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Corporate taxation in the EU – a step forward on a long way

During the first session after the summer recess, members of the Committee on Economic and Monetary Affairs (ECON) debated the Commission proposal on an EU-wide common method to calculate corporate taxation. Even though the present version is a step in the right direction, it remains short of what is needed!

Following the failure of the first effort in 2011, the European Commission made another attempt in autumn 2016 to establish a common method of corporate taxation (Common Consolidated Corporate Tax Base (CCCTB). Its introduction has been planned in two steps: initially, the Common Consolidated Corporate Tax Base will be enacted and in a further step its consolidation.

However, what is behind this proposal by the Commission? It basically concerns the standardisation of rules to calculate taxable profits generated by companies active in the EU. Its purpose is to put a stop to the aggressive tax planning adopted by many companies in order to pay as little corporation tax as possible. Possible advantages resulting from shifting profits by applying different national calculation methods shall become a thing of the past. However, the CCCTB is only obligatory for companies generating at least a turnover of € 750 million. Consolidation means that the entire consolidated profit will be taxed by adding all profits and losses of all affiliates together. A mathematical formula will be used to share the overall profit between all states, where the corporation is active, whereby the respective customary corporation tax rate will apply.

The discussion in the ECON meeting was centred on two reports by Paul Tang (S&D) and Alain Lamassoure (EPP) respectively, which were based on the Commission proposal. Adaptations referred to finding a way to tax digital platforms, to significantly lower the threshold for an obligatory application of the CCCTB or to abolish it altogether, as well as to consider the introduction of a minimum tax rate. Apart from that, both MEPs recommended the parallel introduction of the consolidation with the Common Consolidated Corporate Tax Base, as only then all tax saving models, which are based on shifting profits to low taxation countries within the EU, become obsolete. What is remarkable is that both MEPs belonging to the two largest factions in Parliament, agree on these important points.

Regarding the minimum tax rate, there are also weighty voices outside the European Parliament on CCCTB. According to an article in Frankfurter Allgemeine (31.08.2017), the French President Emanuel Macron for example demanded apart from a Common Consolidated Corporate Tax Base also to align tax rates for corporate levies.

Even though, from the point of view of the AK, the proposal by the Commission on CCCTB points in the right direction, there are, however, some objectionable points. On the one hand, the AK shares the position of the rapporteurs that the corporation tax should be linked to a minimum tax rate for really putting a stop to the tax avoidance strategies of many large corporations. On the other hand, at an annual turnover of € 750 million, the threshold for an obligatory application is far too high. Even with regard to corporations with significantly lower profits, the so-called “tax optimisation” is playing an important role. Hence, it is desirable to introduce the Common Consolidated Corporate Tax Base at the same time as the consolidation.

The respective vote in the ECON Committee has been scheduled for the beginning of December.

Also this week, the MEP Evelyn Regner (S&D) presented her statement on CCCTB in the Committee on Legal Affairs of the European Parliament.

Further information

AK EUROPA Position Paper on Common Consolidated Corporate Tax Base (CCCTB)

AK EUROPA: Profits should be taxed in those countries where they are generated

AK EUROPA: Corporate taxation: More tax justice in the European Union?

European Commission: Corporate Tax Reform Factsheet

European Parliament: Common consolidated corporate tax base (CCCTB) Briefing

The final coordinated statement by Evelyn Regner will be available on the website of the European Parliament in the coming days.
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