Friday, June 24, 2011
Law Street - Economic Times (June 2011) -CCCTB in the EU
We have seen the fall of the Berlin Wall, the emergence of the Euro, now what next? Perhaps we may see the CCCTB or CCTB in the years to come.
Currently, companies operating in the European Union may have one single currency to transact in, but they have to deal with 27 different tax provisions for calculating their taxable profits, and must file returns with the tax authorities in each EU country in which they operate. This is neither cost-effective nor tax-efficient.
Thus, on the drawing board is a proposal that will help them file just one tax return. The single consolidated tax return would be used to establish the tax base of the company, after which all EU countries in which the company is active would be entitled to tax a certain portion of that base, according to a specific formula based on three equally-weighted factors (assets, employees and sales). Each member country can levy its own tax rate against this base.
While Germany and France are fully supporting the CCCTB, other EU countries haven't jumped on this gravy train as yet.
You may read this column online in The Economic Times, by clicking here. Alternatively the article is pasted below. Happy Reading.
CCCTB, what on earth?
• EU’s CCCTB move is expected to reduce tax costs
• Even Indian companies with EU operations can opt in
• Not all EU countries are keen to jump on the bandwagon
The sentence reads: CDB. DBSABZB or rather: See the Bee, the Bee is a busy bee. ‘CDB’, is in fact a famous children’s book, first written by William Steign in 1968 and its popularity remains unabated. Thus, when I came across the word, CCCTB, I immediately had this vision of an overeager kid excitedly pointing to a bee in the garden. But what stand for is EU’s: Common Consolidated Corporate Tax Base proposals, which are now up on the drawing board.
Under the proposed mechanism, a company or group of companies would have to comply with just one EU tax system for computing their taxable income, rather than following different rules in each EU country in which they operate and would have to file a single tax return for the whole of their activity in the EU.
The single consolidated tax return would be used to establish the tax base of the company, after which all EU countries in which the company is active would be entitled to tax a certain portion of that base, according to a specific formula based on three equally-weighted factors (assets, employees and sales).
The objective of the proposed approach is to create the possibility for such companies to pool profits and losses among their EU group companies, minimize tax compliance costs and mitigate transfer pricing complexities. Currently, companies operating in the EU may have one single currency to transact in, but they have to deal with 27 different tax provisions for calculating their taxable profits, and must file returns with the tax authorities in each EU country in which they operate. This isn’t cost effective nor tax efficient. Besides reduction in compliance costs, by allowing the consolidation of profits and losses at EU level, the CCCTB would enable the cross border activities of businesses to be fully taken into account and would avoid over taxation.
Information available in cyberspace indicates that the EU Commission views that the CCCTB will save corporate groups across the EU something like Euro 700 million in compliance cost savings each year. In addition, by allowing businesses to offset losses in one EU country against profits elsewhere in the EU for tax purposes (i.e. consolidation), CCCTB could result in additional savings for companies operating in the EU of around Euro 1.3 billion.
In fact, the CCCTB proposals are proposed to include not just the blue-blooded (if one may use this term), but also covers companies established under the laws of a third country, such as India, that have similar legal forms and are subject to corporate taxation in at least one member EU country. Thus, if an Indian company has branches or subsidiaries in the EU member country, it could opt for the CCCTB in relation to its EU business activities.
The point to note is that CCCTB is optional. However, once a group of companies opts to use the CCCTB, the member companies are no longer able to utilize individual member country tax incentives. While Germany and France have supported the CCCTB movement, it has not enjoyed universal support, with current opposition from Ireland, UK, Netherlands, Bulgaria, Sweden, Poland, Malta and Romania.
A UK tax expert tells Zenobia Aunty, that member countries will continue to have the right to decide on their own corporate tax rates, as CCCTB deals with the tax base and not the tax rate. However, a member country could choose to apply a different tax rate for the CCCTB if its own national base was extremely different and it wanted to maintain the same effective tax rate (i.e. the real level of tax paid once the rate, base and various deductibles are taken into account). For example, if the CCCTB base were broader than the national base, the member country may choose to set a lower rate for the CCCTB to maintain the same effective tax rate. Or member countries could align their national bases close enough to the CCCTB in order to avoid having different rates for the two.
However, there is growing competition among countries to attract investments, be a good jurisdiction for housing of corporate headquarters. Take UK’s recent tax developments. It wishes to have a low tax rate among the G20 so as to attract foreign companies.
The competition is stiffening to capture more activity in one’s country by offering various sops such as low tax rates, full territorial taxation and so on. Given this, it remains to be seen how the final picture on the CCCTB will emerge, a common base and no consolidation may be a possibility, or some countries could join in and kick start the movement. For now, all one can say is let us wait and C (see).
Source of the picture
Posted by Lubna at 5:57 PM