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The European Commission, in September, is to present experts in member states with an outline of the future directive intended to create a common consolidated corporate tax base (CCCTB)(1). At this stage, it is only the preliminary version of the Commission's promised legislative proposal. "But we can start working on something concrete," explained a diplomat. That said, the final text is not expected to be approved by the college of commissioners before July 2008, at the earliest, contrary to a recent optimistic announcement by Taxation CommissioneraLaszlo Kovacs that the legislative proposal would be ready for the first half of 2008. Before that time, the member states' economic and finance ministers will again have to debate this enormously complex subject during their next Council on 5 June, because there is no getting away from the fact that numerous technical questions still need to be resolved, as recalled by tax experts invited to an international conference on the CCCTB in Berlin on 15 and 16 May.


The Commission favours an optional system, a principle, supported by numerous stakeholders, whereby member states will agree to adopt the CCCTB but companies themselves will be free to adopt the common tax base. "It's crucial," insisted Kristen Andersson, a Swedish employer. "It will mean that member states can choose the tax regime that suits them the best and it will also benefit SMEs, which can keep the existing system". And even if the CCCTB were to be compulsory, "the system could remain optional [in practice] for large companies depending on their size and legal structure," explained Malcolm Gammie of the UK, former winner of the Queen's Counsel' award. And yet, this option also received opposition. A representative of the Austrian minister of finances recalled that the CCCTB principle should remain simple in its application and yet "if it were to be optional, this would make it more complicated". Christian Comolet-Tirman from the French Finance Ministry, member of the CCCTB working group, commented that "it could lead to competition between national systems and the common tax base". Wolfgang Schon from the Max Planck Institut feels that "companies' management costs would go up" since they would have to make comparisons to evaluate the best scenarios between CCCTB and existing national systems.


As a reminder, the Commission favours the idea of a common consolidated tax base(2). The principle is largely supported by the business world. "Consolidation will hold the CCCTB together. Since, if we opt for a common tax base without consolidation, we are in danger of having 27 different tax bases," stressed the Swedish employers' leader. But member states were not unanimous on the principle. Although in favour of consolidation, Bruno Gilbert, chair of the EU Joint Transfer Pricing Forum(3), feels that a common tax base without consolidation will not necessarily create insurmountable problems with transfer prices. But he added that he could imagine a scenario with a common tax base on one side, and all the agreements on transfer pricing on the other, which would more or less balance the lost advantages of the consolidated common tax base. Should the principle of a consolidated base finally be adopted, Professor Christoph Spengler raised numerous questions during the Berlin conference. Which group would be subject to consolidation? What criteria will be used to determine what constitutes a group? Which exceptions will not be subject to consolidation (forecasts, deductible expenditure)? Another subject for discussion is the breakdown mechanism that should be used to ensure a fair split of tax revenue between the country in which the mother company is based and the other member states where subsidiaries of the same group are based.

Tax procedure: how it will work

The administrative questions caused by the creation of the CCCTB are still very much at the heart of the debate. Moreover, the answers to these questions will not be found in the body of the future directive but will fall under the application clause' at a later date. At this stage, the representative of the German Federal Finance Ministry and Mathias Mors (on behalf of the Commission) have set out the most likely tax procedure for CCCTB. National authorities will initially determine whether or not a group fits the CCCTB criteria. The mother company will then submit a tax declaration in the country where it is based. Audits will then be carried out by the tax authorities in the same country in partnership with the tax authorities of member states where the group's subsidiaries are based. The amount of company tax may be determined by the companies themselves, as is already the case in France. Of course, it will be necessary to establish an appeal procedure in the event of contests. "We will need a body to resolve the numerous disputes that are bound to arise," insisted the German civil servant. It will therefore imply the creation of a standing committee' made up of member states and presided by the Commission. This committee would "guarantee consistency in interpreting the directive," explained Mathias Mors, since the EU Court of Justice is not able to resolve disputes in a hurry. The standing committee will be able to adopt decisions with a qualified majority, and failing that, the dispute will be settled by the Council. In the event of a deadlock, the Commission will take the final decision. Interesting to note also is that several participants called for the creation of a tax chamber' attached to the ECJ in Luxembourg.

(1) A tax base allows companies to calculate taxable profit which is then subject to a certain tax rate.

(2) Consolidation is a legal requirement for all companies with control of other companies to present a global view of their financial situation by means of a balance sheet of all profit and loss accounts

(3) Transfer prices are the prices used by companies to transfer tangible and intangible assets, or when they provide services to associated companies.
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Title Annotation:European Commission
Publication:European Report
Geographic Code:4E
Date:May 22, 2007

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