eunbil · GT0N1356 · 2006-06-02 00:00:00 — COMMISSION OF THE EUROPEAN COMMUNITIES COM(2006) 157 final COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Implementing the Community Programme: Progress to date and next steps towards a Common Consolidated Corporate Tax Base (CCCTB) COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE: Progress to date and next steps towards a Common Consolidated Corporate Tax Base (CCCTB) Progress to date ............................................................................................................ Objectives of the work in the ............................................................. Achievements in the .......................................................................... The next steps............................................................................................................... The link between international accounting standards and the tax base ....................... Optional versus compulsory tax base........................................................................... Work Programme beyond 2006 ................................................................................... Summary work programme of the CCCTB WG...................................................................... Summary details of technical progress to date in the CCCTB WG ......................................... The Strategy is intended to play a key role in achieving competitiveness, growth and jobs in the EU. Eliminating tax obstacles such as high compliance costs for cross-border operations and transfer pricing and the lack of cross-border loss compensation in the internal market can contribute to these goals. The Common Consolidated Corporate Tax Base (CCCTB) would significantly reduce the compliance costs of companies operating across the internal market, resolve existing transfer pricing problems, allow for the consolidation of profits and losses, simplify many international restructuring operations, reduce some of the complexities arising from the co-existence of the classical and exemption approaches to international taxation (without extending into the personal tax field), avoid many situations of double taxation and remove many discriminatory situations and restrictions. The CCCTB would contribute to greater efficiency, effectiveness, simplicity and transparency in company tax systems and remove the hiatuses between national systems. Since 2001, when the Communication 'Towards an internal market without tax obstacles: A strategy for providing companies with a consolidated corporate tax base for their EU-wide activities' (COM(2001) 582) was issued, it has been European Commission policy to work towards providing companies who operate in more than one EU with a CCCTB. This policy was confirmed in 2003 in the Communication 'An internal market without company tax obstacles: achievements, ongoing initiatives and remaining challenges' (COM(2003) 726). In 2004, following an encouraging discussion at the informal meeting of the in under the Dutch Presidency, where a Commission Non-Paper 'A Common Consolidated EU Corporate Tax Base' was presented, the (CCCTB WG) was established. In October 2005 in the Communication 'Implementation of the Community Programme The contribution of taxation and customs policies to the Strategy' (COM(2005)532) the Commission drew attention to the link between its work on the CCCTB and the Programme and committed itself to the political objective of presenting a legislative measure in 2008. In Parliament adopted a resolution1 (the 'Bersani Report') on 'The taxation of undertakings in Union: a common consolidated corporate tax base' and in February 2006 Economic and issued an opinion2 on the 'Creation of a common consolidated corporate tax base'. Both of these were supportive of the Commission's work in this area. 1European Parliament resolution on taxation of undertakings in Union: a common consolidated corporate tax base (2005/2121()) 2Opinion of Economic and of a common consolidated corporate tax base in the EU (Explanatory Opinion) ECO/165 14 February 2006 In the Commission outlined a method of addressing some of the specific tax problems of small and medium-sized enterprises in the short term. 'Tackling the corporation tax obstacles of small and medium-sized enterprises in the Internal Market - outline of a possible Home State Taxation pilot scheme' (COM(2005) 702) contains full details of the scheme and encourages Member States to consider this pragmatic and modest initiative in a constructive and open spirit. has the dual purpose of reporting on progress to date and of drawing attention to those areas where further political support and direction is desirable without seeking commitments from Member States to the legislative proposal. 2.1.Objectives of the work in the In line with the objectives and the of the CCCTB WG in 2004, the guiding objectives of the work are: to find ways to remove corporation tax obstacles to the efficiency and smooth functioning of the internal market, to reduce administrative burdens on companies and tax administrations alike, and introduce simple and transparent rules, to identify possible elements of a common consolidated tax base which improve the international competitiveness of European companies and which meet the economic requirements of the 21st century, and to ensure that Member States are able to preserve their legitimate financial interests, notably by curtailing the scope for tax evasion and fraud. The overall approach to the work since its formation has been in line with that discussed in the original Non-Paper which was presented to the informal ECOFIN meeting in and which led to the creation of the . the purpose is not to change the current level of taxation, all Member States should be encouraged to participate in the process, International Accounting Standards and International Financial Reporting Standards (IAS/IFRS) should be used as a tool for defining the base, the work should be guided by an established set of tax principles, to reflect the objectives. The level of taxation has not, and will not, form part of the discussions since this would involve discussion of the tax rate and the Commission does not intend to extend the work on the base to include the rate. If the new base is broader or narrower than some Member States' existing tax bases then the existing level of taxation could be maintained by Member States amending their tax rates. Nevertheless, the Commission will study from a qualitative and quantitative standpoint the possible impact of the CCCTB on tax revenues and their predictability. Participation by Member States in the WG has so far been encouraging. All Member States have participated in the WG meetings, although it is acknowledged that participation does not necessarily imply support for the concept of a CCCTB. Nevertheless, the technical input received from all experts has been appreciated and taken into account. 2.2.Organisation of the Working Group The CCCTB WG meets quarterly, chaired by an official from the Taxation and Customs Union Directorate-General of Commission, and is composed principally of experts from administrations, but is extended on an ad hoc basis to include experts from business and academia. The work of the CCCTB WG is fully transparent and can be followed via a series of dedicated web pages3 which contain details of the WG meetings and the working documents. At the first meeting of the a tentative work programme was agreed. As shown on the chart in 1, four main categories of work were identified: Structural technical elements of the tax base, Structural legal aspects, and Consolidation at group level and allocation of the tax base. The first two categories are common to any tax base the relation (if any) to financial accounts and the principles, and the structural 'blocks' are found in all tax systems. The second two categories concern aspects which are not found in all tax bases and are therefore new to some, if not all, Member States the legal aspects of a consolidated base, and the actual consolidation technique and allocation mechanism to share the base between the Member States. The final items on the chart are self explanatory the legislation itself and the associated impact assessment. The approach taken has been for Commission staff to introduce at each meeting at least one new subject for discussion by preparing a working document. Depending on the complexity of the issue a sub-group of experts from a number of Member States may then be formed to meet separately to deepen the analysis, chaired by an expert from a . The sub-group reports back periodically to the so that all experts are kept informed of progress. This working method allows for maximum technical input from experts. In the course of 2004 and 2005 four sub-groups were set up. 3Available on the following web-page: . At the first meeting of the , the tax principles that should guide the work were discussed and these preliminary discussions have provided a framework for the ongoing work on the structural elements. No sub-group was deemed necessary but the tax principles were re-visited at a subsequent meeting and are likely to be discussed again in future meetings. Regarding the structural technical elements of the tax base, four main blocks of issues have been discussed so far: (1) Assets and their depreciation, (2) Reserves, provisions and liabilities, (3) Taxable income and (4) the International aspects of the CCCTB. For each of these structural elements a dedicated sub-group has been set up, most of which have already met on several occasions. Each sub-group has been (or in the case of the second two sub-groups, are expected to be) able to identify some areas of the structural elements it is examining where there is likely to be broad agreement on how it should be taxed or relieved from taxation. Each has also identified areas where there is clearly more than one possibility, and experts are currently divided over which one is preferable. indications from the latest sub-group, concerning international aspects, suggest these issues are particularly wide-ranging as they concern relations with third countries and potential implications for existing bilateral double tax conventions. Issues specific to the CCCTB, such as the consolidation and the allocation method, have not yet been addressed in the but, because these are closely linked to the base, the Commission considers that the should begin work on these issues later this year. It should be noted that although there may appear to be fewer of these issues they are extremely complex, and will require significant work, not least because they represent areas beyond the traditional elements of a tax base. The format of the CCCTB WG and the Work Programme seem robust and the output will be useful to the Commission when work starts on the Impact Assessment and the legislative proposal itself. It is often stated that company tax bases across the EU have become broader in recent years as special tax incentives have been reduced. This makes the tax base simpler and more transparent, and hence efficient and neutral (in the sense that the fewer special regimes and incentives there are the more neutral the base is) and also allows the same amount of revenue to be raised with a lower statutory tax rate. As work progresses on the CCCTB it is becoming evident that the new base will work best if it maintains this momentum, i.e. it should be uniform and represent an overall simplification and broadening of the corporate tax base. Overall the initial Work Programme provisionally agreed at the first meeting remains valid. It is the intention of the Commission that the work of the first four sub-groups (on Assets and Depreciation; Provisions, Reserves and Liabilities; Taxable Income; and International Aspects) should be broadly completed by the end of 2006. It is also planned to start work on three further elements in 2006: first, consolidation; second, the mechanism for sharing the common consolidated tax base; and third, the structural and legal framework which covers the administrative framework, audit arrangements, legal interpretation and court procedures. The work will take into account the specific situation of small and medium-sized enterprises. 3.2.The link between international accounting standards and the tax base Although work on the CCCTB might be more straightforward if all companies, in all Member States, were permitted to use IAS/IFRS and therefore there were a single starting point for all companies, the Commission accepts that currently this is not the case. Given the importance of the CCCTB for the Programme, the Commission cannot delay work on the CCCTB pending any future harmonisation of company accounting. Furthermore, the CCCTB WG is a technical group of tax experts and its role is limited to technical tax matters. The rules governing the content of the CCCTB will be applicable whether, at the national level, the starting point for companies preparing their tax accounts is accounts prepared in accordance with IAS/IFRS or national accounting standards. IAS/IFRS will therefore be used only as a tool in designing the base because they provide a common language and some common definitions. In particular, elements of these international standards which do not suit the CCCTB will not be imported into the CCCTB and there will be no direct formal link to the constantly changing standards (IAS/IFRS). The Commission, Parliament and Economic and are convinced that the base should be introduced from the beginning as a consolidated tax base and accordingly, as outlined in the original CCCTB WG work plan, work will commence on consolidation during 2006. Although ambitious, this approach will bring the greatest benefits to the Internal Market and contribute most to the goals. The alternative of a two-stage process, first a common base without consolidation and second a consolidated base, does not address the problems associated with a lack of cross-border loss relief, nor does it simplify the existing difficulties of transfer pricing. Additionally, unless work is directed towards a consolidated base there is a danger that consolidation may be made more difficult in the long term if, for example, a lower level of common treatment of certain structural elements, or methodologies, is accepted. Indeed, it is difficult to identify many advantages from simply introducing a 'common' base to operate independently in each which might, over time, to twenty five different bases as national interests prevail over the interests of the internal market as a whole. Work on the mechanism to share the consolidated base between Member States will also be necessary. This can be carried out concurrently as the technical issues are relatively independent, and from a resources point of view will demand different expertise and skills. Indeed some preliminary work has already been carried out internally by Commission staff on possible mechanisms such as formula apportionment. 3.4.Optional versus compulsory tax base The Commission, together with Parliament, also continues to believe that the CCCTB should initially be proposed as optional for companies given that the primary goal is to improve the operation of the internal market rather than domestic economies. Not all companies operate in more than one and there is no need for such companies to change their tax base. While the simultaneous operation of two corporate tax bases the CCCTB and the national tax base admittedly may raise specific issues for tax administrations, it is also the Commission's view that an optional CCCTB is more likely to gain the support of all Member States and of business than a compulsory CCCTB. For enterprises, using only one tax base rather than up to twenty five will be much simpler. Designing the CCCTB as optional also creates an incentive for its design to be as competitive as possible, simple and uniform across the EU, although care will be needed to ensure that State Aid rules are not infringed and that appropriate antiabuse rules are introduced. 3.5.Work Programme beyond 2006 Beyond 2006, planning is subject to the rate of progress achieved in the CCCTB WG. At the beginning of 2007 a further 'progress report' is planned. At the same time, work on tax incentives and anti-avoidance could start with a view to work being broadly completed by the end of 2007. During the year, work on consolidation and the sharing mechanism could be broadly completed and the process of 'revisiting' the elements already discussed could be started. This would enable the Commission to complete the work and present a comprehensive Community legislative measure at the end of 2008. It should be noted that the term 'broadly completed' is deliberately used: no final agreement will be sought until work on all the structural elements has been completed. Even then, as the CCCTB WG is a technical expert group it will take no formal decisions. However, a 'second round' of discussions on the structural elements will need to take place within the WG before legislative drafting begins to ensure that the work on individual elements fits together in a coherent and satisfactory overall approach. Internally, the Commission is committing the necessary resources to meet the ambitious work programme set out in this Communication with a view to being able to present a legislative proposal in 2008. Externally, the has been established and provides the necessary mechanisms for discussions with experts from administrations, business and academia. However, it is a challenging exercise and, if it is to be achieved, more commitment, from more Member States, will be required. Although good initial progress has been made in a number of areas, there are three possible areas of First, there is a tendency for some experts to primarily defend aspects of their current tax system, rather than to seek a solution which could be applicable across the whole EU. Second, there is a tendency to either postpone discussions on more 'difficult' elements or to seek to maintain two different solutions for each issue by suggesting that an element of choice may be maintained. Third, there is a growing discrepancy in the amount of resources which Member States are committing to the work which, given the ambitious timetable, may lead to delays in implementing what is a fundamental part of the strategy for achieving the goals. Whereas it may be understandable that experts prefer 'what they already know', and argue that since it has worked domestically for many years there is no reason to change, this hampers progress in designing a common tax base. It is precisely because there are so many differences between the existing national rules that there is a need for a single common solution. If each were to insist on retaining its own existing rules then there could be no common base in brief adopting a common base necessarily means changes to the existing domestic computational rules. In this context, it is essential to use the development of a new common tax base as an opportunity for economic reform by striving for a modernisation and simplification of tax rules. Similarly, the need to make some initial progress has understandably led to the postponement of discussion of some issues, in order not to delay matters. However, this cannot continue indefinitely. importantly, it is not desirable to 'compromise' by permitting for each issue two quite different technical solutions to co-exist as national options as this will not lead to the full benefits of simplification. When a group of companies operates in several Member States it is important that they are able to adopt a common approach to complying with tax requirements it will not be very helpful if they still have to comply with different requirements depending on where they operate. Should such 'options' extend beyond computational methodologies into the actual tax treatment of certain transactions then not only is simplicity sacrificed but in addition difficulties will arise in the consolidation process as mentioned above. As the work on the CCCTB accelerates, the demands on staff resources increase. The political priority given to achieving the objectives, to which the CCCTB will make an important contribution, should be reflected in the allocation of staff resources. The Commission has responded by allocating additional staff to the project and some Member States have done the same. The advantages of a specialised team are clear and providing adequate resources will enable everyone to fully participate in the project. The early work on each structural element of the tax base necessarily involves a degree of 'information gathering' but there is a risk that those who devote insufficient resources to the project will be less satisfied with the eventual Commission proposal than those who have been more actively involved. The choice of individual experts who attend each and sub-group meeting has deliberately been left to Member States to enable them to call on a range of experts with expertise in the particular aspect of the tax base under discussion at any given meeting. The Commission recognises that on some issues technical experts are not in a position to support work on a particular element without further higher level or political support. therefore has the dual purpose of reporting on progress to date and of drawing attention to those areas where further political support and direction is desirable. It is recognised that Member States will not be able to make a final decision on whether or not to support the CCCTB until a formal proposal has been presented by the Commission but clear support for the general concept and work programme is essential for progress to continue. Although the definition of the CCCTB can be conceptually inspired by corresponding international accounting standards (IAS/IFRS), no formal link between the two should be established, because not all companies are able to use IAS/IFRS and the standards change frequently. The CCCTB legislation should therefore be a self-standing document containing all the necessary definitions for determining taxable profits. The initial work programme for the CCCTB, which envisaged a tax base optional for companies, with consolidation, and shared between Member States, remains the best approach to achieving the implementation of the CCCTB and the consequent contribution to the goals. Without prejudging future political decisions, technical work should therefore progress along these lines. The current approach of working in close cooperation with experts is the best way of ensuring that the Commission's eventual legislative proposal will be acceptable to Member States. In this way Member States can participate in the work without making a premature or final commitment to the CCCTB. Cooperation with business and academics, as illustrated by the 'extended format' meeting of the in , is also useful. Reasonable progress towards the CCCTB has been made with good input from experts in the . The quality of further work will depend on the involvement of Member States and Commission alike. The introduction of a simple, modern and transparent common consolidated tax base will necessarily involve each making some changes otherwise the benefits of a common base will not be realised, hence the importance of openmindedness and flexibility by all participants in this process. The Commission would welcome political support and direction from Member States for the above conclusions. SUMMARY WORK PROGRAMME OF THE CCCTB WORKING GROUP CCCTB summary of work programme and progress to date Implications and use of IAS/IFRS(1)