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EU proposal for a Common Consolidated Corporate Tax Base

By Elena Christodoulou
For several years, the European Commission has been attempting to introduce a Common Consolidated Corporate Tax Base (CCCTB), a common tax scheme which would create a single set of rules across the EU for how companies operating there calculate their taxes.

The proponents of the scheme argue that it would eliminate differences in how individual countries treat various transactions, thereby simplifying business.

It would also eliminate opportunities for what is known as “tax arbitrage” by multinational businesses, which is the practice of profiting from differences between the way transactions are treated for tax purposes, for example by recognising revenues in a low tax country while recognising expenses in a high tax country.

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The European Commission’s first proposal for a CCCTB, which was published in 2011, failed to gain sufficient political support to be carried through into legislation.

In October 2016, the Commission launched a revised CCCTB proposal, based on a two-stage approach, following an agreement by the EU Council of Ministers that a common (non-consolidated) corporate tax base should be a precursor to the full CCCTB.

The Commission’s June 2015 Action Plan for a Fair and Efficient Corporate Tax System in the EU was based on two proposed directives; namely a directive establishing a common corporate tax base (CCTB), and a directive on a common consolidated corporate tax base (CCCTB).

The 2016 proposal is much less coy than the original 2011 proposal about its principal purpose, which is to eliminate opportunities for tax arbitrage.

The 2016 rules are intended to be mandatory for large multinational groups, which the proposal describes as “having the greatest capacity for aggressive tax planning, making certain that companies with global revenues exceeding EUR 750 million a year will be taxed where they really make their profits”.

Countries such as Cyprus, Ireland and Luxembourg have been wary of the CCCTB initiative view of the role that their tax system and tax rate play in attracting investment.

However, their ability to resist the proposal will be severely harmed by Brexit, as the United Kingdom was the largest and strongest opponent of the CCCTB.

Elena Christodoulou is Advocate/Associate in the Commercial and Corporate law department at Elias Neocleous & Co LLC

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