Legal provisions of COM(2016)685 - Common Corporate Tax Base

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dossier COM(2016)685 - Common Corporate Tax Base.
document COM(2016)685 EN
date October 25, 2016


CHAPTER I

SUBJECT MATTER, SCOPE AND DEFINITIONS

Contents

Article 1 - Subject matter

1. This Directive establishes a system of a common base for the taxation of certain companies and lays down rules for the calculation of that base.

2. A company that applies the rules of this Directive shall cease to be subject to the national corporate tax law in respect of all matters regulated by this Directive, unless otherwise stated.

Article 2 - Scope

1. The rules of this Directive shall apply to a company that is established under the laws of a Member State, including its permanent establishments in other Member States, where the company meets all of the following conditions:

(a)it takes one of the company forms listed in Annex I;

(b)it is subject to one of the corporate taxes listed in Annex II or to a similar tax subsequently introduced;

(c)it belongs to a consolidated group for financial accounting purposes with a total consolidated group revenue that exceeded EUR 750 000 000 during the financial year preceding the relevant financial year;

(d)it qualifies as a parent company or qualifying subsidiary as referred to in Article 3 and/or has one or more permanent establishment in other Member States as referred to in Article 5.

2. This Directive shall also apply to a company that is established under the laws of a third country in respect of its permanent establishments situated in one or more Member State where the company meets the conditions laid down in points (b) to (d) of paragraph 1.

As regards whether the company meets the condition of point (a) in paragraph 1, it shall suffice that the company in a third country has a similar form to one of the company forms in Annex I. For the purposes of point (a) of paragraph 1, the Commission shall adopt annually a list of third country company forms that are similar to the company forms listed in Annex I. That implementing act shall be adopted in accordance with the examination procedure referred to in Article 68(2). The fact that a third country company form is not included in that list shall not preclude the application of the rules of this Directive to that form.

3. A company that meets the conditions of points (a) and (b) of paragraph 1, but does not meet the conditions of points (c) or (d) of that paragraph, may opt, including for its permanent establishments situated in other Member States, to apply the rules of this Directive for a period of five tax years. That period shall automatically be extended for successive terms of five tax years, unless there is a notice of termination as referred to in Article 65(3). The conditions under points (a) and (b) of paragraph 1 shall be met each time the extension takes place.

4. The rules of this Directive shall not apply to a shipping company under a special tax regime. A shipping company under a special tax regime shall be taken into account for the purpose of determining the companies which are members of the same group as referred to in Article 3.

5. The Commission shall be empowered to adopt delegated acts in accordance with Article 66 to amend Annexes I and II to take account of changes to the laws of the Member States concerning company forms and corporate taxes.

Article 3 - Parent company and qualifying subsidiaries

1. A qualifying subsidiary means every immediate and lower-tier subsidiary in which the parent company holds the following rights:

(a)it has a right to exercise more than 50 % of the voting rights; and

(b)it has an ownership right amounting to more than 75 % of the subsidiary’s capital or owns more than 75 % of the rights giving entitlement to profit.

2. For the purpose of calculating the thresholds referred to in paragraph 1 in relation to lower-tier subsidiaries, the following rules shall be applied:

(a)once the voting-right threshold is reached in respect of a subsidiary, the parent company shall be considered to hold 100 % of these rights;

(b)entitlement to profit and ownership of capital shall be calculated by multiplying the interests held, directly and indirectly, in subsidiaries at each tier. Ownership rights amounting to 75 % or less held directly or indirectly by the parent company, including rights in companies resident in a third country, shall also be taken into account in the calculation.

Article 4 - Definitions

For the purposes of this Directive, the following definitions shall apply:

(1) taxpayer means a company that meets the conditions of Article 2(1) or (2), or has opted for applying the rules of this Directive in accordance with Article 2(3);

(2) non-taxpayer means a company that does not meet the conditions of Article 2(1) or (2) and has not opted for applying the rules of this Directive in accordance with Article 2(3);

(3) resident taxpayer means a taxpayer that is resident for tax purposes in a Member State;

(4) non-resident taxpayer means a taxpayer that for tax purposes is not resident in a Member State;

(5) revenues means proceeds of sales and of any other transactions, net of value added tax and other taxes and duties collected on behalf of government agencies, whether of a monetary or non-monetary nature, including proceeds from disposals of assets and rights, interest, dividends and other profits distributions, proceeds of liquidations, royalties, subsidies and grants, gifts received, compensations and ex-gratia payments. Revenues shall also include non-monetary gifts made by a taxpayer. Revenues shall not include equity raised by the taxpayer or debt repaid to it;

(6) expenses means decreases in net equity of the company during the accounting period in the form of outflows or a reduction in the value of assets or in the form of a recognition or increase in the value of liabilities, other than those relating to monetary or non-monetary distributions to shareholders or equity owners in their capacity as such.

(7) tax year means a calendar year or any other appropriate period for tax purposes;

(8) profit means an excess of revenues over deductible expenses and other deductible items in a tax year;

(9) loss means an excess of deductible expenses and other deductible items over revenues in a tax year;

(10) consolidated group for financial accounting purposes means all entities that are fully included in consolidated financial statements drawn up in accordance with the International Financial Reporting Standards or a national financial reporting system;

(11) research and development means experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view (basic research); original investigation undertaken in order to acquire new knowledge but directed primarily towards a specific, practical aim or objective (applied research); systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes (experimental development);

(12) borrowing costs means interest expenses on all forms of debt, other costs economically equivalent to interest and expenses incurred in connection with the raising of finance, as defined in national law, including payments under profit participating loans, imputed interest on convertible bonds and zero coupon bonds, payments under alternative financing arrangements, the finance cost elements of finance lease payments, capitalised interest included in the balance sheet value of a related asset, the amortisation of capitalised interest, amounts measured by reference to a funding return under transfer pricing rules, notional interest amounts under derivative instruments or hedging arrangements related to an entity's borrowings, the defined yield on net equity increases as referred to in Article 11 of this Directive, certain foreign exchange gains and losses on borrowings and instruments connected with the raising of finance, guarantee fees for financing arrangements, arrangement fees and similar costs related to the borrowing of funds;

(13) exceeding borrowing costs means the amount by which the deductible borrowing costs of a taxpayer exceed taxable interest revenues and other taxable revenues that the taxpayer receives and which are economically equivalent to interest revenues;

(14) transfer of assets means an operation whereby a Member State loses the right to tax the transferred assets, whilst the assets remain under the legal or economic ownership of the same taxpayer;

(15) transfer of tax residence means an operation whereby a taxpayer ceases to be resident for tax purposes in a Member State, whilst acquiring tax residence in another Member State or third country;

(16) transfer of a business carried on by a permanent establishment means an operation whereby a taxpayer ceases to have taxable presence in a Member State whilst acquiring such presence in another Member State or third country without becoming resident for tax purposes in that Member State or third country;]

(17) value for tax purposes means the depreciation base of a fixed asset or asset pool, less total depreciation deducted;

(18) market value means the amount for which an asset can be exchanged or mutual obligations can be settled between willing unrelated parties in a direct transaction.

(19) fixed assets means tangible assets acquired for value or created by the taxpayer and intangible assets acquired for value that are capable of being valued independently and that are used in the business for producing, maintaining or securing income for more than 12 months, except where their acquisition or construction cost is less than EUR 1,000. Fixed assets shall also include financial assets, with the exception of financial assets held for trading in accordance with to Article 21;

(20) financial assets means shares in, and loans to, associated enterprises as referred to in Article 56 of this Directive, participating interests as defined in Article 2(2) of Directive 2013/34/EU of the European Parliament and of the Council 14 , loans to undertakings with which the taxpayer is linked by virtue of participating interests, investments held as fixed assets, other loans, and own shares to the extent that national law permits their being shown in the balance sheet;

(21) acquisition or construction cost means the amount of cash or cash equivalents paid or payable or the value of other assets given in exchange for or consumed to acquire a fixed tangible asset at the time of its acquisition or construction.

(22) long-life fixed tangible assets means fixed tangible assets with a useful life of 15 years or more. Buildings, aircraft and ships shall be considered to be long-life fixed tangible assets;

(23) medium-life fixed tangible assets means fixed tangible assets that do not qualify as long-life fixed tangible assets under point 22 and have a useful life of eight years or more.

(24) second-hand assets means fixed assets with a useful life that was partly exhausted when they were acquired and that are suitable for further use in their current state or after repair;

(25) useful life means the period for which an asset is expected to be available for use or the number of production or similar units that a taxpayer expected to obtain from the asset ;

(26) improvement costs means any additional expenditure on a fixed asset that substantially increases the capacity of the asset or substantially improves its functioning or represents more than 10 percent of the initial depreciation base of the asset;

(27) stocks and work-in-progress means assets for sale or in the process of production for sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services;

(28) economic owner means the person who receives substantially all the benefits and bears all the risks attached to a fixed asset, regardless of whether that person is the legal owner. A taxpayer who has the right to possess, use and dispose of a fixed asset and bears the risk of its loss or destruction shall in any event be considered the economic owner;

(29) financial undertaking means any of the following entities:

(a)a credit institution or an investment firm as defined in point (1) of Article 4(1) of Directive 2004/39/EC of the European Parliament and of the Council 15 , an AIFM as defined in point (b) of Article 4(1) of Directive 2011/61/EU of the European Parliament and of the Council 16 , or a management company as defined in point (b) of Article 2(1) of Directive 2009/65/EC of the European Parliament and of the Council 17 ;

(b)an insurance undertaking as defined in point (1) of Article 13 of Directive 2009/138/EC of the European Parliament and of the Council 18 ;

(c)a reinsurance undertaking as defined in point (4) of Article 13 of Directive 2009/138/EC;

(d)an institution for occupational retirement provision as defined in point (a) of Article 6 of Directive 2003/41/EC of the European Parliament and of the Council 19 , unless a Member State has chosen not to apply that Directive in whole or in part to that institution in accordance with Article 5 of that Directive, or the delegate of an institution for occupational retirement provision as referred to in Article 19(1) of Directive 2003/41/EC;

(e)a pension institution operating pension schemes which qualify as social security schemes covered by Regulation (EC) No 883/2004 of the European Parliament and of the Council 20 and by Regulation (EC) No 987/2009 of the European Parliament and of the Council 21 , as well as any legal entity set up for the purpose of investment in such pension schemes;

(f)an AIF as defined in point (a) of Article 4(1) of Directive 2011/61/EU, which is managed by an AIFM as defined in point (b) of Article 4(1) of Directive 2011/61/EU, or an AIF supervised under national law;

(g)a UCITS as defined in Article 1(2) of Directive 2009/65/EC;

(h)a CCP as defined in point (1) of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of the Council 22 ;

(i)a central securities depository as defined in point (1) of Article 2(1) of Regulation (EU) No 909/2014 of the European Parliament and of the Council 23 ;

(30) entity means any legal arrangement to carry on business through either a company or a structure that is transparent for tax purposes;

(31) hybrid mismatch means a situation between a taxpayer and an associated enterprise or a structured arrangement between parties in different tax jurisdictions where any of the following outcomes is attributable to differences in the legal characterisation of a financial instrument or entity, or in the treatment of a commercial presence as a permanent establishment:

(a)a deduction of the same payment, expenses or losses from the taxable base occurs both in the jurisdiction in which the payment has its source, the expenses are incurred or the losses are suffered and in the other jurisdiction ('double deduction');

(b)    a deduction of a payment from the taxable base in the jurisdiction in which the payment has its source without a corresponding inclusion for tax purposes of the same payment in the other jurisdiction ('deduction without inclusion');

(c)    in case of differences in the treatment of a commercial presence as a permanent establishment, non-taxation of income which has its source in a jurisdiction without a corresponding inclusion for tax purposes of the same income in the other jurisdiction ('non-taxation without inclusion').

A hybrid mismatch only arises to the extent that the same payment deducted, expenses incurred or losses suffered in two jurisdictions exceed the amount of income that is included in both jurisdictions and which can be attributed to the same source.

A hybrid mismatch also includes the transfer of a financial instrument under a structured arrangement involving a taxpayer where the underlying return on the transferred financial instrument is treated for tax purposes as derived simultaneously by more than one of the parties to the arrangement, who are resident for tax purposes in different jurisdictions, giving rise to any of the following outcomes:

(a)a deduction of a payment connected with the underlying return without a corresponding inclusion for tax purposes of such payment, unless the underlying return is included in the taxable income of one the parties involved;

(b)    a relief for tax withheld at source on a payment derived from the transferred financial instrument to more than one of the parties involved;

(32) structured arrangement means an arrangement involving a hybrid mismatch where the mismatch is priced into the terms of the arrangement or an arrangement that has been designed to produce a hybrid mismatch outcome, unless the taxpayer or an associated enterprise could not reasonably have been expected to be aware of the hybrid mismatch and did not share in the value of the tax benefit resulting from the hybrid mismatch;

(33) national corporate tax law means the statute of a Member State which provides for one of the taxes listed in Annex II.

The Commission may adopt delegated acts in accordance with Article 66 in order to lay down definitions of more concepts.

Article 5 - Permanent establishment in a Member State of a taxpayer who is resident for tax purposes in the Union

1. A taxpayer shall be considered to have a permanent establishment in a Member State other than the Member State in which it is resident for tax purposes when it has a fixed place in that other Member State through which it carries on its business, wholly or partly, including in particular:

(a)a place of management;

(b)a branch;

(c)an office;

(d)a factory;

(e)a workshop;

(f)a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

2. A building site or construction or installation project shall constitute a permanent establishment only if it lasts more than twelve months.

3. The term permanent establishment shall not include the following activities, provided that such activities are or, the overall activity of the fixed place of business in the case of point (f) is, of auxiliary or preparatory character:

(a)the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the taxpayer;

(b)the maintenance of a stock of goods or merchandise belonging to the taxpayer for the sole purpose of storage, display or delivery;

(c)the maintenance of a stock of goods or merchandise belonging to the taxpayer for the sole purpose of being processed by another person;

(d)the maintenance of a fixed place of business for the sole purpose of purchasing goods or merchandise for the taxpayer or for collecting information for the taxpayer;

(e)the maintenance of a fixed place of business for the sole purpose of carrying on any other activity for the taxpayer;

(f)the maintenance of a fixed place of business for the sole purpose of any combination of activities mentioned in points (a) to (e);

4. Without prejudice to paragraph 5, where a person is acting in a Member State on behalf of a taxpayer and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the taxpayer, the taxpayer shall be deemed to have a permanent establishment in that Member State in respect of the activities undertaken by that person for the taxpayer.

The contracts under the first subparagraph shall be concluded:

(a)in the name of the taxpayer, or

(b)for the transfer of the ownership of, or for the granting of the right to use, property owned by that taxpayer or that the taxpayer has the right to use, or

(c)for the provision of services by the taxpayer.

The first and second subparagraphs shall not apply if the activities of that person are auxiliary or preparatory as referred to in paragraph 3 so that, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

5.

(a)Paragraph 4 shall not apply where the person acting in a Member State on behalf of a taxpayer carries on business in that Member State as an independent agent and acts for the taxpayer in the ordinary course of that business. Where, however, a person acts exclusively or almost exclusively on behalf of one or more taxpayers to which it is closely related, that person shall not be considered to be an independent agent within the meaning of this paragraph with respect to these taxpayers.

(b)For the purposes of this Article, a person is closely related to a taxpayer if one possesses, directly or indirectly, a right to exercise more than 50 % of the voting rights in the other or an ownership right amounting to more than 50 % of the other's capital or more than 50 % of the rights giving entitlement to profit.

6. The fact that a taxpayer who is resident for tax purposes in a Member State controls, or is being controlled by, a taxpayer who is tax resident in another Member State or carries on business in that other Member State (whether through a permanent establishment or otherwise), shall not of itself mean that any of the taxpayers is a permanent establishment of the other.


CHAPTER II

CALCULATION OF THE TAX BASE

Article 6 - General principles

1. In calculating the tax base, profits and losses shall be recognised only when realised.

2. Transactions and taxable events shall be measured individually.

3. The calculation of the tax base shall be carried out in a consistent manner unless exceptional circumstances justify a change.

4. The tax base shall be calculated for each tax year unless otherwise provided. A tax year shall be any twelve-month period, unless otherwise provided.

Article 7 - Elements of the tax base

The tax base shall be calculated as revenues less exempt revenues, deductible expenses and other deductible items.

Article 8 - Exempt revenues

The following revenues shall not be included in the tax base:

(a)subsidies directly linked to the acquisition, construction or improvement of fixed assets that are subject to depreciation in accordance with Articles 31 to 41;

(b)proceeds from the disposal of pooled assets referred to in Article 37(2), including the market value of non-monetary gifts;

(c)proceeds from a disposal of shares, provided that the taxpayer has maintained a minimum holding of 10 % in the capital or 10 % of the voting rights of the company during the 12 months preceding the disposal, with the exception of proceeds resulting from a disposal of shares held for trading as referred to in Article 21(3) and of shares held by life insurance undertakings in accordance with point (b) of Article 28;

(d)received profit distributions, provided that the taxpayer has maintained a minimum holding of 10 % in the capital or 10 % of the voting rights of the distributing company for 12 consecutive months, with the exception of profit distributions from shares held for trading as referred to in Article 21(4) and profit distributions received by life insurance undertakings in accordance with point (c) of Article 28;

(e)income of a permanent establishment received by the taxpayer in the Member State where the taxpayer is resident for tax purposes.

Article 9 - Deductible expenses

1. Expenses shall be deductible only to the extent that they are incurred in the direct business interest of the taxpayer.

2. The expenses referred to in paragraph 1 shall include all costs of sales and all expenses, net of deductible value added tax, that the taxpayer incurred with a view to obtaining or securing income, including costs for research and development and costs incurred in raising equity or debt for the purposes of the business.

3. In addition to the amounts which are deductible as costs for research and development in accordance with paragraph 2, the taxpayer may also deduct, per tax year, an extra 50% of such costs, with the exception of the cost related to movable tangible fixed assets, that it incurred during that year. To the extent that costs for research and development reach beyond EUR 20 000 000, the taxpayer may deduct 25% of the exceeding amount.

By way of derogation from the first subparagraph, the taxpayer may deduct an extra 100% of its costs for research and development up to EUR 20 000 000 where that taxpayer meets all of the following conditions:

(a)    it is an unlisted enterprise with fewer than 50 employees and an annual turnover and/or annual balance sheet total that does not exceed EUR 10 000 000;

(b)    it has not been registered for longer than five years. If the taxpayer is not subject to registration, the period of five years may be taken to start at the moment that the enterprise either starts, or is liable to tax for, its economic activity;

(c)    it has not been formed through a merger;

(d)    it does not have any associated enterprises.

4. Member States may provide for the deduction of gifts and donations to charitable bodies.

Article 10 - Other deductible items

A deduction shall be made in respect of the depreciation of fixed assets referred to in Articles 30 to 40.

Article 11 - Allowance for growth and investment (‘AGI’)

1. For the purposes of this Article, AGI equity base means, in a given tax year, the difference between the equity of a taxpayer and the tax value of its participation in the capital of associated enterprises as referred to in Article 56.

2. For the purposes of this Article, equity means any of the following:

(a)'capital and reserves', as described in letter A., under Capital, reserves and liabilities in Annex III to Directive 2013/34/EU of the European Parliament and of the Council 24 ;

(b)'capital and reserves', as described in letter L. in Annex IV to Directive 2013/34/EU;

(c)'equity', as defined in the International Financial Reporting Standards which are adopted and used in the Union pursuant to Regulation (EC) No 1606/2002 of the European Parliament and of the Council 25 .

3. An amount equal to the defined yield on the AGI equity base increases shall be deductible from the taxable base of a taxpayer according to paragraphs 1 to 6. If there is an AGI equity base decrease, an amount equal to the defined yield on the AGI equity base decrease shall become taxable.

4. AGI equity base increases or decreases shall be calculated, for the first ten tax years that a taxpayer is subject to the rules of this Directive, as the difference between its AGI equity base at the end of the relevant tax year and its AGI equity base on the first day of the first tax year under the rules of this Directive. After the first ten tax years, the reference to the amount of AGI equity base that shall be deductible against the AGI equity base at the end of the relevant tax year shall annually be moved forward by one tax year.

5. The defined yield referred to in paragraph 3 shall be equal to the yield of the euro area 10-year government benchmark bond in December of the year preceding the relevant tax year, as published by the European Central Bank, increased by a risk premium of two percentage points. A floor of two per cent shall apply where the curve of the annual yield is negative.

6. The Commission shall be empowered to adopt delegated acts in accordance with Article 66 to lay down more detailed rules against tax avoidance, and more particularly in the following fields relevant to the AGI:

(a)intra-group loans and loans involving associated enterprises;

(b)cash contributions and contributions in kind;

(c)transfers of participations;

(d)the re-categorisation of old capital as new capital through liquidations and the creation of start-ups;

(e)the creation of subsidiaries;

(f)acquisitions of businesses held by associated enterprises;

(g)double-dipping structures combining interest deductibility and deductions under the AGI;

(h)increases in the amount of loan financing receivables towards associated enterprises as compared to the amount of such receivables at the reference date.

Article 12 - Non-deductible items

By way of derogation from Articles 9 and 10, the following items shall be non-deductible:

(a)profit distributions and repayments of equity or debt;

(b)50 % of entertainment costs, up to an amount that does not exceed [x] % of revenues in the tax year;

(c)the transfer of retained earnings to a reserve that forms part of the equity of the company;

(d)corporate tax and similar taxes on profits;

(e)bribes and other illegal payments;

(f)fines and penalties, including charges for late payment, that are due to a public authority for breach of any legislation;

(g)expenses incurred by a company for the purpose of deriving income that is exempt pursuant to points (c), (d) and (e) of Article 8;

(h)gifts and donations other than those referred to in Article 9(4);

(i)acquisition or construction costs or cost connected with the improvement of fixed assets which are deductible under Articles 10 and 18, except for the cost related to research and development. The costs referred to in point (a) of Article 33(1) and points (a) and (b) of Article 33(2) shall not be treated as costs related to research and development;

(j)losses incurred by a permanent establishment in a third country.

Article 13 - Interest limitation rule

1. Borrowing costs shall be deductible up to the amount of the interest or other taxable revenues from financial assets received by the taxpayer.

2. Exceeding borrowing costs shall be deductible in the tax year in which they are incurred for maximum of 30 % of the taxpayer's earnings before interest, tax, depreciation and amortisation (‘EBITDA’) or for a maximum amount of EUR 3 000 000, whichever is higher.

For the purposes of this Article, where a taxpayer is permitted or required to act on behalf of a group, as defined in the rules of a national group taxation system, the entire group shall be treated as a taxpayer. In those circumstances, exceeding borrowing costs and the EBITDA shall be calculated for the entire group. The amount of EUR 3 000 000 shall also be considered for the entire group.

3. The EBITDA shall be calculated by adding back to the tax base of the taxpayer the tax-adjusted amounts for exceeding borrowing costs, as well as the tax-adjusted amounts for depreciation and amortisation. Tax-exempt revenues shall be excluded from the EBITDA of a taxpayer.

4. By way of derogation from paragraph 2, a taxpayer who qualifies as a standalone company shall be entitled to fully deduct its exceeding borrowing costs. A standalone company means a taxpayer who is not part of a consolidated group for financial accounting purposes and has no associated enterprises or permanent establishments.

5. By way of derogation from paragraph 2, exceeding borrowing costs shall be fully deductible if they are incurred on:

(a)loans concluded before [date of political agreement on this directive], with the exclusion of any subsequent modifications of those loans;

(b)loans used to fund long-term public infrastructure projects, where the project operator, borrowing costs, assets and income are all in the Union.

For the purposes of point (b), a long-term public infrastructure project shall mean a project to provide, upgrade, operate or maintain a large-scale asset that a Member State considers to be in the general public interest.

Where point (b) applies, any income arising from a long-term public infrastructure project shall be excluded from the EBITDA of the taxpayer.

6. Exceeding borrowing costs that cannot be deducted in a given tax year shall be carried forward without time limitation.

7. Paragraphs 1 to 6 shall not apply to financial undertakings, including those that are part of a consolidated group for financial accounting purposes.

Article 14 - Expenditure incurred for the benefit of shareholders, direct relatives of those shareholders or associated enterprises

Benefits granted to a shareholder who is an individual, to his or her spouse, to his or her lineal ascendant or descendant or granted to an associated enterprise as referred to in Article 56, shall not be treated as deductible expenses where such benefits would not be granted to an independent third party.


CHAPTER III

TIMING AND QUANTIFICATION

Article 15 - General principles

Revenues and expenses, as well as all other deductible items, shall be recognised in the tax year in which they accrue or are incurred, unless otherwise provided for in this Directive.

Article 16 - Accrual of revenues

1. Revenues shall accrue at the moment that the right to receive them has arisen and they can be measured reliably, irrespective of whether the relevant amounts have actually been paid.

2. Revenues resulting from trade in goods shall be considered to have been accrued in accordance with paragraph 1 when the following conditions are fulfilled:

(a)the taxpayer has transferred to the buyer the ownership of the goods sold;

(b)the taxpayer does not retain effective control over the goods sold;

(c)the amount of revenue can be measured reliably;

(d)it is probable that the economic benefits associated with the transaction will flow to the taxpayer;

(e)the costs incurred or to be incurred in respect of the transaction can be measured reliably.

3. Revenues resulting from the supply of services shall be considered to have accrued to the extent that the services have been provided and when the following conditions have been fulfilled:

(a)the amount of revenue can be measured reliably;

(b)it is probable that the economic benefits associated with the transaction will flow to the provider;

(c)the stage of completion of the transaction at the end of the tax year can be measured reliably;

(d)the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Where the criteria set out in points (a) to (d) are not met, revenues arising from the supply of services shall be considered to have accrued only to the extent that they can be matched to deductible expenses.

4. Where revenues arise from payments to the taxpayer which are scheduled to be carried out at several stages, revenues shall be considered to accrue when each of the individual instalments becomes due.

Article 17 - Incurrence of deductible expenses

Deductible expenses are incurred at the moment that all of the following conditions are met:

(a)the obligation to make the payment has arisen; where an expense consists of payments by the taxpayer at several stages, the obligation to make a payment shall arise when each of the individual instalments becomes due;

(b)the amount of the obligation can be quantified with reasonable accuracy;

(c)in the case of trade in goods, the significant risks and rewards of ownership over the goods have been transferred to the taxpayer and, in the case of supplies of services, the latter have been received by the taxpayer.

Article 18 - Costs related to non-depreciable assets

Acquisition or construction costs of fixed tangible assets as referred to in Article 38, or costs for the improvement of those assets, shall be deductible in the tax year in which those assets are disposed of, provided that the disposal proceeds are included in the tax base.

Article 19 - Measuring stocks and work-in-progress

1. The total amount of deductible expenses for a tax year shall be increased with the value of stocks and work-in-progress at the beginning of the tax year and decreased with the value of stocks and work-in-progress at the end of the same tax year, with the exception of stocks and work-in-progress relating to long-term contracts as referred to in Article 22.

2. The costs of stocks and work-in-progress shall be measured consistently by using the first-in first-out method, last-in first-out method or the weighted-average cost method.

3. The cost of stocks and work-in-progress involving items that ordinarily are not interchangeable and goods or services which are produced or supplied respectively and segregated for specific projects shall be measured individually.

Article 20 - Valuation

1. The tax base shall be calculated on the basis of the following elements:

(a)the monetary consideration for the transaction, such as the price of the goods sold or the services provided;

(b)the market value, where the consideration for the transaction is wholly or partly non-monetary;

(c)the market value, in the case of a non-monetary gift;

(d)the market value of financial assets and liabilities held for trading.

2. The tax base, including revenues and expenses, shall be expressed in EUR during the tax year or on the last day of the tax year, at the annual average exchange rate for the calendar year issued by the European Central Bank or, if the tax year does not coincide with the calendar year, at the average of daily observations issued by the European Central Bank through the tax year.

3. Paragraph 2 shall not apply to a taxpayer in a Member State that has not adopted the EUR.

Article 21 - Financial assets and liabilities held for trading (trading book)

1. A financial asset or liability shall be treated as held for trading if it is one of the following:

(a)it is acquired or incurred principally for the purpose of selling it or repurchasing it in the short term;

(b)it is part of a portfolio of identified financial instruments, including derivatives, that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.

2. By way of derogation from Articles 16 and 17, any differences between the market value of financial assets or liabilities held for trading, calculated at the beginning of a tax year or at the date of purchase if later, and their market value calculated at the end of the same tax year, shall be included in the tax base of that tax year.

3. The proceeds of a financial asset or liability held for trading that is disposed of shall be added to the tax base. The market value of that asset or liability at the beginning of the tax year or at the date of purchase if later shall be deducted from the tax base.

4. Where profit distributions are received in respect of a participation held for trading, the exemption from the tax base referred to in point (d) of Article 8 shall not apply.

5. By way of derogation from point (c) of Article 8, any differences between the market value of a financial asset or liability that is no longer held for trading but is still held as a fixed asset, calculated at the beginning of a tax year or at the date of purchase if later, and its market value calculated at the end of the same tax year, shall be included in the tax base of that tax year.

By way of derogation from point (c) of Article 8, any differences between the market value of a financial asset or liability that is no longer held as a fixed asset but is still held for trading, calculated at the beginning of a tax year or at the date of purchase if later, and its market value calculated at the end of the same tax year, shall be included in the tax base of that tax year.

The market value of a financial asset or liability at the end of the tax year during which it transitioned from fixed asset to an asset or liability held for trading and vice versa shall also be its market value at the beginning of the year following the transition.

6. The period referred to in point (c) of Article 8 shall begin or be interrupted when the financial asset or liability is no longer held for trading or is no longer a fixed asset .

Article 22 - Long-term contracts

1. A long-term contract is one which complies with all of the following conditions:

(a)it is concluded for the purpose of manufacturing, installing or constructing, or for performing services;

(b)its term exceeds, or is expected to exceed, 12 months.

2. By way of derogation from Article 16, revenues relating to a long-term contract shall be considered to have been accrued for the amount that corresponds to the part of the long-term contract that has been completed in the relevant tax year. The percentage of completion of the long-term contract shall be determined by reference to the ratio of costs of that year to the overall estimated costs.

3. Costs relating to long-term contracts shall be deductible in the tax year in which they are incurred.

Article 23 - Provisions

1. By way of derogation from Article 17, where at the end of a tax year it is established that the taxpayer has a legal obligation, or a probable future legal obligation, arising from activities or transactions carried out in that, or previous tax years, any amount arising from that obligation which can be reliably estimated shall be deductible, provided that the eventual settlement of the amount is expected to result in a deductible expense.

For the purposes of this Article, a legal obligation may derive from any of the following:

(a)a contract;

(b)legislation;

(c)an administrative act of general nature or addressed to a specific taxpayer;

(d)another operation of law.

Where the obligation relates to an activity or transaction which will continue over future tax years, the provision shall be spread proportionately over the estimated duration of the activity or transaction.

Provisions under this Article shall be reviewed and adjusted at the end of every tax year. In calculating the tax base in future tax years, account shall be taken of amounts that have already been deducted pursuant to this Article.

2. A reliably estimated amount as referred to in paragraph 1 shall be the expected expenditure required to settle the present legal obligation at the end of the tax year, provided that that estimation is based on all relevant factors, including past experience of the company, group or industry. In estimating the amount of a provision, the following shall apply:

(a)account shall be taken of all risks and uncertainties, but uncertainty shall not justify the creation of excessive provisions;

(b)if the term of the provision is 12 months or longer and there is no agreed discount rate, the provision shall be discounted at the yearly average of the Euro Interbank Offered Rate (Euribor) for obligations with a maturity of 12 months, as published by the European Central Bank, in the calendar year in the course of which the tax year ends;

(c)future events shall be taken into account where they can reasonably be expected to occur;

(d)future benefits directly linked to the event giving rise to the provision shall be taken into account.

3. Provisions shall not be deducted for the following:

(a)contingent losses;

(b)future cost increases.

Article 24 - Pensions

Member States may provide for the deduction of pension provisions.

Article 25 - Bad debt deductions

1. A deduction shall be allowed for a bad debt receivable where the following conditions are met:

(a)at the end of the tax year, the taxpayer has taken all reasonable steps, as outlined in paragraph 2 of this Article, to pursue payment and it is probable that the debt will not be satisfied wholly or partially, or the taxpayer has a large number of homogeneous receivables which all derive from the same sector of business activity and is able to reliably estimate the amount of the bad debt receivable on a percentage basis, provided that the value of each homogeneous receivable is lower than 0.1 % of the value of all homogeneous receivables. In order to arrive at a reliable estimate, the taxpayer shall take into account all relevant factors, including past experience;

(b)the debtor neither has a relation with the taxpayer as referred to Article 3, nor are the debtor and the taxpayer associated enterprises as referred to in Article 56. If the debtor is an individual, the debtor, his or her spouse or his or her lineal ascendant or descendant shall not participate in the management or control of the taxpayer, or directly or indirectly in his or her capital, as referred to in Article 56;

(c)no deduction has been claimed under Article 39 in relation to the bad debt;

(d)where the bad debt relates to a trade receivable, an amount corresponding to the debt shall be included in the tax base as revenue.

2. In determining whether all reasonable steps to pursue payment have been made, the elements listed in points (a) to (e) shall be taken into account, provided that they are based on objective evidence:

(a)whether the costs of collection are disproportionate to the debt;

(b)whether there is any prospect of successful collection;

(c)whether it is reasonable, in the circumstances, to expect the taxpayer to pursue collection;

(d)the time that has elapsed following the date of maturity of the obligation;

(e)whether the debtor has been declared insolvent or legal action has been initiated or a debt collector has been engaged.

3. Where a claim previously deducted as a bad debt is settled, the amount recovered shall be added to the tax base in the year of settlement.

Article 26 - Hedging

1. Gains and losses on a hedging instrument, which result from a valuation or acts of disposal, shall be treated in the same manner as the corresponding gains and losses on the hedged item. There is a hedging relationship where both of the following conditions are met:

(a)the hedging relationship is formally designated and documented in advance;

(b)the hedge is expected to be highly effective and the effectiveness can reliably be measured.

2. Where the hedging relationship is interrupted or an already held financial instrument is subsequently treated as a hedging instrument, leading to its transition to a different tax regime, any difference between the new value of the hedging instrument, to be determined according to Article 20 at the end of the tax year, and the market value at the beginning of the same tax year shall be included in the tax base.

The market value of the hedging instrument at the end of the tax year during which that instrument transitioned to a different tax regime shall coincide with its market value at the beginning of the year following that transition.

Article 27 - Valuation of stocks and work-in-progress

1. A taxpayer shall consistently use the same method for the valuation of all stocks and work-in-progress having a similar nature and use.

The cost of stocks and work-in-progress shall comprise all costs of purchase, direct costs of conversion and other direct costs incurred in bringing them to the location and condition in which they are found in the relevant tax year.

Costs shall be net of deductible value added tax.

A taxpayer who has included indirect costs in valuing stocks and work-in-progress before becoming subject to the rules of this Directive may continue to apply the indirect cost approach.

2. Stocks and work-in-progress shall be valued on the last day of the tax year at the lower of cost and net realisable value.

The net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

Article 28 - Insurance undertakings

Insurance undertakings that are authorised to operate in a Member State in accordance with Council Directive 73/239/EEC 26 for non-life insurance, Directive 2002/83/EC of the European Parliament and of the Council 27 for life insurance, and Directive 2005/68/EC of the European Parliament and of the Council 28 for reinsurance, shall be subject to the following additional rules:

(a)the tax base shall include the difference in the market value, as measured at the end and the beginning of the same tax year, or upon completion of the purchase if later, of assets in which investment is made for the benefit of life insurance policyholders bearing the investment risk and which are held by life insurance undertakings;

(b)the tax base shall include the difference in the market value, as measured at the time of disposal and the beginning of the tax year, or upon completion of the purchase if later, of assets in which investment is made for the benefit of life insurance policyholders bearing the investment risk and which are held by life insurance undertakings;

(c)the tax base shall include profit distributions received by life insurance undertakings;

(d)the technical provisions of insurance undertakings established in accordance with Council Directive 91/674/EEC 29 shall be deductible, with the exception of equalisation provisions. A Member State may provide for the deduction of equalisation provisions. Amounts deducted shall be reviewed and adjusted at the end of every tax year. Amounts already deducted shall be taken into account when calculating the tax base in future years.

Article 29 - Exit taxation

1. An amount equal to the market value of transferred assets, at the time of exit of the assets, less their value for tax purposes, shall be treated as accrued revenues in any of the following circumstances:

(a)where a taxpayer transfers assets from its head office to its permanent establishment in another Member State or in a third country;

(b)where a taxpayer transfers assets from its permanent establishment in a Member State to its head office or another permanent establishment in another Member State or in a third country, to the extent that, due to the transfer, the Member State of the permanent establishment no longer has the right to tax the transferred assets;

(c)where a taxpayer transfers its tax residence to another Member State or to a third country, except for those assets which remain effectively connected with a permanent establishment in the first Member State;

(d)where a taxpayer transfers the business carried on by its permanent establishment from a Member State to another Member State or to a third country, to the extent that, due to the transfer, the Member State of the permanent establishment no longer has the right to tax the transferred assets.

2. The Member State to where the assets, tax residence or the business carried on by a permanent establishment are transferred shall accept the value established by the Member State of the taxpayer or of the permanent establishment as the starting value of the assets for tax purposes.

3. This Article shall not apply to asset transfers related to the financing of securities, assets posted as collateral or where the asset transfer takes place in order to meet prudential capital requirements or for the purpose of liquidity management where those assets are set to revert to the Member State of the transferor within a period of 12 months.


CHAPTER IV

DEPRECIATION OF FIXED ASSETS

Article 30 - Fixed asset register

1. Acquisition or construction costs or improvement costs, together with the relevant date, shall be recorded in a fixed asset register for each fixed asset separately.

2. When a fixed asset is disposed of, details of the disposal, including the date of disposal, and any proceeds or compensation received as a result of the disposal, shall be recorded in the fixed asset register.

3. The fixed asset register shall be kept in a manner that provides sufficient information, including depreciation data, to calculate the tax base.

Article 31 - Depreciation base

1. The depreciation base shall comprise costs directly connected with the acquisition, construction or improvement of a fixed asset. Those costs shall not include deductible value added tax. Acquisition or construction costs or improvement costs of a fixed asset shall not include interest.

2. The depreciation base of an asset received as a gift shall be its market value as included in revenues.

3. The depreciation base of a fixed asset subject to depreciation shall be reduced by deducting the amount of any public subsidy directly linked to the acquisition, construction or improvement of the asset, as referred to in (a) point of Article 8.

4. The depreciation of fixed assets that are not available for use shall not be taken into account.

Article 32 - Entitlement to depreciate

1. Subject to paragraph 3, depreciation shall be deducted by the economic owner.

2. In the case of leasing contracts in which the economic and legal ownership do not coincide, the economic owner shall be entitled to deduct the interest element of the lease payments from its tax base, unless that element is not included in the tax base of the legal owner.

3. If the economic owner of an asset cannot be identified, the legal owner shall be entitled to deduct depreciation. In that case both the interest and capital element of the lease payments shall be included in the tax base of the legal owner and be deductible by the lessee.

4. A fixed asset may not be depreciated by more than one taxpayer at the same time, unless either the legal or the economic ownership is shared between more taxpayers.

5. A taxpayer may not disclaim depreciation.

6. The Commission shall be empowered to adopt delegated acts in accordance with Article 66 concerning:

(a)the definition of legal and economic ownership, in particular in relation to leased assets;

(b)the calculation of the capital and interest elements of the lease payments;

(c)the calculation of the depreciation base of a leased asset.

Article 33 - Individually depreciable assets

1. Without prejudice to paragraph 2 and Articles 37 and 38, fixed assets shall be depreciated individually over their useful lives on a straight-line basis. The useful life of a fixed asset shall be determined as follows:

(a)commercial, office and other buildings, as well as any other type of immovable property in use for the business, with the exception of industrial buildings and structures: 40 years;

(b)industrial buildings and structures: 25 years;

(c)long-life fixed tangible assets, other than the assets referred to in points (a) and (b): 15 years;

(d)medium-life fixed tangible assets: 8 years;

(e)fixed intangible assets: the period for which the asset enjoys legal protection or for which the right has been granted or, where that period cannot be determined, 15 years.

2. Second-hand buildings and other types of immovable property, second-hand long-life fixed tangible assets, second-hand medium-life fixed tangible assets and second-hand fixed intangible assets shall be depreciated in accordance with the following rules:

(a)second-hand commercial, office or other buildings, as well as any other type of immovable property in use for the business, with the exception of industrial buildings and structures: 40 years, , unless the taxpayer demonstrates that the estimated remaining useful life of the asset is shorter than 40 years, in which case it shall be depreciated over that shorter period.

(b)second-hand industrial buildings and structures: 25 years, unless the taxpayer demonstrates that the estimated remaining useful life of the asset is shorter than 25 years, in which case it shall be depreciated over that shorter period;

(c)second-hand long-life fixed tangible assets, other than the assets referred to in points (a) and (b): 15 years, unless the taxpayer demonstrates that the estimated remaining useful life of the asset is shorter than 15 years, in which case it shall be depreciated over that shorter period;

(d)second-hand medium-life fixed tangible assets: 8 years, unless the taxpayer demonstrates that the estimated remaining useful life of the asset is shorter than 8 years, in which case it shall be depreciated over that shorter period;

(e)second-hand fixed intangible assets: 15 years, unless the remaining period for which the asset enjoys legal protection or for which the right has been granted can be determined, in which case it shall be depreciated over that period.

Article 34 - Timing

1. A full year's depreciation shall be deducted in the year of acquisition or entry into use of the fixed asset, whichever comes later. No depreciation shall be deducted in the year of disposal.

2. The value for tax purposes of a fixed asset that is disposed of, or damaged to an extent that it can no longer be used for the business, and the value for tax purposes of any improvement costs incurred in relation to that asset, shall be deducted from the tax base in the year of the disposal or damage.

3. Where a fixed tangible asset not subject to depreciation has given rise to an exceptional decrease in value under Article 39, the deductible costs under Article 18 shall be reduced to take into account the exceptional deduction that a taxpayer has already received.

Article 35 - Rollover relief for replacement assets

1. Where the proceeds from the disposal, including compensation for damage, of an individually depreciable asset or fixed tangible asset not subject to wear and tear and obsolescence, as referred to in point (a) of Article 38, are to be re-invested in a similar asset used for the same or a similar business purpose before the end of the second tax year after the tax year in which the disposal took place, the amount by which those proceeds exceed the value for tax purposes of the asset may be deducted in the year of disposal. The depreciation base of the replacement asset shall be reduced by the same amount.

An asset which is disposed of voluntarily must have been owned for a minimum period of three years prior to the disposal.

2. The replacement asset referred to in paragraph 1 may be purchased in the tax year prior to the disposal. Where the replacement asset is not purchased before the end of the second tax year after the year in which the disposal of the asset took place, the amount deducted in the year of disposal, increased by 10 %, shall be added to the tax base in the second tax year after the disposal took place.

Article 36 - Depreciation of improvement costs

1. Improvement costs shall be depreciated in accordance with the rules applicable to the fixed asset which has been improved as if they related to a newly acquired fixed asset. Notwithstanding this, improvement costs concerning rented immovable property shall be depreciated according to Article 32 and Article 33(2)(a).

2. Where the taxpayer demonstrates that the estimated remaining useful life of an individually depreciated fixed asset is shorter than the useful life of the asset specified in Article 33(1), improvement costs for that asset shall be depreciated over that shorter period.

Article 37 - Asset pool

1. Fixed assets other than those referred to in Articles 33 and 38 shall be depreciated together in one asset pool at an annual rate of 25 % of the depreciation base.

2. The depreciation base of the asset pool at the end of a tax year shall be its value for tax purposes at the end of the preceding tax year, adjusted for assets entering and leaving the pool during the relevant tax year. Acquisition or construction costs and costs of improvement of assets shall be added to the depreciation base, whereas the proceeds of a disposal of assets and any compensation received for the loss or destruction of an asset shall be deducted.

3. Where the depreciation base as calculated in accordance with paragraph 2 is negative, an amount shall be added until the depreciation base is zero. The same amount shall be added to the tax base.

Article 38 - Assets not subject to depreciation

The following assets shall not be subject to depreciation:

(a)fixed tangible assets not subject to wear and tear and obsolescence such as land, fine art, antiques, or jewellery;

(b)financial assets.

Article 39 - Exceptional decrease in value

1. A taxpayer who demonstrates that a fixed tangible asset not subject to depreciation, as referred to in point (a) of Article 38, has decreased in value at the end of a tax year due to force majeure or criminal activities by third parties may deduct from the tax base an amount equal to that decrease in value. However, no such deduction may be made in respect of assets the proceeds from the disposal of which are exempt from taxation.

2. Where the value of an asset that, in a preceding tax year, has been subject to depreciation as referred to in paragraph 1 subsequently increases, an amount equivalent to that increase shall be added to the tax base in the year in which that increase takes place. However, any such addition or additions, taken together, shall not exceed the amount of the deduction originally granted.

Article 40 - Precision of categories of fixed assets

The Commission shall be empowered to adopt delegated acts in accordance with Article 66 to define more precisely the categories of fixed assets referred to in this Chapter.


CHAPTER V

LOSSES

Article 41 - Losses

1. Losses incurred in a tax year by a resident taxpayer or a permanent establishment of a non-resident taxpayer may be carried forward and deducted in subsequent tax years, unless otherwise provided by this Directive.

2. A reduction of the tax base as a result of considering losses from previous tax years shall not result in a negative amount.

3. Losses incurred by a resident taxpayer or by a permanent establishment of a non-resident taxpayer in previous years shall not be deducted where all of the following conditions are met:

(a)another company acquires a participation in the taxpayer as a result of which the acquired taxpayer becomes a qualifying subsidiary of the acquirer as referred to in Article 3;

(b)there is a major change of activity of the acquired taxpayer, which means that the acquired taxpayer discontinues a certain activity which accounted for more than [60 %] of its turnover in the previous tax year or embarks on new activities which amount to more than [60 %] of its turnover in the tax year of their introduction or the following tax year.

4. The oldest losses shall be deducted first.

Article 42 - Loss relief and recapture

1. A resident taxpayer that is still profitable after having deducted its own losses pursuant to Article 41 may additionally deduct losses incurred, in the same tax year, by its immediate qualifying subsidiaries, as referred to in Article 3(1), or by permanent establishment(s) situated in other Member States. This loss relief shall be given for a limited period of time in accordance with paragraphs 3 and 4 of this Article.

2. The deduction shall be in proportion to the holding of the resident taxpayer in its qualifying subsidiaries as referred to in Article 3(1) and full for permanent establishments. In no case shall the reduction of the tax base of the resident taxpayer result in a negative amount.

3. The resident taxpayer shall add back to its tax base, up to the amount previously deducted as a loss, any subsequent profits made by its qualifying subsidiaries as referred to in Article 3(1) or by its permanent establishments.

4. Losses deducted pursuant to paragraphs 1 and 2 shall automatically be reincorporated into the tax base of the resident taxpayer in any of the following circumstances:

(a)where, at the end of the fifth tax year after the losses became deductible, no profit has been reincorporated or the reincorporated profits do not correspond to the full amount of losses deducted;

(b)where the qualifying subsidiary as referred to in Article 3(1) is sold, wound up or transformed into a permanent establishment;

(c)where the permanent establishment is sold, wound up or transformed into a subsidiary;

(d)where the parent company no longer fulfils the requirements of Article 3(1).


CHAPTER VI
RULES ON ENTERING AND LEAVING THE SYSTEM OF THE TAX BASE

Article 43 - Recognition and valuation of assets and liabilities

All assets and liabilities shall be recognised at their value, as calculated in accordance with national tax rules immediately prior to the date on which the rules of this Directive start to be applied to the taxpayer.

Article 44 - Qualification of fixed assets for depreciation purposes

In addition to Articles 30 to 40, the following rules shall apply in connection with the depreciation of fixed assets which transition from national corporate tax law to the system of the tax base:

(a)fixed assets that are individually depreciable both under the national corporate tax law previously applicable to the taxpayer and under the rules of this Directive shall be depreciated according to Article 33(2);

(b)fixed assets that were individually depreciable under the national corporate tax law previously applicable to the taxpayer but not under the rules of this Directive shall enter the asset pool referred to in Article 37;

(c)fixed assets that were included in an asset pool for depreciation purposes under the national corporate tax law previously applicable to the taxpayer shall enter into in the asset pool referred to in Article 37, irrespective of whether they would be individually depreciable under the rules of this Directive;

(d)fixed assets that were not depreciable or were not depreciated under the national corporate tax law previously applicable to the taxpayer but are depreciable under the rules of this Directive shall be depreciated in accordance with Article 33(1) or Article 37, as the case may be;

(e)assets that were individually depreciable or included in an asset pool for depreciation purposes under the national corporate tax law previously applicable to the taxpayer but are not depreciable under the rules of this Directive shall be recognised at their tax value, as calculated in accordance with the national tax rules immediately prior to the date on which the rules of this Directive start to be applied to the taxpayer. The tax value of those assets shall be deductible in the tax year in which the assets are disposed of, provided that the disposal proceeds are included in the tax base.

Article 45 - Long-term contracts

1. Revenues and expenses which pursuant to Article 22(2) and (3) are considered to have accrued or been incurred before the rules of this Directive became applicable to the taxpayer, but were not yet included in the tax base under the national corporate tax law previously applicable to the taxpayer, shall be added to or deducted from the tax base in accordance with the national legislation previously applicable to the taxpayer.

2. Revenues which had been taxed under national corporate tax law before the taxpayer became subject to the rules of this Directive at a higher amount than the amount that would have been included in the tax base pursuant to Article 22(2) shall be deducted from the tax base in the first tax year that the rules of this Directive become applicable to the taxpayer.

Article 46 - Provisions, revenues and deductions

1. Provisions as referred to in Article 23 and bad-debt deductions as referred to in Article 25 shall be deductible only to the extent that they arise from activities or transactions carried out after the rules of this Directive became applicable to the taxpayer.

2. Revenues which pursuant to Article 16 are considered to have accrued before the taxpayer became subject to the rules of this Directive but were not yet included in the tax base under the national corporate tax law previously applicable to the taxpayer shall be added to the tax base in accordance with the national legislation previously applicable to the taxpayer..

3. Expenses incurred after the rules of this Directive became applicable to the taxpayer but in relation to activities or transactions carried out prior to the application of the Directive and for which no deduction was made shall be deductible.

4. Amounts that have already been deducted by a taxpayer before the rules of this Directive became applicable to him or her may not be deducted again.

Article 47 - Pre-entry losses

A taxpayer bringing forward unrelieved losses incurred before the rules of this Directive became applicable to him or her, may deduct those losses from its tax base if and to the extent that the national legislation applicable to the taxpayer and according to which those losses were incurred, allow for such deduction.

Article 48 - Recognition of assets and liabilities

The assets and liabilities of a taxpayer to whom the rules of this Directive no longer apply, shall be recognised at their value, as calculated according to the rules of this Directive, unless otherwise stated in this Directive.

Article 49 - Recognition of the asset pool of a taxpayer

The asset pool of a taxpayer to whom the rules of this Directive no longer apply, shall be recognised, for the purposes of the national tax rules subsequently applicable, as one asset pool which shall be depreciated in accordance with the declining balance method at an annual rate of 25 %.

Article 50 - Revenues and expenses arising from long-term contracts

The revenues and expenses arising from long-term contracts of a taxpayer to whom the rules of this Directive no longer apply shall be treated in accordance with the national corporate tax law subsequently applicable. However, revenues and expenses already taken into account for tax purposes in accordance with the rules of this Directive shall not be taken into account again.

Article 51 - Provisions, revenues and deductions

1. Expenses of a taxpayer to whom the rules of this Directive no longer apply and which have already been deducted in accordance with Articles 9, 23 and 25 may not be deducted again under the national corporate tax law subsequently applicable.

2. Revenues of a taxpayer to whom the rules of this Directive no longer apply and which the taxpayer has already included in its tax base in accordance with Article 4(5) and Article 16 may not be included again under the national corporate tax law subsequently applicable.

3. Expenses incurred by the taxpayer in accordance with the rules of this Directive and which remain partly unrelieved after the rules of this Directive are no longer applicable to the taxpayer shall be deductible according to the rules of this Directive.

Article 52 - Losses on exit

Unrelieved losses incurred by the taxpayer in accordance with the rules of this Directive shall be carried forward in accordance with the national corporate tax law subsequently applicable.


CHAPTER VII

RELATIONS BETWEEN THE TAXPAYER AND OTHER ENTITIES

Article 53 - Switch-over

1. By way of derogation from points (c) and (d) of Article 8, a taxpayer shall not be exempt from tax on foreign income that the taxpayer received as a profit distribution from an entity in a third country or as proceeds from the disposal of shares held in an entity in a third country where that entity in its country of tax residence is subject to a statutory corporate tax rate lower than half of the statutory tax rate that the taxpayer would have been subject to, in connection with such foreign income, in the Member State of its residence for tax purposes.

The first subparagraph shall not apply where a convention for the avoidance of double taxation between the Member State in which the taxpayer is resident for tax purposes and the third country where that entity is resident for tax purposes does not allow switching over from a tax exemption to taxing the designated categories of foreign income.

2. Where paragraph 1 applies, the taxpayer shall be subject to tax on the foreign income with a deduction of the tax paid in the third country from its tax liability in the Member State where it is resident for tax purposes. The deduction shall not exceed the amount of tax, as computed before the deduction, which is attributable to the income that may be taxed.

3. Member States shall exclude losses from the scope of this Article in the event of a disposal of shares in an entity that has its residence for tax purposes in a third country.

Article 54 - Computation of income of a foreign permanent establishment

Where Article 53 applies to the income of a permanent establishment in a third country, its revenues, expenses and other deductible items shall be determined according to the rules of this Directive.

Article 55 - Interest and royalties and any other income taxed at source

1. A deduction from the tax liability (‘tax credit’) of a taxpayer shall be allowed where that taxpayer derives income that has been taxed in another Member State or in a third country, other than income that is exempt under points (c), (d) or (e) of Article 8.

2. In calculating the tax credit, the amount of the income shall be decreased by related deductible expenses.

3. The tax credit for the tax liability in a third country may not exceed the final corporate tax liability of a taxpayer, unless an agreement concluded between the Member State in which the taxpayer has its residence for tax purposes and a third country states otherwise.


CHAPTER VIII

TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES

Article 56 - Associated enterprises

1. If a taxpayer participates in the management, control or, directly or indirectly, the capital of a non-taxpayer, or of a taxpayer that is not in the same group, the two enterprises shall be regarded as associated enterprises.

If the same persons participate in the management, control or, directly or indirectly, the capital of a taxpayer and a non-taxpayer, or of taxpayers not in the same group, all the companies concerned shall be regarded as associated enterprises.

A taxpayer shall be regarded as an associated enterprise to its permanent establishment in a third country. A non-resident taxpayer shall be regarded as an associated enterprise to its permanent establishment in a Member State.


2. For the purposes of paragraph 1, the following rules shall apply:

(a)participation in control shall mean a holding exceeding 20 % of the voting rights;

(b)participation in the capital shall mean a right of ownership exceeding 20 % of the capital;

(c)participation in management shall mean being in a position to exercise a significant influence on the management of the associated enterprise;

(d)an individual, his or her spouse and his or her lineal ascendants or descendants shall be treated as a single person.

In indirect participations, the fulfilment of the requirements of points (a) and (b) of this paragraph shall be determined by multiplying the rates of holding through the successive tiers. A taxpayer holding more than 50 % of the voting rights shall be deemed to hold 100 %.

For the purposes of Article 61, where there is a hybrid mismatch involving a hybrid entity, the participation under points (a) and (b) of the first subparagraph shall mean a holding exceeding 50 % of the voting rights or a right of ownership exceeding 50 % of the capital.

Article 57 - Adjustment of pricing in relations between associated enterprises

1. Where conditions are made or imposed in relations between associated enterprises that differ from those that would have been made between independent enterprises, any income that would have accrued to the taxpayer but because of those conditions has not so accrued, shall be included in the income of that taxpayer and taxed accordingly.

2. Income attributable to a permanent establishment is what the permanent establishment would be expected to earn, in particular in its dealings with other parts of the same taxpayer, if it were a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the taxpayer through the permanent establishment and through other parts of the same taxpayer.


CHAPTER IX

ANTI-ABUSE RULES

Article 58 - General anti-abuse rule

1. For the purposes of calculating the tax base under the rules of this Directive, a Member State shall disregard an arrangement or a series of arrangements which, having been put in place for the essential purpose of obtaining a tax advantage that defeats the object or purpose of this Directive, are not genuine, having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part.

2. For the purposes of paragraph 1, an arrangement or a series thereof shall be regarded as non-genuine to the extent that they are not put in place for valid commercial reasons that reflect economic reality.

3. Arrangements or a series thereof that are disregarded in accordance with paragraph 1 shall be treated, for the purpose of calculating the tax base, by reference to their economic substance.

Article 59 - Controlled foreign companies

1. An entity, or a permanent establishment of which the profits are not subject to tax or are exempt from tax in the Member State of its head office’, shall be treated as a controlled foreign company where the following conditions are met:

(a)in the case of an entity, the taxpayer itself, or together with its associated enterprises, holds a direct or indirect participation of more than 50 % of the voting rights, or owns directly or indirectly more than 50 % of capital or is entitled to receive more than 50 % of the profits of that entity; and

(b)the actual corporate tax paid by the entity or permanent establishment on its profits is lower than the difference between the corporate tax that would have been charged on the profits of the entity or permanent establishment in accordance with the rules of this Directive and the actual corporate tax paid on those profits by the entity or permanent establishment.

For the purposes of point (b) of the first subparagraph, in computing the corporate tax that would have been charged on the profits of the entity according to the rules of the Directive in the Member State of the taxpayer, the income of any permanent establishment of the entity that is not subject to tax or is exempt from tax in the jurisdiction of the controlled foreign company shall not be taken into account.

2. Where an entity or permanent establishment is treated as a controlled foreign company under paragraph 1, non-distributed income of the entity or permanent establishment shall be subject to tax to the extent that it is derived from the following categories:

(a)interest or any other income generated by financial assets;

(b)royalties or any other income generated from intellectual property;

(c)dividends and income from the disposal of shares;

(d)income from financial leasing;

(e)income from insurance, banking and other financial activities;

(f)income from invoicing companies that earn sales and services income from goods and services purchased from and sold to associated enterprises and add no or little economic value.

The first subparagraph shall not apply to a controlled foreign company that is resident or situated in a Member State or in a third country that is party to the EEA Agreement where the controlled foreign company has been set up for valid commercial reasons that reflect economic reality. For the purposes of this Article, the activity of the controlled foreign company shall reflect economic reality to the extent that that activity is supported by commensurate staff, equipment, assets and premises.

3. An entity or permanent establishment shall not be treated as a controlled foreign company as referred to in paragraph 1 where not more than one third of the income accruing to the entity or permanent establishment falls within categories (a) to (f) of paragraph 2.

Financial undertakings shall not be treated as controlled foreign companies under paragraph 1 where not more than one third of the income accruing to the entity or permanent establishment from categories (a) to (f) of paragraph 2 comes from transactions with the taxpayer or its associated enterprises.

Article 60 - Computation of the income of a controlled foreign company

1. The income to be included in the tax base shall be calculated according to the rules of this Directive. Losses of the entity or permanent establishment shall not be included in the tax base but shall be carried forward and taken into account when applying Article 59 in subsequent tax years.

2. Where the controlled foreign company is an entity, the income to be included in the tax base shall be calculated in proportion to the entitlement of the taxpayer to a share in the profits of the foreign entity. Where the controlled foreign company is a permanent establishment, all income shall be included in the tax base.

3. The income of the entity or permanent establishment shall be included in the tax base of the tax year in which the tax year of the entity or permanent establishment ends.

4. Where the entity distributes profits to the taxpayer out of income previously included in the tax base of the taxpayer pursuant to Article 59 and the taxpayer is liable to tax on these distributed profits, the amounts of income previously included in the tax base pursuant to Article 59 shall be deducted from that tax base when calculating the taxpayer's liability to tax on the distributed profits.

5. Where the taxpayer disposes of its participation in the entity, the proceeds shall be reduced, for the purpose of calculating the taxpayer's liability to tax, by any undistributed amounts that have already been included in the tax base.

Article 61 - Hybrid mismatch

1. To the extent that a hybrid mismatch between Member States results in a double deduction of the same payment, expenses or losses, the deduction shall be given only in the Member State where such payment has its source, the expenses are incurred or the losses are suffered.

To the extent that a hybrid mismatch involving a third country results in a double deduction of the same payment, expenses or losses, the Member State concerned shall deny the deduction of such payment, expenses or losses, unless the third country has already done so.

2. To the extent that a hybrid mismatch between Member States results in a deduction without inclusion, the Member State of the payer shall deny the deduction of such payment.

To the extent that a hybrid mismatch that involves a third country results in a deduction without inclusion:

(a)if the payment has its source in a Member State, that Member State shall deny the deduction, or

(b)if the payment has its source in a third country, the Member State concerned shall require the taxpayer to include such payment in the taxable base, unless the third country has already denied the deduction or has required that payment to be included.

3. To the extent that a hybrid mismatch between Member States involving a permanent establishment results in non-taxation without inclusion, the Member State in which the taxpayer is resident for tax purposes shall require the taxpayer to include in the taxable base the income attributed to the permanent establishment.

To the extent that a hybrid mismatch involving a permanent establishment situated in a third country results in non-taxation without inclusion, the Member State concerned shall require the taxpayer to include in the taxable base the income attributed to the permanent establishment in the third country.

4. To the extent that a payment by a taxpayer to an associated enterprise in a third country is set off directly or indirectly against a payment, expenses or losses which due to a hybrid mismatch are deductible in two different jurisdictions outside the Union, the Member State of the taxpayer shall deny the deduction of the payment by the taxpayer to an associated enterprise in a third country from the taxable base, unless one of the third countries involved has already denied the deduction of the payment, expenses or losses that would be deductible in two different jurisdictions.

5. To the extent that the corresponding inclusion of a deductible payment by a taxpayer to an associated enterprise in a third country is set off directly or indirectly against a payment which, due to a hybrid mismatch, is not included by the payee in its taxable base, the Member State of the taxpayer shall deny the deduction of the payment by the taxpayer to an associated enterprise in a third country from the taxable base, unless one of the third countries involved has already denied the deduction of the non-included payment.

6. To the extent that a hybrid mismatch results in a relief for tax withheld at source on a payment derived from a transferred financial instrument to more than one of the parties involved, the Member State of the taxpayer shall limit the benefit of such relief in proportion to the net taxable income regarding such payment.

7. For the purposes of this Article, payer means the entity or permanent establishment where the payment has its source, the expenses are incurred or the losses are suffered.

Article 61 - a Tax residency mismatches

To the extent that a payment, expenses or losses of a taxpayer who is resident for tax purposes in both a Member State and a third country, in accordance with the laws of that Member State and that third country, are deductible from the taxable base in both jurisdictions and that payment, those expenses or losses can be set-off in the Member State of the taxpayer against taxable income that is not included in the third country, the Member State of the taxpayer shall deny the deduction of the payment, expenses or losses, unless the third country has already done so.

CHAPTER X

TRANSPARENT ENTITIES

Article 62 - Allocation of the income of transparent entities to taxpayers holding an interest

1. Where an entity is treated as transparent in the Member State where it is established, a taxpayer holding an interest in the entity shall include its share in the income of the entity in its tax base. For the purpose of this calculation, the income shall be computed in accordance with the rules of this Directive.

2. Transactions between a taxpayer and the entity referred to in paragraph 1 shall be disregarded in proportion to the taxpayer’s share in the entity. Accordingly, the income of the taxpayer derived from those transactions shall be considered to be a proportion to the amount that would be agreed between independent enterprises calculated on an arm's length basis which corresponds to the third party ownership of the entity.

3. The taxpayer shall be entitled to relief for double taxation in accordance with Article 55.

Article 63 - Determining transparency in the case of third country entities

The question whether an entity that is located in a third country is transparent or not shall be determined according to the law of the Member State of the taxpayer.


CHAPTER XI

ADMINISTRATION AND PROCEDURES

Article 64 - Notice to competent authorities on the application of the rules of this Directive

A company as referred to in Article 2(1), (2) or (3) shall notify the competent authority of the Member State in which it is tax resident or in which its permanent establishment is situated that it falls under the scope of this Directive.

Article 65 - Term of the notice

1. A taxpayer shall apply the rules of this Directive in so far as it remains liable thereto, in accordance with Article 2(1) and (2).

2. A taxpayer that is no longer subject to the rules of this Directive may opt to continue applying those rules provided that the taxpayer meets the conditions of Article 2(3).

3. A taxpayer that has opted to apply the rules of this Directive in accordance with Article 2(3) and that decides to discontinue that application at the end of the term of five tax years shall notify the competent authority of the Member State in which it is tax resident, or the competent authority of the Member State in which its permanent establishment is situated, as the case may be.

4. A taxpayer that has opted to apply the rules of this Directive in accordance with Article 2(3) and that decides to extend that application at the end of the term of five tax years shall provide the competent authority of the Member State in which it is tax resident, or the competent authority of the Member State in which its permanent establishment is situated, as the case may be, with evidence that the conditions under points (a) and (b) of Article 2(1) are met.


CHAPTER XII

FINAL PROVISIONS

Article 66 - Exercise of the delegation

1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article.

2. The power to adopt delegated acts referred to in Articles 2(5), 4(5), 11(6), 32(5) and 40 shall be conferred on the Commission for an indeterminate period of time from the date of entry into force of this Directive.

3. The delegation of power referred to in Articles 2(5), 4(5), 11(6), 32(5) and 40 may be revoked at any time by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force.

4. As soon as it adopts a delegated act, the Commission shall notify it to the Council.

5. A delegated act adopted pursuant to Articles 2(5), 4(5), 11(6), 32(5) and 40 shall enter into force only if no objection has been expressed by the Council within a period of [two months] of notification of that act to the Council or if, before the expiry of that period, the Council has informed the Commission that it will not object. That period shall be extended by [two months] at the initiative of the Council.

Article 67 - Informing the European Parliament

The European Parliament shall be informed of the adoption of delegated acts by the Commission, of any objection formulated to them, and of the revocation of a delegation of powers by the Council.

Article 68 - Committee procedure

1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011.

2. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply.

Article 69 - Review

The Commission shall, five years after the entry into force of this Directive, review its application and report to the Council on the operation of this Directive.

Notwithstanding the first subparagraph, the Commission shall, three years after the entry into force of this Directive, examine the functioning of Article 11 and consider adjustments to the definition and calibration of the AGI. The Commission shall undertake a thorough analysis of how the AGI can encourage companies that are entitled to opt for applying the rules of this Directive to finance their activities through equity.

The Commission shall communicate its findings to Member States with the aim to take those findings into account for the design and implementation of national corporate tax systems.

Article 70 - Transposition

1. Member States shall adopt and publish, by 31st December 2018 at the latest, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the Commission the text of those provisions.

They shall apply those provisions from 1st January 2019.

When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive.

3. Member States whose currency is not the euro may opt to calculate, where this Directive mentions a monetary amount in euros (EUR), the corresponding value in the national currency on the date of adoption of this Directive.

Article 71 - Entry into force

This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Article 72 - Addressees

This Directive is addressed to the Member States.