Considerations on COM(2016)683 - Common Consolidated Corporate Tax Base (CCCTB) - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2016)683 - Common Consolidated Corporate Tax Base (CCCTB). |
|---|---|
| document | COM(2016)683  |
| date | October 25, 2016 |
(2) To support the proper functioning of the internal market, the corporate tax environment in the Union should be shaped in accordance with the principle that companies pay their fair share of tax in the jurisdiction(s) where their profits are generated. It is therefore necessary to provide for mechanisms that discourage companies from taking advantage of mismatches amongst national tax systems in order to lower their tax liability. It is equally important to also stimulate growth and economic development in the internal market by facilitating cross-border trade and corporate investment. To this end, it is necessary to eliminate both double taxation and double non-taxation risks in the Union through eradicating disparities in the interaction of national corporate tax systems. At the same time, companies need an easily workable tax and legal framework for developing their commercial activity and expanding it across borders in the Union. In that context, remaining cases of discrimination should also be removed.
(3) As pointed out in the proposal of 16 March 2011 for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) 7 , a corporate tax system which treats the Union as a single market for the purpose of computing the corporate tax base of companies would facilitate cross-border activity for companies resident in the Union and promote the objective of making it a more competitive location for investment internationally. The proposal of 2011 for a CCCTB focussed on the objective of facilitating the expansion of commercial activity for businesses within the Union. In addition to that objective, it should also be taken into account that a CCCTB can be highly effective in improving the functioning of the internal market through countering tax avoidance schemes. In this light, the initiative for a CCCTB should be re-launched in order to address, on an equal footing, both the aspect of business facilitation and the initiative's function in countering tax avoidance. Such an approach would best serve the aim of eradicating distortions in the functioning of the internal market.
(4) Considering the need to act swiftly in order to ensure a proper functioning of the internal market by making it, on the one hand, friendlier to trade and investment and, on the other hand, more resilient to tax avoidance schemes, it is necessary to divide the ambitious CCCTB initiative into two separate proposals. At a first stage, rules on a common corporate tax base should be agreed, before addressing, at a second stage, the issue of consolidation.
(5) Many aggressive tax planning structures tend to feature in a cross-border context, which implies that the participating groups of companies possess a minimum of resources. On this premise, for reasons of proportionality, the rules on a CCCTB should be mandatory only for groups of companies of a substantial size. For that purpose, a size-related threshold should be fixed on the basis of the total consolidated revenue of a group which files consolidated financial statements. In addition, in order to better serve the aim of facilitating trade and investment in the internal market, the rules on a CCCTB should also be available, as an option, to those groups that fall short of the size-related threshold.
(6) Eligibility for the consolidated tax group should be determined in accordance with a two-part test based on (i) control (more than 50 percent of voting rights) and (ii) ownership (more than 75 percent of equity) or rights to profits (more than 75 percent of rights giving entitlement to profit). Such a test would ensure a high level of economic integration between group members. To guarantee the integrity of the system, the two thresholds for control and ownership or profit rights should be met throughout the tax year; otherwise, the failing company should leave the group immediately. To prevent a manipulation of the tax results through companies entering and leaving the group within a short-term, there should also be a minimum requirement of nine consecutive months for establishing group membership.
(7) Rules on business reorganisations should ensure that the effect of such reorganisations on the existing taxing rights of Member States is kept to a minimum. Each time that a company joins a group, the Member States where other group members are resident for tax purposes or situated should therefore not bear the extra cost of losses that the company incurred under the rules of another corporate tax system which applied to that company prior to the rules of this Directive. Pre-consolidation trading losses of a company joining a group should thus be carried forward to be set off against that company's apportioned share. Accordingly, losses incurred by a group member during the period of consolidation should not exclusively be allocated to that group member but be shared across the group instead. In the case of more extensive reorganisations, where more than one company is leaving a loss-making group, it would be essential to fix a threshold, in order to determine under which conditions companies should no longer be leaving a loss-making group without being allocated any losses to carry forward. A similar adjustment should be made in respect of capital gains resulting from the disposal of certain assets within a short period after those assets joined, or departed from, a group alongside a joining or leaving company. In these cases, the Member State(s) where these gains accrued should be given the right to tax them, despite the fact that the assets may no longer be under their taxing jurisdiction. The tax treatment of capital gains engrained in self-generated intangible assets calls for a customised approach, since these assets are often not registered on a company’s financial accounts and since there does not seem to be a way to precisely calculate their value. Accrued capital gains should therefore be assessed on the basis of a suitable proxy, namely the costs for research and development and for marketing and advertising over a specific period.
(8) The revenue from withholding taxes on interest and royalty payments should be shared in accordance with the formula for the apportionment of the consolidated tax base of the tax year in which the withholding tax is due, in order to compensate for the fact that interest and royalty payments would have previously led to a deduction and the benefit would have been shared by the group. The revenue from withholding taxes on dividends, however, should not be shared. Contrary to interest and royalty payments, dividends are distributed from profits which have already been subjected to corporate taxation and therefore, a dividend distribution does not involve, for group members, any benefit consisting in a deduction of business expenses.
(9) In order to prevent circumventing the tax exemption of the gains from the disposals of shares, this tax-free treatment should be disallowed where it is illegitimately extended to sales of assets other than shares. This situation would occur if assets are moved by way of intra-group transactions, without tax implications, to a group member with the plan to subsequently, sell the shares in that group member and include the assets in that sale. In such case, the assets would effectively benefit, under the cover of a sale of shares, from the tax exemption that applies to disposals of shares. Accordingly, it would also be necessary to cater for intra-group transfers of assets which are then sold out of the group within a period of up to two years. Namely, an adjustment should be made in order to treat an asset as having left the group from the Member State where it was located initially, i.e. prior to the intra-group transfer, and in this way, discourage the artificial intra-group transfer of assets (other than shares) towards Member States with beneficial tax regimes for capital gains from disposals of assets.
(10) The formula apportionment for the consolidated tax base should comprise three equally weighted factors, namely labour, assets and sales by destination. Those equally weighted factors should reflect a balanced approach to distributing taxable profits amongst the relevant Member States and should ensure that profits are taxed where they are actually earned. Labour and assets should therefore be allocated to the Member State where the labour is performed or the assets are located, and would thereby give appropriate weight to the interests of the Member State of origin, whilst sales should be allocated to the Member State of destination of the goods or services. To account for differences in the levels of wages across the Union and thus allow for a fair distribution of the consolidated tax base, the labour factor should comprise both payroll and the number of employees (i.e. each item counting for half). The asset factor, on the other hand, should comprise all fixed tangible assets, but not intangible and financial assets because of their mobile nature and the resulting risk that the rules of this Directive could be circumvented. Where, due to exceptional circumstances, the outcome of the apportionment does not fairly represent the extent of business activity, a safeguard clause should provide for an alternative method of income allocation.
(11) Due to their specificities, certain sectors, such as the financial and insurance sector, the oil and gas sector as well as shipping and air transport, need an adjusted formula for the apportionment of the consolidated tax base.
(12) To optimise the benefits of having a single set of corporate tax rules across the EU for determining the consolidated tax base of groups, groups should be able to deal with a single tax administration ('principal tax authority'). As a matter of principle, that principal tax authority should be based in the Member State where the parent company of the group is resident for tax purposes ('principal taxpayer'). It is essential in this context to lay down common procedural rules for the administration of the system.
(13) Audits should in principle be initiated and coordinated by the principal tax authority, but given that the first stage consisting in the calculation of the tax base is performed locally, the national authorities of any Member State in which the profits of a group member are subject to tax should also be able to request the initiation of an audit. Accordingly, to protect the national tax base, the competent authority of the Member State in which a group member is resident for tax purposes or established in the form of a permanent establishment should be able to challenge before the courts of the Member State of the principal tax authority a decision of that tax authority concerning the notice to create a group or a decision concerning an amended tax assessment. Disputes between taxpayers and tax authorities should be dealt with by an administrative body at first instance, in order to reduce the number of cases that reach the courts. That body should be structured and operating in accordance with the law of the Member State of the principal tax authority is competent to hear appeals at first instance.
(14) This Directive builds upon Council Directive 2016/xx/EU on a common corporate tax base (which lays down a common set of corporate tax rules for computing the tax base) and focusses on the consolidation of tax results across the group. It would thus be necessary to deal with the interaction between the two legislative instruments and cater for the transition of certain elements of the tax base into the new framework of the group. Such elements should include, in particular, the interest limitation rule, the switch-over clause and controlled foreign company legislation as well as hybrid mismatches.
(15) The European Data Protection Supervisor was consulted in accordance with Article 28(2) of Regulation (EC) No 45/2001 of the European Parliament and of the Council 8 . Any processing of personal data carried out within the framework of this Directive must also comply with applicable national provisions on data protection implementing Directive 95/46/EC 9 , which will be replaced by Regulation (EU) 2016/679 10 , and with Regulation (EC) No 45/2001 11 .
(16) In order to supplement or amend certain non-essential elements of this Directive, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission with respect of (i) taking into account changes to the laws of Member States concerning the company forms and corporate taxes and amend Annexes I and II accordingly; (ii) laying down additional definitions; and (iii) supplementing the rule on the limitation of interest deductibility with anti-fragmentation rules, to better address the tax avoidance risks which may emerge within a group. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and the Council.
(17) In order to ensure uniform conditions for the implementation of this Directive, implementing powers should be conferred on the Commission (i) to adopt annually a list of third country company forms that are similar to the company forms listed in Annex I; (ii) to lay down detailed rules on the calculation of the labour, asset and sales factors, the allocation of employees and payroll, assets and sales to the respective factor and the valuation of assets; (iii) to adopt an act establishing a standard form of the notice to create a group; and (iv) to lay down rules on the electronic filing of the consolidated tax return, the form of the consolidated tax return, the form of the single taxpayer's tax return and the supporting documentation required. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council 12 .
(18) Since the objectives of this Directive, namely to improve the functioning of the internal market through countering practices of international tax avoidance and to facilitate businesses in expanding across borders within the Union, cannot be sufficiently achieved by the Member States acting individually and in a disparate fashion because coordinated action is necessary to obtain these objectives, but can rather, by reason of the fact that the Directive targets inefficiencies of the internal market that originate in the interaction between disparate national tax rules which impact on the internal market and discourage cross-border activity, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives, especially considering that its mandatory scope is limited to groups beyond a certain size.
(19) In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents 13 , Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified.
(20) The Commission should be required to review the application of the Directive five years after its entry into force and report to Council on its operation. Member States should be required to communicate to the Commission the text of the provisions of national law which they adopt in the field covered by this Directive.