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14th Apr 2024

Commission revives corporate taxation plan

  • EU tax commissioner Pierre Moscovici said the new corporate reform was more attractive to business than the one from 2011. (Photo: European Commission)

The European Commission has unveiled a new proposal for corporate taxation, designed to help crack down on tax avoidance in the EU.

The scheme is known as the common consolidated corporate tax base (CCCTB).

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”It sounds barbaric, but the principle is actually very simple,” EU tax commissioner Pierre Moscovici told journalists on Wednesday (26 October).

”We want a single set of rules for calculating taxable profits anywhere in the EU bloc.”

This means companies will only need to fill out one tax declaration in a single EU tax jurisdiction, no matter how many EU countries they operate in.

Beside cutting red tape, the proposal would also close some legal loopholes and stop firms from shifting profits to low-tax regimes, as taxes would be shared among the jurisdictions where the companies operate and generate profits.

Brussels already tried to introduce a CCCTB in 2011. But the effort was resisted by EU capitals, which feared it would curtail their sovereignty to raise (or lower) taxes.

The 2011 initiative was officially scrapped on Tuesday, just before the EU executive presented a rebooted version.

“A lot has changed since 2011,” Moscovici said.

Most importantly, recent scandals - the LuxLeaks revelations and the commission’s probe on Apple in Ireland - have showed how some EU governments wooed multinationals with sweetheart deals, reducing their tax bills to 1-2 percent.

According to the commission’s own impact assessment, Luxembourg could lose 1 percent of GDP if the proposal went through.

To make the pill less bitter, the bill is divided in two: member states will first set common rules on the calculation of taxable profits, and decide later where those profits should be taxed.

”This two-step approach will allow for better negotiations,” the French commissioner said.

He hoped EU states would conclude negotiations on the first step by 1 January 2019 and a year later on the second.

”Member states are committed to this fight,” Moscovici said and pointed out they had recently adopted an anti-tax avoidance directive in just five months.

The commission is also offering rewards for companies using the scheme, giving huge tax breaks on research and development spending. In some cases, firms will be able to write off double the amount they spent on research.

Game changer?

Some fear, however, that the commission has gone too far in trying to accommodate EU capitals and business.

Tove Ryding from the European Network on Debt and Development (Eurodad) said the proposal would be stuck in the initial stage - member state talks on the definition of a common taxable base - for an indefinite time.

”Only the full implementation of the commission’s proposal would stop multinationals from dodging their taxes,” she told this website.

French Socialist MEP Pervenche Beres said that the commission’s incentives could create new loopholes.

”We are big supporters of innovation but it is crucial to have a good definition of R&D to ensure that this exemption is not used to artificially shift profits and reduce the tax base,” Beres said in a statement.

German far-left MEP Fabio De Masi said the rules to determine which enterprises belong to the same company were not defined well enough.

“On top of that, tax havens outside of the EU are excluded from the commission's proposal," De Masi said.

“The proposal threatens to decrease the tax base even further and to intensify tax competition.”

The socialist leader in the European Parliament Gianni Pittella said tax avoidance would only stop when corporate tax rates within the EU were harmonised - something neither the commission nor EU capitals are currently considering.

The Green group in the European parliament called the proposal “revolutionary”.

“Sounds like a boring acronym, but it is a game changer,” the group wrote in a blog post.

Others called on EU capitals to adopt the rules as soon as possible.

“States who oppose these rules want to take the bread out of the mouths of others,” said German centre-right MEP Burkhard Balz.

Ireland, which was one of the staunchest opponents of the first CCCTB proposal, vowed to engage fully in discussions while assessing whether the proposal was in its interests.

The proposal will now be sent to national governments, who have to agree unanimously for the plan to become law.

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