The 2011 proposal of the European Commission for a Common Consolidated Corporate Tax Base (CCCTB) stands for many as the best example with which to illustrate the level of difficulty involved in finding the unanimity support required at EU-level for serious tax reforms to be agreed and implemented.
For reference, the original 2011 CCCTB failed to clear this hurdle within the Council, and hence was never agreed. Now, the Commission hopes to right the wrongs of the past, as it has re-launched the initiative. This time around, new changes have been incorporated into the draft which Taxation Commissioner Pierre Moscovici in particular hopes will be sufficient to pave the way for a compromise being reached.
From the perspective of the Commission – and at least certain parts of the business community – the rationale behind implementing a CCCTB is clear. Harmonising the different methods with which EU businesses of a certain size calculate their tax-base could represent a significant reduction in compliance costs. Similarly, the manner in which the consolidated taxable profits of a group would be shared out between its individual companies in accordance with the so-called “apportionment” formula could increase overall amounts of revenue drawn from Multi-National Enterprises (MNEs). This latter point in particular chimes with the objectives of international tax reform being driven largely by the Organisation for Economic Cooperation and Development (OECD).
For certain Member States within Council, the risk remains that implementing the reforms could result in a narrowing of their own domestic tax base . Recognising this, the Commission has decided to split the CCCTB into its composite parts, in a bid to take the fear factor out of proceedings. The consolidated elements will only be dealt with once political agreement has been reached on the terms of a common tax base.
Elsewhere, anti-tax avoidance measures still feature heavily; clamping down on aggressive tax avoidance remains a priority of the Commission, hence the inclusion of a switch-over clause here, as well as new limits on the amount of debt interest that can be written off against one’s corporate tax liability. Avid tax policy watchers will note that both touchstone issues in the debate on the Anti-Tax Avoidance (ATA) Directive. The former was stripped from the eventual compromise, and the measures affecting the latter were heavily watered down, so it is interesting to note that the Commission has seen to fit to re-introduce them here, so soon after they proved so controversial for Member States just a few months ago.
The Commission is keen to make the CC(C)TB as pro-business an initiative as feasibly possible, so as to bring Member States onside. Never short of ambition, the claim is that it will improve the efficiency of the Single Market for businesses, combat tax avoidance, promote R&D levels (particularly for start-ups), and thus ultimately support economic growth, jobs and investment in the EU.
However, some of the finer details behind these laudable aims may remain unpalatable for Member States. Furthermore, although the Commission has acknowledged certain concerns by splitting the proposal into two – the CCTB (first step) seemingly being comprised of the more straightforward elements – it appears it still contains a sufficient number of controversial elements to provoke heated debate within the Council. The anti-tax avoidance measures alone could be enough to de-rail any hopes of rapid progress on the legislative front here.
Nevertheless, the Commission hopes that by first, building consensus within the Council on the CCTB, the momentum generated by such an achievement could be sufficient to override any lingering concerns certain Member States have with the consolidated part of the package. Working in their favour is considerable appetite from the public for comprehensive reform in the field of taxation, derived from contextual events such as the release of the so-called “Panama Papers” earlier in the year.
The Commission hopes the calls for change will be too loud to ignore, and force Member States to concede and adopt some of the more ambitious elements here. While this is undoubtedly an opportune moment to pursue such a strategy, the initial response to the proposal’s release is that it has erred a little too much on the aggressive side for a compromise to be reached any time soon.