Efforts to rid the European Union of the massive confusion caused by having its enterprises dealing with 27 different corporate tax systems could now come into effect as early as 2010.
This could bring relief to companies operating across at least some of the borders of the single European market. For years, multinationals have suffered high compliance costs, as well as the burden of being double-taxed, as a result of the EU's complex framework of taxation.
As a result, companies become discouraged from investing and operating across the internal borders, maintained EU Commissioner László Kováks, who has attempted to reform the EU's corporate taxation system for the past six years.
Kováks indicated that a new plan, scheduled to appear in mid-May at an EU conference on taxation in Berlin, would push towards the production of a harmonized common consolidated corporate tax base as early as next year. "If we manage to get a decision on enhanced cooperation, [another] two years would be enough for implementation. So it could start working in 2010," he said.
This is all part of a two-pronged strategy that Kováks has been describing publicly for months. The strategy would eventually lead to the CCCTB - which would eliminate most of the tax obstacles faced by EU firms when operating across borders.
Kováks described the "consolidated" element of the proposed package as important, because it will help to resolve problems created by the absence of cross-border loss relief. It will also help sort out the complexities of applying various pricing methods to transactions between companies of the same group within the EU. "We have to design a method of 'sharing out' the consolidated base between member states for them to tax at their chosen rates, but I firmly believe that we will be able to design a method that is simpler than the current one," he said.
In the face of fierce opposition from a number of EU national governments, who fear a compulsory new tax base for all EU companies, Kováks emphasized that his office wanted the common base to be optional.
He also explained that the commission was not proposing a single tax base. Companies that opted for the CCCTB would have that as their single tax base. "We will be proposing a tax base which member states must make available to eligible companies who wish to choose it. However, whether member states continue with their existing tax base alongside the CCCTB would their decision," he said.
The European Parliament for one, welcomed the reform push. The parliament's rapporteur on cross-border tax losses, Finnish MEP Piia-Noora Kauppi, supported the acceleration of the reform. She praised the use of treaty provisions to enable enhanced cooperation between a group of countries, "as this does away with the concerns of the usual member states preaching tax sovereignty."
SOME SEE PROBLEMS
U.S. multinationals working across Europe want to see what they called a "competently compiled" CCCTB package.
AmCham EU, the American Chamber of Commerce to the European Union, gave the proposal a lukewarm approval. However, it warned of such scenarios as U.S. tax provisions clashing with those of the EU member states. It also said that if overbearing provisions were to find their way into the CCCTB, it would become less viable for U.S. multinational companies to invest in the EU.
Meanwhile the European Banking Federation highlighted problems of the provisions that applied to apportioning tax revenues. The need is to compute (on a common basis) a consolidated tax base (i.e., a tax base aggregated for the entities, which are part of a group) and to allocate this tax base between the interested member nations for calculation for their share of corporation tax. At press time, this issue remained unresolved.
Also still in the pipeline is a provision to cover the allocation of taxes to non-CCCTB countries in the EU and in the rest of the world, such as to the U.S. Currently, U.S. multinational transactions follow rules from the Organisation for Economic Cooperation and Development. Stella Raventos-Calvo, of the Conféderation Fiscale Européenne, pointed out that success with apportionment rules would put Europe in contrast with the U.S., where domestic apportionment rules are done on a state-by-state basis.
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