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European Commission re-launches rules to make corporate tax fairer

The European Commission has unveiled a set of common rules across the European Union (EU) to make corporate taxation fairer and to combat tax evasion and avoidance, setting the rules out in a directive entitled a ‘Common Consolidated Corporate Tax Base’ (CCCTB).

A previous version of the directive had been delayed since the EU’s last proposal on the issue in 2011.

The implementation of the new rules has been arranged in two stages to commence on January 2019 and January 2021, respectively.

The earlier date is for the “common base”, which covers how a company’s profit will be taxed, once various exemptions and deductions have been accounted for.

The later date is for “consolidation” aspects.

This is the process that will allow a group to add up all the profits and losses of its constituent companies to reach a net profit or loss for the entire EU. It will show how it should be taxed.

The European Commission bills its new version of the CCCTB as a single set of EU-wide rules for businesses to calculate their tax bill, to relieve problems giving rise to double taxation and to close tax loopholes involving EU countries and non-EU jurisdictions.

A basic principle of the package is that companies should pay their taxes where “their profits and value are generated”.

Pierre Moscovici, commissioner for Economic and Financial Affairs, answering a question at the press launch, took pains to emphasise that the rules would have no effect on national corporate tax rates, as set by national governments.

Questioned on the attitude of the UK, he indicated support as expressed during numerous meetings. 

Moscovici also indicated optimism of support across EU national governments as a whole.

The European Commission, in an information sheet, states that national governments are now asking for a proposal to extend rules applied to illicit liaison “mismatches” to non-EU countries.

It goes on to estimate that the CCCTB would reduce by 70% the amount by which profit-shifting for tax purposes would be eliminated under CCCTB rules.

It also suggests EU companies could cut their overall compliance costs by 2.5%, noting that 28 different tax rule books “create red tape and high costs for cross-border companies”.

The latest initiative is described as “bolstering” this summer’s anti-abuse measures under the EU’s Anti-Tax Avoidance Directive.

This sets out “anti-abuse measures to block some of the most prevalent forms of base erosion and profit shifting”.

On double taxation, the Commission cites the 900-odd double taxation disputes in the EU today that, combined, are estimated to be worth €10.5bn.

This is somewhat higher than the €8bn estimate made recently by Valdis Dombrovskis, head of the EU’s Capital Markets Union programme. 

On dispute resolution for double taxation, the Commission finds that, at present, there is often no recourse for taxpayers when dispute mechanisms are applied improperly.

In addition, the timeline for procedures can be unpredictable, it says.

After implementation of the CCCTB, there would be an obligation to notify taxpayers and publish arbitration findings, the Commission states. 

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