On Wednesday the European Commission re-launched its Common Consolidated Corporate Tax Base (CCCTB) proposal. It also published a first pan-EU list of third-country non-cooperative tax jurisdictions and launched a public consultation to assess whether companies should have to publicly disclose certain tax information. The Commission also said that studies show that in the European Union (EU) "multinational companies pay on average 30% less tax than their domestic competitors. Corporate tax avoidance can result in SMEs carrying a heavier tax burden, as governments compensate for the revenue losses."
Under CCCTB, companies would use just one EU system to compute their taxable income rather than dealing with the rules in the 28 different member states, saving businesses up to €1bn annually in in administration and compliance costs administrative costs.
The Commission said around 70% of all profit shifting is done through transfer pricing and the location of intellectual property (see section on transfer pricing). "It is therefore important to improve the way companies determine their intra-group prices and to make sure that lower tax rates for intellectual property (brands and patents) are linked to where the underlying Research and Development (R&D) activity takes place."
It added that certain preferential tax regimes allow companies to shift profits away from where their real activities are based, in order to benefit from a lower tax rate in another country. "Patent Boxes —
In 2014, Member States agreed a non-binding new approach on Patent Boxes to ensure fairer tax competition. Under this new approach, companies should only enjoy a lower tax rate if their R&D activity is linked to the country that offers it.
The Commission will provide guidance to Member States on how to implement this new approach and monitor their progress. If, after 12 months, Member States are not properly applying the new approach, the Commission will propose binding legislation instead."
National tax authorities will also have to be more transparent about their corporate tax rules, making it difficult for large companies to arrange secret deals with governments.
The Commission said that it has no intention of interfering with Member States' sovereign right to decide their statutory tax rates.
Both Ireland and the UK opposes CCCTB and the re-launched plan proposes first to establish a common set of rules and only later introduce the main proposal where corporate tax revenues would be redistributed across the region according to where the companies' real economic activity occurred.
Pierre Moscovici, commissioner for Economic and Financial Affairs, Taxation and Customs, in a comment on a recent trip he made to Ireland, said: "I could see that the present text was a non-starter but that there could be room for discussion on this two-step approach."
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