Did you hear about the Common Consolidated Corporate Tax Base?

01 November 2016

Whilst not widely reported in the UK mainstream media, on 25 October 2016  the European Commission (“EC”) published legislative proposals to relaunch its Common Consolidated Corporate Tax Base (“CCCTB”). 

The CCCTB is not a new concept and whilst fiscal consolidation is not currently proposed one could (and Brexiteers will no doubt) take the view that this is the precursor to an EU wide federal/state tax regime and eventual monetary union? 

The published proposals follow previous proposals in 2011 for an optional CCCTB  which did not progress due to lack of support from member states. The relaunch introduces a two step approach where member states first agree on rules for a Common Corporate Tax Base (“CCTB”) and thereafter how this should be consolidated. The EC intend that the CCTB proposals would apply from 2019 and the CCCTB proposals from 2021.

Unlike the 2011 proposals, the new rules would be mandatory for all groups with global consolidated revenues of EUR750m (which is the same for country by country reporting). The rules would apply to business carried on through EU resident companies and permanent establishments even if the group is headquartered outside of the EU. The system would be optional for other companies.

Members states will remain free to set their own local corporation tax rates on their share of the consolidated tax base.

The main focus of the new proposal has switched from the objective of simplifying compliance (although the EC still believe compliance costs will be reduced) to countering tax avoidance within the EU. One of the intentions is the removal of transfer pricing considerations on transactions between member states.

In 2011 the UK (along with Ireland, Sweden, Malta and the Netherlands) objected to the proposals and whilst still an EU member will no doubt continue in opposition. The regime will require the unanimous agreement of all EU member states before it can be implemented which will be challenging within the project timeframe. To put this in perspective it  has been reported that the Danish Tax minister would consider leaving the EU over a CCCTB plan.

From a Brexit perspective whilst the UK should not be directly impacted by the proposals, the regime would apply to EU subsidiaries of large UK headquartered groups. It will therefore be interesting to see how UK legislation is amended to deal with EU permanent establishments e.g. might  there be an EU branch exemption based on the EU tax return. Transfer pricing will still be in point for UK to EU related party transactions, so how will disputes between the UK and the EU be resolved. Will the EC be the competent authority?

Clearly implementation of the new rules would be a complex exercise. Notwithstanding the implementation costs for business there would be both winners and losers. A “soft” Brexit could perhaps enhance the UK’s position as an EU gateway where it is legitimately possible to avoid creating an EU based permanent establishment.

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