Friday, June 19, 2015
Today the Commission presented an Action Plan to fundamentally reform corporate taxation in the EU. The Action Plan sets out a series of initiatives to tackle tax avoidance, secure sustainable revenues and strengthen the Single Market for businesses. Collectively, these measures will significantly improve the corporate tax environment in the EU, making it fairer, more efficient and more growth-friendly.
Key actions include a strategy to re-launch the Common Consolidated Corporate Tax Base (CCCTB) and a framework to ensure effective taxation where profits are generated. The Commission is also publishing a first pan-EU list of third-country non-cooperative tax jurisdictions and launching a public consultation to assess whether companies should have to publicly disclose certain tax information.
Re-launching the Common Consolidated Corporate Tax Base (CCCTB)
The Commission will re-launch its proposal for a Common Consolidated Corporate Tax Base (CCCTB), as a holistic solution to corporate tax reform.
The CCCTB can deliver on all fronts, significantly improving the Single Market for businesses, while also closing off opportunities for corporate tax avoidance. Negotiations are currently stalled on the Commission's 2011 proposal for a CCCTB. However, there is a general consensus that they need to be revived, given the major benefits that the CCCTB offers. Work will begin immediately on a new proposal to introduce a mandatory CCCTB through a step-by-step approach. This will allow Member States to progress more quickly on securing the common taxable base. Consolidation will be introduced as a second step, as this has been the most difficult element in negotiations so far. The Commission will present this new proposal as early as possible in 2016.
Ensuring Effective Taxation
The Action Plan sets out the path for effective taxation in the EU, which is the notion that companies should pay a fair share of tax in the country where they make their profits. There are a number of ways to achieve this, without harmonising corporate tax rates across the EU. For example, the Commission is proposing measures to close legislative loopholes, improve the transfer pricing system and implement stricter rules for preferential tax regimes, among other things. These initiatives should also help to advance the ongoing debate between Member States to define and agree on an EU approach to effective taxation.
The Action Plan sets out the next steps for greater tax transparency – within the EU and vis-à-vis third countries. This builds on the measures already envisaged in the Tax Transparency Package, adopted in March. To launch a more open and uniform EU approach to non-cooperative tax jurisdictions, the Commission has published a pan-EU list of third countries and territories blacklisted by Member States. This can be used to screen non-cooperative tax jurisdictions and develop a common EU strategy to deal with them. As such, it will reinforce Member States' collective defence system against external threats to their revenues.
The Commission is also launching a public consultation today on to gather feedback on whether companies should have to publicly disclose certain tax information, including through Country-by-Country Reporting (CbCR).The consultation, together with the Commission's ongoing impact assessment work, will help to shape any future policy decisions on this issue.
The Action Plan for Fair and Efficient Corporate Taxation is part of the Commission's ambitious agenda to tackle corporate tax avoidance, ensuring a fairer Single Market and promoting jobs, growth and investment in Europe.
In his July 2014 Political Guidelines, President Juncker stated: "We need more fairness in our internal market. While recognising the competence of Member States for their taxation systems, we should step up our efforts to combat tax evasion and tax fraud, so that all contribute their fair share."
The Commission is rapidly delivering on the commitments made in its 2015 Work Programme to clamp down on tax evasion and tax avoidance, and ensure that companies pay tax where they generate profits.
As a first step, the Commission proposed a Tax Transparency Package in March to create more openness and cooperation between Member States on corporate tax issues. A key element in the Package was a proposal for the automatic exchange of information on tax rulings. This proposal received unanimous political support from Finance Ministers at the Informal ECOFIN in April. Member States are now discussing it at technical level with the aim of reaching agreement by the end of the year.
Today's Action Plan represents the second and more comprehensive step towards reforming corporate taxation in the EU
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The current lack of coordination in corporate taxation between Member States creates obstacles for companies acting in the Single Market, as they are confronted with 28 different tax bases of corporate taxation, creating heavy compliance costs and administrative burdens which are detrimental to European competitiveness. It also allows companies to exploit mismatches. Intense competition for mobile tax bases has created new opportunities for aggressive tax planners, while other companies are still facing double taxation.
For many years, the non-binding Code of Conduct for Business Taxation has been considered an effective tool for addressing tax competition in the Single Market. However, as corporate tax planning has become more sophisticated and competitive forces between Member States have increased, the tools for ensuring fair tax competition within the EU have reached their limits.
Internationally, the OECD is working on the Base Erosion and Profit Shifting (BEPS) project to close loopholes that facilitate avoidance, and to find solutions to today's tax challenges, including those raised by the digital economy. The EU can build on these international reforms, and it must consider how best to integrate the results of the BEPS project at EU level.
1. CCCTB: A HOLISTIC SOLUTION TO PROFIT SHIFTING
The Common Consolidated Corporate Tax Base (CCCTB), proposed by the Commission in 2011, could be an extremely effective tool for meeting the objectives of fairer and more efficient taxation. The CCCTB would greatly improve the environment for businesses in the EU. It is one of the Commission's REFIT initiatives, aimed at reducing administrative burdens and simplifying the Single Market for businesses.
The CCCTB would reduce the complexities and compliance costs for cross-border companies, who would only have to follow one set of rules when computing their taxable income, rather than face up to 28 different systems. In addition, consolidation offers groups the significant advantage of being able to offset losses in one Member State against profits in another. At the same time, the CCCTB could be highly effective in tackling profit shifting and corporate tax abuse in the EU.
The common base would eliminate mismatches between national systems which aggressive tax planners often exploit, and remove the possibility of using preferential regimes for profit shifting. The possibility to manipulate transfer pricing would be removed, as intra-group transactions would be ignored and the consolidated group profit figure shared by a formula.
The CCCTB could also be a useful instrument to address the debt bias. Moreover, the common base would introduce complete transparency on the effective tax rate of each jurisdiction, thereby reducing the scope for harmful tax competition. In addition, the CCCTB would allow Member States to implement a common approach vis-à-vis third countries and defend the Single Market against aggressive tax planning. For example, Member States would have a unified response to controlled foreign companies, to prevent profits from being shifted to non-cooperative tax jurisdictions. Given the benefits that the CCCTB can offer, and taking into account the comments of Member States, businesses and other stakeholders, the Commission has decided to relaunch the CCCTB. The aim is to strengthen the CCCTB so that it addresses the current challenges in corporate taxation. The key changes will be:
1.1. Making the CCCTB mandatory
1.2. Developing a staged approach to implementing the CCCTB
2. ENSURING EFFECTIVE TAXATION WHERE PROFITS ARE GENERATED
Companies that benefit from the Single Market and generate profits there should pay tax on those profits within the EU, at the place of activity. However, certain companies exploit mismatches in national tax provisions to shift profits. They shift profits from where they are generated to Member States offering low tax rates and preferential regimes, and out to third countries, with no link to where the value is created. Based on existing corporate tax legislation7 , one Member State may be prevented from taxing corporate revenue when it is moved to another Member State. As a result, there is evidence that certain multinational enterprises pay an extremely low level of effective taxation (or no tax at all) at the place of actual economic activity, even if they generate significant profits there.
2.1. Bringing taxation closer to where profits are generated and ensuring effective taxation of profits
2.2. Improving the Transfer Pricing framework in the EU
2.3. Linking preferential regimes to where value is generated
3. ADDITIONAL MEASURES FOR A BETTER TAX ENVIRONMENT FOR BUSINESS
3.1. Enabling cross border loss offset
3.2. Improving double taxation dispute resolution mechanisms
4. FURTHER PROGRESS ON TAX TRANSPARENCY
4.1. Ensuring a more common approach to third country non-cooperative tax jurisdictions
As an immediate first step, the Commission has published an EU-wide list of third country non-cooperative tax jurisdictions, compiled from Member States' independent national blacklists which were discussed in the December 2014 Platform on Good Tax Governance. Those jurisdictions included on the EU-wide list were identified by at least 10 Member States. The list, published on the Commission's website13, offers Member States a transparent tool to compare their national lists and adjust their respective approaches to non-cooperative tax jurisdictions as necessary. Going forward, the Commission will amend this list on a periodic basis to reflect changes to Member States' own national lists.
4.2. Proceeding with work on corporate tax transparency, such as country-bycountry reporting options
5. EU TOOLS FOR COORDINATION
5.1. Improving Member States' coordination on tax audits
5.2. Reforming the Code of Conduct for Business Taxation and the Platform on Tax Good Governance