCTB will im­prove the Sin­gle Mar­ket for busi­nesses

Com­pa­nies will now be able to use a sin­gle set of rules and work with their do­mes­tic tax ad­min­is­tra­tion to file one tax re­turn for all of their EU ac­tiv­i­ties. With the CCCTB, time spent on an­nual com­pli­ance ac­tiv­i­ties should de­crease by 8% while the time spent set­ting up a sub­sidiary would de­crease by up to 67%, mak­ing it eas­ier for com­pa­nies, in­clud­ing SMEs, to set up abroad.

Growth-friendly ac­tiv­i­ties such as R&D in­vest­ment and equity fi­nanc­ing will be in­cen­tivised, sup­port­ing the wider ob­jec­tives of re­viv­ing growth, jobs and in­vest­ment. Once fully op­er­a­tional, the CCCTB could raise to­tal in­vest­ment in the EU by up to 3.4%.

Com­pa­nies will be able to off­set prof­its in one Mem­ber State against losses in another. Tax ob­sta­cles such as dou­ble tax­a­tion will be re­moved and the CCCTB will in­crease tax cer­tainty by pro­vid­ing a sta­ble, trans­par­ent EU-wide sys­tem for cor­po­rate tax­a­tion.

The CCCTB will help to com­bat tax avoid­ance

The CCCTB will elim­i­nate mis­matches be­tween na­tional sys­tems which ag­gres­sive tax plan­ners cur­rently ex­ploit. It will also re­move trans­fer pric­ing and pref­er­en­tial regimes, which are pri­mary ve­hi­cles for tax avoid­ance to­day. It also con­tains ro­bust anti-abuse mea­sures, to stop com­pa­nies shift­ing prof­its to non-EU coun­tries. Since the CCCTB will be manda­tory for the big­gest multi­na­tional groups op­er­at­ing in the EU, those com­pa­nies most at risk of ag­gres­sive tax plan­ning will be un­able to at­tempt largescale tax avoid­ance.

The CCCTB will sup­port growth, jobs and in­vest­ment in the EU

The CCCTB will of­fer com­pa­nies solid and pre­dictable rules, a fair and level-play­ing field and re- duced costs and ad­min­is­tra­tion. This will make the EU a more at­trac­tive mar­ket in which to in­vest and do busi­ness. The re-launched CCCTB will also sup­port R&D, a key driver of growth. Com­pa­nies will be al­lowed a su­per-de­duc­tion on their R&D costs, which will par­tic­u­larly ben­e­fit young and in­no­va­tive com­pa­nies which choose to opt-in to the new sys­tem.

Fi­nally, the CCCTB will take steps to ad­dress the bias in the tax sys­tem to­wards debt over equity, by pro­vid­ing an al­lowance for equity is­suance. A set rate, com­posed of a risk-free in­ter­est rate and a risk pre­mium, of new com­pany equity will be­come tax de­ductible each year. Un­der cur­rent mar­ket con­di­tions, the rate would be 2.7%. This will en­cour­age com­pa­nies to seek more sta­ble sources of fi­nanc­ing and to tap cap­i­tal mar­kets, in line with the goals of the Cap­i­tal Mar­ket Union. It would also pro­vide ben­e­fits in terms of fi­nan­cial sta­bil­ity, as com­pa­nies with a stronger cap­i­tal base would be less vul­ner­a­ble to shocks.

Re­solv­ing Dou­ble Tax­a­tion Dis­putes

The Com­mis­sion has also pro­posed an im­proved sys­tem to re­solve dou­ble tax­a­tion dis­putes in the EU. Dou­ble tax­a­tion is a ma­jor ob­sta­cle for busi­nesses, cre­at­ing un­cer­tainty, un­nec­es­sary costs and cash-flow prob­lems. There are cur­rently around 900 dou­ble tax­a­tion dis­putes in the EU to­day, es­ti­mated to be worth €10.5 bil­lion. The Com­mis­sion has pro­posed that cur­rent dis­pute res­o­lu­tion mech­a­nisms should be ad­justed to bet­ter meet the needs of busi­nesses. In par­tic­u­lar, a wider range of cases will be cov­ered and Mem­ber States will have clear dead­lines to agree on a bind­ing so­lu­tion to dou­ble tax­a­tion.

Ad­dress­ing Mis­matches with non-EU Coun­tries

The third pro­posal in to­day’s Pack­age con­tains new mea­sures to stop com­pa­nies from ex­ploit­ing loop­holes, known as hy­brid mis­matches, be­tween Mem­ber States’ and non-EU coun­tries’ tax sys­tems to es­cape tax­a­tion. Hy­brid mis­matches oc­cur when coun­tries have dif­fer­ent rules for tax­ing cer­tain in­come or en­ti­ties. Com­pa­nies can abuse this to avoid being taxed in ei­ther coun­try. The Anti-Tax Avoid­ance Di­rec­tive, agreed in July, al­ready ad­dresses mis­matches within the EU. To­day’s pro­posal com­pletes the pic­ture by tack­ling mis­matches with non-EU coun­tries and is being made at the re­quest of the Mem­ber States them­selves.

The Pack­age also con­tains a Cha­peau Com­mu­ni­ca­tion, out­lin­ing the po­lit­i­cal and eco­nomic ra­tio­nale be­hind the pro­pos­als, as well as im­pact assess­ments on the CCCTB and the dis­pute res­o­lu­tion mech­a­nism.

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