The EU Commission has published an action plan entitled “A fair and efficient corporate tax system in the European Union: 5 key areas for action”.
This plan sets out core areas of work for the immediate, medium and long-term future. The 5 areas are:
The harmonisation of tax rates is not one of the core areas.
The area of work which will attract the most interest is likely to be the revival of the proposal to create a common consolidated corporate tax base (“CCCTB”). This proposal was not universally welcomed by Member States when it was last discussed. Nevertheless the Commission believes that the proposal could be highly effective in tackling profit shifting and corporate tax abuse in the EU and that the time is right for the proposal to be raised again. The possibility of manipulating transfer pricing would be removed as intra group transactions would be ignored and the consolidated group profit figure shared by a formula. The Commission, perhaps recognising the political difficulties, describes the proposal as an “ambitious initiative” and is advocating a step by step approach to agreeing different elements of the proposal. In particular, the element of consolidation is recognised as the most difficult aspect of the proposal and the Commission proposes that work on consolidation is postponed until the common base has been agreed and implemented.
The Commission will also propose that until full CCCTB consolidation is introduced, group entities should be able to offset profits and losses they make in different Member States. However there would also be a mechanism to recapture losses once the group becomes profit making again. The Commission plans to include this initiative as one of the stages in its revised proposals on the CCCTB.
This Commission proposal has clear overlaps with the work being done in the OECD BEPS project. It will be interesting to see how these proposals develop in the future.
Post-script: According to the Guardian, David Gauke, financial secretary to the Treasury, has told EU Parliament representatives that the UK would not adopt the Commission’s proposals for a consolidated tax base. It seems that the UK favours tax competition.
