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What will the future Common Consolidated Corporate Tax Base (CCCTB) directive look like? After reviewing, in our previous edition (see Europolitics 3384), the questions related to the legal basis, the scope and the definition of the CCCTB, we now sum up what the European Commission is proposing regarding the principle of consolidation(1)

In its preamble, the document sent to the member states' tax experts reiterates that one of the main benefits of the CCCTB is the introduction of balance sheet consolidation. By freeing companies from compliance obligations pertaining to rules on intra-group transfer prices (2) and by allowing the consolidation of losses in a similar way, this "would contribute to creating a highly attractive area in which to do business in Europe" and would help to secure a stable common tax base "in a competitive world environment".

Consolidation for groups of companies. The first clarification that must be made is that the consolidation would be compulsory for all companies opting for the CCCTB which have a qualifying subsidiary or a permanent establishment in another member state. Consolidation would then extend to the entire tax base of all taxpayers of a group at 100% of the tax base of all entities belonging to the group. A group could therefore be an EU-resident company and its subsidiaries. Consolidation would also concern permanent establishments (of a non-European company) located in two different member states or a group of companies and permanent establishments also located in at least two different member states. Also of note is that in order to qualify as a subsidiary, the subsidiary will have to prove that 75% (or more) of its voting rights are held by the parent company

Changes in the level of ownership. The Commission also suggests several scenarios when a subsidiary included in a group's consolidation changes ownership during the financial year or when a company joins or leaves the CCCTB.

Intra-group transactions. For the Commission, the tax base should not include the profits or the losses made during a intra-group transaction in the framework of the group consolidation.

Consolidation Methods. Firstly, it is important to reiterate that companies that belong to a CCCTB group have to consolidate their tax bases when their share of ownership reaches 75%. This implies neutralising intra-group transactions so that only transactions between the group and third parties and other non-consolidated group companies have any direct tax effect.

The Commission suggests two approaches: intra-group income and expenditure (other than that related to depreciable assets) could be either ignored completely or included by each group company and netted off when the consolidation is carried out.

Foreign income. The Commission believes that specific considerations will have to be adopted concerning arrangements existing with third countries in the form of common rules. These rules on foreign income would allow a balance in the need to provide an adequate level of protection to be found. It would also be a question of allowing member states to derogate these agreements temporarily in order to respect existing obligations under agreements with non-EU countries.

The mechanism for sharing the CCCTB, working document of the meeting on 13 December 2006:

Report and overview of the main issues that emerged

during the discussion on the sharing mechanism

SG6 second meeting - 11 June 2007:

(1)Consolidation is a legal obligation made by all businesses holding control over other businesses to establish their overall financial situation by balance sheets and outturn accounts.].

(2)Transfer prices are the prices at which a company transfers tangible or intangible assets, or when it renders services to associated companies.
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Publication:European Report
Geographic Code:4E
Date:Oct 4, 2007

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