The European Commission proposed on 16 March 2011 a Directive (COM 2011/121) on a Common Consolidated Corporate Tax Base ("CCCTB") (the "Proposed Directive").
An optional common system for calculating the tax base
The Proposed Directive provides for a common system for calculating the tax base of businesses operating in the EU. It only involves the computation of the tax base and does not interfere with financial accounts (e.g., annual or consolidated accounts) which remain unaffected. Significantly, the Proposed Directive does not include a common corporate tax rate which remains within the discretion of the individual Member States. However, developments towards the harmonization of corporate income tax rates might well be an indirect effect of the Proposed Directive.
The CCCTB is a system of common rules for computing the tax base of companies that are tax resident in the EU and of EU-located branches of third-party countries. The CCCTB provides for rules to compute each company's (or branch's) individual tax results, the consolidation of those results if there are other group members and the apportionment of the consolidated tax base to each eligible Member State. The CCCTB is an optional system and does not force companies which do not plan to expand beyond their national territory to bear the cost of shifting to a new tax system.
One-stop shop and one single tax return
Under the CCCTB, groups of companies that opted in, will be allowed to apply a single set of tax rules across the EU, will deal with only one tax administration ("one-stop shop") and will only have to prepare one single tax return. When a company opts for the CCCTB, it will cease to be subjected to the national corporate tax arrangements in respect of all matters regulated by the Directive.
On the basis of the single tax return, the company's tax base will be shared out amongst the Member States in which it is active, according to a specific formula. This formula will take into account three factors: assets, labour and sales. After the tax base has been apportioned, Member States will be allowed to tax their share of it at their own corporate tax rate.
Benefits: cross-border loss compensation and reduction of compliance costs
Businesses operating across national borders will benefit both from the introduction of cross-border loss compensation and from the reduction of compliance costs. The CCCTB allows for the immediate consolidation of profits and losses for computing the EU-wide tax bases.
According to a study by the European Commission on a sample of EU multinationals, on average approximately 50% of non-financial and 17% of financial multinational groups are likely to benefit from the immediate cross-border loss compensation. The same study shows a reduction of around 7% in compliance costs.
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