EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 16.3.2011 
SEC(2011) 315 final 
. 
COMMISSION STAFF WORKING DOCUMENT 
IMPACT ASSESSMENT  
 
 
Accompanying document to the 
   
Proposal for a  
 
COUNCIL DIRECTIVE 
 
on a Common Consolidated Corporate Tax Base (CCCTB) 
  
{COM(2011) 121 final} 
{SEC(2011) 316 final} 
 
ELECTRONIC VERSION ONLY
 
 
EN 2   EN  
TABLE OF CONTENTS 
MODIFICATIONS FOLLOWING THE OPINIO N OF THE IMPACT ASSESSMENT BOARD
............................................................................................................................... .......4 
1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ...4 2. PROBLEM DEFINITION............................................................................................7 2.1. Background: the current institutional se tting for company taxation in the EU ............7 
2.2. The remaining tax obstacles in the Internal market......................................................9 2.3. Summary of the problems and the baseline scenario..................................................14 2.4. Subsidiarity and proportionality .................................................................................15 3. OBJECTIVES.............................................................................................................16 3.1. General objectives.......................................................................................................1 6 
3.2. Specific objectives ......................................................................................................1 6 
4. POLICY OPTIONS ....................................................................................................17 4.1. Description of the options...........................................................................................17 4.2. The choice of the legal instrument..............................................................................19 4.2.1. Recommendation and soft law....................................................................................19 4.2.2. Directive............................................................................................................... .......19 
4.2.3. Regulation.............................................................................................................. .....20 
4.3. Main design elements of the tax base .........................................................................20 5. ANALYSIS OF IMPACTS OF THE RETAINED OPTIONS ..................................22 5.1. Impact of the policy options on the size of taxable bases...........................................23 5.1.1. The impact of the common tax base pr ovisions unrelated to consolidation...............24 
5.1.2. The impact of consolidati on of profits and losses ......................................................26 
5.2. Impact on the distribution of the tax bases between the EU Member States..............27 
5.3. Impact on costs to tax administrations  and on compliance costs to firms..................32 
5.3.1. Member States tax administrations' costs ...................................................................32 5.3.2. Companies' tax relate d compliance costs....................................................................32 
5.4. Economy-wide impacts...............................................................................................37 5.5. Dynamic effects and impact on SMEs........................................................................42 
 
EN 3   EN 5.6. Social and environmental impacts ..............................................................................43 
6. COMPARISON OF THE OPTIONS .........................................................................44 7. MONITORING AND EVALUATION ......................................................................47 
Annex 1. Further details on the consultation process ...............................................................48 Annex 2. The framework of the acquis communautaire in the field of corporate income taxation 60 
Annex 3. The samples of EU-based multinational groups from the Amadeus and ORBIS databases
............................................................................................................................... .....63 
Annex 4. The European Tax Survey.........................................................................................90 Annex 5. The basic elements defining the compre hensive policy options consisting in a common 
consolidated corporate tax base ..................................................................................92 
Annex 6. The European Tax Analyzer....................................................................................100 Annex 7. The impact of corporate income tax reforms at the EU level on European business 
taxpayers: case studies from a sample of multinational groups operating in the EU103 
Annex 8. The tax experts' study on tax complian ce costs for businesses going cross-border – 
comparison of current situation and a situati on after reform at EU level of corporate 
income tax systems ...................................................................................................117 
Annex 9. The assessment of the possible administrativ e costs for national tax administrations in the 
EU linked to the implementation of reforms at  the EU-level of corporate taxation systems
............................................................................................................................... ...121 
Annex 10. The CORTAX model ............................................................................................129 Annex 11. CCCTB WG worki ng paper 4 and annex..............................................................140 
Literature references .......................................................................................................... .....174 
List of abbreviations and technical terms ...............................................................................176 
 
EN 4   EN MODIFICATIONS  FOLLOWING  THE  OPINION  OF THE  IMPACT  ASSESSMENT  
BOARD 
A draft of this impact assessment (IA) was submitted to the Impact Assessment Board and 
discussed at its meeting of 15 December 2010. In  its opinion dated 17 December 2010, the Board 
suggested some improvements of the draft IA-report. 
In its overall assessment, the Board recommended th at the IA report should cl arify that the analysis 
builds on a consultative process in which the re levant technical details  have been discussed 
extensively with Member States, st akeholders and tax experts. It also suggested that the report 
should explain that the specific impacts on indivi dual Member States depend largely on the way in 
which their governments decide to apply the Direct ive, and whether and how they adapt their mix 
of taxation instruments. In addition, it suggested th at the reduction of tax compliance costs should 
be prominently identified as the main objective  and analysis on this issue should be presented 
systematically throughout the whole report. Related to that , the report should improve the 
presentation of the quantitative evidence on the sc ale of the identified problems, or explain why 
certain data were unavailable.  
In order to take into account the recommendations  of the Board a number of changes have been 
made to the IA-report. In particul ar, it has been clarified that th e technical design  of the policy 
options were discussed extensiv ely in a consultative process involving Member States (MS), 
experts and stakeholders. A list of  the resulting working papers de scribing the technical aspects of 
the options as well as the current rules for the definition of taxable bases in the MS has been 
annexed, and references to the re levant papers added in the main  text. In addition, it has been 
stressed that there are no intended objectives in terms of revenue distributi on or revenue neutrality 
for MS behind the policy initiatives. The ultimate impacts will in fact depend on how the MS will react in terms of corporate tax ra tes, and the chosen tax mix, in wh ich domains they will in any case 
retain full sovereignty. The reduction in additi onal tax related compliance costs arising from 
international activity has been given the suggested relevance, and the presentation has been 
strengthened using available qualitative and quantitative evidence. The well known caveats that 
apply in the interpretation of survey data, as well as the problems in obtaining reliable quantitative evidence on this (and on the related issues of double- and over-taxat ion) have been spelled out.  
1. PROCEDURAL
 ISSUES  AND  CONSULTATION  OF INTERESTED  PARTIES 
The present initiative follows on from a formal mandate  by the Council of Ministers in 1999, in 
which the Commission was invited to undertake a study on company taxation in the European 
Union. The results of the study  were published in 2001 in the Company Tax Study1 and a related 
Communication2. The study presented a twin-track strategy  to tackle corporate tax obstacles and 
tax-induced inefficiencies in the Internal Market – double taxation, the lack of tax consolidation, 
tax-related obstacles to business restructuring and significant compliance costs. In addition to 
various targeted measures in th e short run (such as improved tran sfer pricing rules or remedial 
measures catering for cross-border loss relief),  some approaches for possible long-term, all-
embracing solutions were presented. 
                                                 
1 ‘ Company Taxation in the Single Market ’. SEC (2001) 582 final. See Annex 1 for further details.  
2 ‘ 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. 
 
EN 5   EN In the public conference organised in Brussels in April 2002 as part  of the consultations on the 2001 
Study, the participants showed ge neral interest in the compre hensive solutions "Home State 
Taxation" and "Common Consolidated Corpor ate Tax Base". In its 2003 Communication3, the 
Commission presented the two comprehensive cor porate tax policy options retained: "Home State 
Taxation" as a useful means of relieving small an d medium-sized enterprises from tax costs related 
to their cross-border activity, and a common (c onsolidated) corporate tax base, as a general 
comprehensive solution. 
The two retained policy options were favourably r eceived at the public c onference organised by the 
Commission services in Rome in December 2003. Also a public consultation was held in 2003 
concerning the use of International Accounting Sta ndards as a possible star ting point for a common 
EU tax base4. A Common Consolidated Corporate Tax Base  (CCCTB) was genera lly considered to 
be the most promising comprehensive solu tion. Since 2004, the Commission has therefore 
concentrated its work on this initiative. Ever since the Commission services have maintained and 
deepened co-operation with the stak eholders involved in order to ge t their advice and input for the 
specific design of the policy best  suited to tackle the remaining company tax obstacles in the 
Internal market. In September 2004 Ministers of Finance agreed at an informal ECOFIN-Council 
that the discussions on the development of a CCCTB should progress in a Commission working 
group (the CCCTB WG ). This working group was set up in November 2004 and held quarterly 
plenary meetings until April 2008 (see Annex 1). 
Experts from the tax administrations of all Member States participated in the WG plenary meetings. 
The role of the members of the WG was limited to providing technical assistance and advice to the 
Commission services, without  the participation implying a politic al dimension or a commitment to 
implement the common tax base. All Member States  were represented in the WG, including those 
that opposed the idea of a comm on consolidated tax base itself5,6. In addition, six sub-groups  were 
set up (five of which were chaired by a Member Stat e) in order to deepen the technical analysis of 
certain specific issues. The subgr oups met on an ad-hoc basis a nd reported back to the plenary 
CCCTB WG. The Working Group, and the subgroups, work ed intensely on structural parts of the 
tax base. Meetings generally include d a review of how different Memb er States dealt with the parts 
and then attempted to consider how a common a pproach could be established. The emphasis was on 
simplicity – i.e. remove unnecessary complexity. Me mber States contributed during the meetings – 
diverging views are reported in the Summary Records of the WG me etings and the Reports of the 
Sub-group meetings. The approach of the CCCTB WG  was to review and analyse the individual 
building blocks of the tax base one by one. The ta ble below gives an overview of the main building 
blocks of the CCCTB that were discussed. 
CCCTB WG Building blocks 
1. Depreciation and Assets – discus sed at subgroup chaired by DE 
2. Provisions and Reserves - discu ssed at subgroup chaired by IT 
                                                 
3 " An Internal Market without co mpany tax obstacles – achievements , ongoing initiatives and remaining 
challenges ", COM(2003)726. 
4 See http://ec.europa.eu/taxation_customs/common/consultations/tax/article_385_en.htm 
5 See CCCTB WG, Summary Record for the Meeting of the Co mmon Consolidated Corporate Tax Base 
Working Group  held in Brussels on 23 November 2004 , CCCTB/WP/05: "Two participants stressed that there 
has to be a clear distinction between the political and technical aspects of the whole project. They were prepared to contribute to the work of the Group at the technical level only. Their respective governments had 
clearly expressed their political oppositio n to the idea of a common tax base". 
6 Indeed, during the discussions of the CCCTB WG, some members stressed repeatedly that their participation 
was not to be construed in any way as support from their Member State for the common consolidated tax base 
and that their state rejects the initiative. 
 
EN 6   EN 3. Taxable Income - Revenues and expenses discussed at subgroup chaired by FR 
4. Foreign Income and relations outside of th e EU - discussed at subgroup chaired by ES 
5. Consolidation – method and conditions for a group discussed at subgroup chaired by DK 
6. Formulary Apportionment – method of appor tionment and factors discussed at subgroup 
chaired by EC 
 
Working Paper 57 from the CCCTB WG7 summarised the main building blocks of the tax base in 
the form of a possible technica l outline on the basis of the disc ussions in the working group and 
subgroups. This working paper and all relevant documents for the CCCTB WG meetings have been 
accessible to the public on a DG TAXUD website dedicated to the CCCTB8: this includes, among 
other documents, more than 50 working pape rs prepared by DG TAXUD which have been 
discussed in the WG. A list of these papers is included at the end of A nnex 1. To ensure the 
involvement of all key expe rts and stakeholders, the CCCT B WG met three times in extended 
format , allowing professional organisations9 and academics to contribute to the work. Although 
Member States expressed different  political views on the initiativ e, in concluding the WG works 
they shared the common opinion that a prelimin ary careful assessment of  the concrete policy 
proposal would be necessary in order to take  any official position on the policy reforms.  
Besides the discussions within the CCCTB WG, comments and advice  have been received by the 
Commission Services through bilateral meetings with business  federations, professional 
organisations and other key stakehol ders, such as trade unions. Regul ar meetings were held with a 
CCCTB Task Force set up by UNICE/Business Europe. In addition, in June 2006 a joint meeting between Member State experts and expert s from the financial sector was held
10. The Commission 
Services also received written contributions to the ongoing work from these stakeholders, and the 
contributions were made available to the public on DG TAXUD's website11.  
These discussions and consultations  have shown a firm support from the business community to the 
initiative of simplifying the current operation of  corporate tax systems in the EU  and to the 
prospect of removing tax obstacles for businesse s that operate in a cross-border environment12. In 
addition, the academic community  has also shown keen and increasin g interest in the analysis of 
reforms of corporate tax systems in an international context. The results of the theoretical and 
                                                 
7 http://ec.europa.eu/taxati on_customs/resources/documen ts/taxation/company_tax/co mmon_tax_base/ccctbwp057_en.pdf  
8 http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm 
9 The organisations represented in the meetings of the CCCTB WG held extended format were: EATLP 
(European Association of Tax Law Professors),  UNICE (Union des Industries de la Communauté 
Européenne), FEE (Fédération des Experts Comptables Européens), CFE (Confédération Fiscale Européenne), EUROCHAMBRES (Association of European Chambers of Commerce), FBE (European Banking Federation), 
ERT (The European Round Table of Industrialists), CEPS (Centre for European Policy Studies), AMCHAM 
(American Chamber of Commerce), UEAPME (European Association of Craft & Small and Medium-sized 
Enterprises), CEA (Comité Européen des Assurances) and EBIT (European Business Initiative on Taxation). 
10 The organisations represented were: EACB (European Association of Co-operative Banks), EFAMA 
(European Fund and Asset Management Association), EF RP (European Federation for Retirement Provisions), 
ESBG (European Savings Banks Group), FBE (European Banking Federation) and CEA (Comité Européen 
des Assurances). 
11 http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/article_3130_en.htm 
12 The results of a KPMG International study published in September 2007 and based on a survey to more than 
400 companies from all 27 EU countries and Switzerland also show that tax professionals in Europe’s biggest 
businesses are heavily in favour of European Commissi on proposals for a new corporate tax system. The idea 
was supported by 78% of respondents across Europe. Busi ness seemed to be attracted by the prospect of more 
straightforward tax compliance and better business planning. 
 
EN 7   EN applied research have b een carefully analysed and considered  throughout the policy formulation 
process. Moreover, the Commission services ha ve consulted many leading scholars on various 
relevant topics in order to ga uge their opinion on specific issues13.  
Along the way, the Commission issued some related Communications . In 2005, the Commission 
drew attention in two Communications to the link between its work on the CCCTB and the Lisbon 
Programme14. In April 2006 and May 2007 the Commission issued Communications15 on the 
progress made towards a proposal on a CCCTB. Thes e Communications have be en discussed in the 
Council, the Economic and Social  Committee and the European Pa rliament. The Parliament has 
issued resolutions in support of the project16. The latest consultati on session on the CCCTB took 
place on 20 October 2010 when the Commissi on Services held a CCCTB Workshop, which 
included representatives of all 27 Member Stat es, business associations, academics and think 
tanks17, focused on specific issues of the de sign of the CCCTB option (see Annex 1).  
All these continuous and ex tensive consultations have informed  and played a major role in the 
development of policy. The conclusions from all th ese contributions (from Member States’ experts, 
business organisations, academic experts and other stakeholders) have been carefully analysed and 
feedback has been taken into care ful consideration in formulating each aspect of the initiative. 
2. PROBLEM  DEFINITION 
2.1. Background: the current institutional se tting for company taxation in the EU  
In order to put the assessed polic y initiatives in quantitative pers pective, table 1 reports revenues 
from taxes on the income of corporations in th e EU27 countries, alongside applicable rates. On 
average, revenues are fairly stable in time, amoun ting to about 3 percentage points of GDP. This is 
roughly 8% of the overall tax-to-GDP ratio (inclu ding social security c ontributions) in the EU 
which reached 39.3% (in the GDP-weighted average) in 2008 (see Taxation Trends in the European Union, 2010 edition). On the policy side, the current system of corporate inco me taxation in the EU 
– in particular with respect to the treatment of in ternational businesses - is characterised mainly by: 
                                                
 
13 Thus, for example a meeting with academic experts was held in March 2004 on “the allocation mechanism” 
and written contributions on the factors for apportioning inco me were requested and received at other stages of 
the consultation process. 
14 ‘ Common actions for growth and employment: the Community Lisbon Programme ’ (COM(2005)330) and 
‘Implementation of the Community Lisbon Programme – The contribution of taxation and customs policies to 
the Lisbon Strategy ’ (COM(2005)532). 
15 ‘ Implementing the Community Lisbon Programme: progress to date and next steps towards a Common 
Consolidated Corporate Tax Base (CCCTB) ’ (COM(2006)157) and ‘ Implementing the Community 
Programme for improved growth and employment and th e enhanced competitiveness of EU business: Further 
Progress during 2006 and next steps towards a proposal on the Common Consolidated Corporate Tax Base (CCCTB) ’ (COM(2007)223). 
16 European Parliament Resolution of 13 December 2005 on taxation of undertakings in the European Union: a 
common consolidated corporate tax base, Report of 1 December 2005, Committee on Economic and Monetary Affairs, Document A6-0386/2005. See also, EP Resolution of 24 October 2007. 
17 AMCHAM (American Chamber of Co mmerce), Business Europe, CEA (Com ité européen des assurances), 
CEPS (Centre for European Policy Studies), CFE (Con fédération fiscale européenne), EATLP (European 
Association of Tax Law Professors), EBIT (Europ ean Business Initiative on Taxation), ETUC (European 
Trade Union Confederation), EURO CHAMBRES (Association of European Chambers of Commerce), FBE 
(European Banking Federation), FEE (Fédération des experts comptables européens), UEAPME (European Association of Craft & Small- and Medium-Sized Enterprises), OECD Secretariat and EESC (European 
Economic and Social Committee). 
 
EN 8   EN Table 1: Income of corporations: tax revenues and rates  
                   
 Revenues  
 in % GDP in millions 
euro Corporate tax 
rates 
  1995 2000 2004 2005 2006 2007 2008 2008 2008 
BE 2.4 3.2 3.1 3.3 3.5 3.5 3.3 11,462 34.0 
BG : 2.8 2.6 2.5 2.9 3.4 3.5 1,208 10.0 
CZ 4.6 3.5 4.7 4.5 4.8 5.0 4.4 6,566 21.0 
DK 2.3 3.3 3.2 3.9 4.4 3.8 3.4 7,970 25.0 
DE 2.1 3.0 2.2 2.5 3.0 3.0 2.7 68,550 29.8 
EE 2.4 0.9 1.7 1.4 1.5 1.7 1.7 266 21.0 
IE 2.8 3.8 3.7 3.5 4.0 3.5 2.9 5,213 12.5 
EL 2.3 4.1 3.0 3.3 2.7 2.5 2.5 5,875 25.0 
ES 1.9 3.1 3.5 3.9 4.2 4.8 2.9 31,428 30.0 
FR 1.8 2.8 2.3 2.3 2.9 2.9 2.8 54,415 34.4 
IT 2.9 2.9 3.1 2.9 3.5 3.9 3.7 58,539 31.4 
CY 4.2 6.2 3.7 4.6 5.5 6.8 7.1 1,218 10.0 
LV 1.8 1.6 1.8 2.0 2.3 2.7 3.1 727 15.0 
LT 2.0 0.7 1.9 2.1 2.8 2.6 2.8 888 15.0 
LU 6.6 7.0 5.7 5.8 4.9 5.3 5.1 2,003 29.6 
HU 1.8 2.2 2.1 2.2 2.4 2.8 2.7 2,836 21.3 
MT 2.6 2.9 4.1 4.5 5.0 6.7 6.8 386 35.0 
NL 3.3 4.3 3.3 3.6 3.7 3.5 3.4 20,410 25.5 
AT 1.6 2.2 2.4 2.3 2.3 2.6 2.6 7,462 25.0 
PL 2.7 2.4 2.2 2.5 2.4 2.8 2.7 9,838 19.0 
PT 2.4 3.9 3.0 2.8 3.0 3.7 3.7 6,235 26.5 
RO 4.0 3.0 3.2 2.7 2.8 3.1 3.0 4,185 16.0 
SI 0.5 1.2 1.9 2.8 3.0 3.2 2.5 936 22.0 
SK 6.6 3.5 3.0 3.0 3.2 3.2 3.4 2,203 19.0 
FI 2.3 5.9 3.5 3.3 3.4 3.9 3.5 6,471 26.0 
SE 2.6 3.8 2.9 3.6 3.7 3.9 3.0 9,700 28.0 
UK 2.8 3.5 2.9 3.4 4.0 3.4 3.6 65,369 30.0 
                    
EU-27 averages         
weighted : 3.2 2.8 3.0 3.4 3.4 3.1   
arithmetic : 3.2 3.0 3.2 3.4 3.6 3.4   
          
St.dev/mean 49.5 45.1 30.7 30.6 28.2 32.7 34.9   Max-min 6.1 6.3 4.1 4.4 4.0 5.1 5.4     
Source: Commission services 
 
- 27 different corporate tax codes, which serve to  compute the national corporate income tax bases 
of companies established within each Member Stat e. These tax codes are i nherently heterogeneous 
and often complex, particularly as they have developed by adding new rules to adapt to the 
increasing mobility of taxable ba ses as a result of globalization. Furthermore, not only does each 
Member State have its own sets of rules for dete rmining taxable profits, but it also has its own 
arrangements for collection and administration of  taxes (e.g. different rules and deadlines for 
completing and filing tax returns, different procedures  to deal with the tax authorities, etc.) and its 
own network of tax treaties. For businesses that operate in a cr oss-border environment, the 
level of complexity is exacerbated , as they are confronted with multiple tax regimes18, potentially 
                                                 
18 For the samples of EU multinational groups in the 27 Me mber States that have been used for several aspects of 
this Impact Assessment (described in detail in Annex 3) parent companies have subsidiaries, on average, in 
four EU Member States (other than that of the parent), for the sample based on EU multinational groups taken from Amadeus: thus, they have to deal with as many  frequently changing corporate tax systems. Some parents 
reach the maximum number of EU foreign destinations  which is 26. For the sample of EU multinational 
 
EN 9   EN subject to frequent changes. Given progressi ng investment mobility, the economy-wide costs 
caused by this fragmented tax landscape can be expected to increase over time. 
- The allocation of taxable profits of multi-jurisd ictional groups between tax jurisdictions according 
to the so-called separate accounting  (SA) model. SA relies on the principle that all intra-group 
transactions have to be  priced at arm's length (i.e., at the going market price for a comparable 
transaction, as if it had taken pl ace among unrelated parties). This  system has rais ed theoretical 
concerns (since it ignores the very nature of economically integrated  multi-jurisdictional 
corporations by treating th eir operations as if they were separa te and independent) and also, mainly, 
practical ones19: in fact, it is costly for tax administrati ons and for taxpayers, offers opportunities for 
tax avoidance to corporations by adjusting transfer prices within  the controlled group, and often 
provides for measures that are pa rticularly cumbersome to apply (e.g. finding comparables of high-
profit firm-specific intangibles). Determining the ta x liability in each juri sdiction by applying the 
arm’s length pricing standard adds complexity to  the working of intern ational businesses. The 
resulting efficiency loss becomes significant at a gl obal level given the large and increasing share of 
world trade consisting of transfer of goods, intangib les and services within multinational enterprises 
(MNEs). The WTO (Nordas, 2003) estimates intra-firm trade at one third of world trade 
flows20. The OECD reports that the sh are of intra-firm exports in total exports of manufacturing 
affiliates under foreign control ranges between 15% and 60% in OECD countries. According to a 
recent Eurostat21 survey carried out in 12 European countri es, about 60% of enterprises engaged in 
international sourcing so urce their business functi ons within the EU27. At the same time, over 70% 
of them choose to organise the sourcing within the same group of enterpri ses instead of buying the 
services from other companies outside the group. 
- Often inadequate recognition of cross-border situations by national corporate income tax systems, 
particularly in the area of cross-border loss compensation  within a multinational group of 
companies (see section 2.2).  
2.2. The remaining tax obstacles in the Internal market  
The current arrangements for corporate income taxati on in the EU give rise to a number of obstacles 
to cross-border activities, and thus , impede the proper functioning of  the Internal market and the 
achievement of its potential in terms of efficiency gains. The remaining tax barriers to the 
Internal market , which have prompted the current policy initiative, can be categorised into the 
following three types: 
I. Additional compliance costs  specifically linked to cross-border activities22.  
II. International double taxation , traditionally divided into: economic  double taxation 
(i.e. the imposition of comparable taxes on th e same income in the hands of different 
taxpayers in two or  more states) and juridical  double taxation (i.e. the imposition of 
                                                                                                                                                                  
groups operating in the financial sector (ORBIS database), on average parent companies have subsidiaries in 2 
Member States (other than that of the parent), so they have to deal with more than three tax codes. 
19 See for example Hellerstein  (2005) " Income Allocation in the 21st century: The End of Transfer Pricing? The 
Case for Formulary Apportionment ", International Transfer Pricing Journal, Vol. 3. 
20 More specifically, the OECD reports that the share of  intra-firm exports in total exports of manufacturing 
affiliates under foreign control ranges between 15% and 60% in the OECD countries for which such data are 
available. 
21 Statistics in focus 73/2009 
22 For the purpose of this document "compliance costs"  are defined as the admini strative costs incurred by 
taxpayers to comply with tax legislation. 
 
EN 10   EN comparable taxes on the same income in the ha nds of the same taxpayers in two or more 
states). 
III. Over-taxation in cross border situations , which occurs when cross-border activities 
create tax liabilities that would not occur in a purely domestic context. 
The following focuses on examples of the three t ypes of tax barriers identified which companies 
may incur in the current scenario as a result of  doing business in more than one Member State. 
However, the description of thes e problems is not intended to be  exhaustive, and more specific 
details on these issues can be found in  the 2001 Company Tax Study (see Annex 1)23. 
I. Additional compliance costs 
Tax compliance costs are the "hidden costs of taxation". The existence of a tax liability means that 
eventually a taxpayer will have to bear an overall tax burden consis ting of the actual amount of tax 
and the costs associated with it s calculation, payment and collecti on. Those costs, as opposed to 
taxes that accrue to the public  budget and are used to finan ce potentially welfare-increasing 
expenditures, are generally considered inherently wasted resources ("deadweight costs") that do not 
contribute to the general devel opment of society or to the realization of public goals.  
A number of studies have been  conducted around the world on th e issue of compliance costs. 
Despite potentially different methodologies, country samples and tax systems they converge on 
three major findings: first, compliance costs for companies are high and significant  however 
measured –whether in absolute money terms or rela tive to tax yield or GDP (ie, the studies suggest 
that tax related compliance costs are typically anywhere between 2%  and 10% of th e revenue yield 
from the corresponding tax); second, they are regressive , thus hitting small business 
disproportionately more heavily than  large businesses; third, they are not reducing over time . 
Also, notably, two particular factors stand out as major, over-riding determinants of compliance 
costs: change and complexity of the tax system(s) (Lang et al., 2008). These latter findings point 
to a significant impact of the current arrangement s for company taxation in the Internal market upon 
the compliance burden of companies operating cross- border. A summary of th e existing quantitative 
evidence on compliance costs for company ta xation in the EU is given in Box 1. 
Box 1: Company tax related compliance costs  
PricewaterhouseCoopers LLP (PWC) carries out since 2005 an annual Total Tax Contribution  survey of the 
Hundred Group of Finance Directors (ie an associati on of the 100 largest listed UK companies, which 
contribute nearly a quarter of the total corporation tax take in the UK) asking them to provide information on 
the time spent on compliance activities relating to their ta xes borne and collected, as well as to provide data 
on their tax payments. The results of the 2007 survey showed an average  cost of tax compliance  for 
corporate income taxation of 2.2% of taxes paid . On top of that, around 15% of the time spent on 
compliance activities relate to the intern ational aspects of corporate taxation  (of which, transfer pricing 
represented 36%, Controlled Foreign Corporations 23 %, double tax relief 19%, withholding tax 6%, treasury 
consents 4%, and other 12%). Furthermore, the resu lts of the 2008 Survey show that 43% of the total 
compliance time and 54% of the total compliance costs relate to corporation tax . As it represents only 
                                                 
23 Although the three types of tax barr iers are analysed separately for presentational purposes, sometimes the 
obstacles are intrinsically intertwined: e.g. the atte mpts to alleviate double taxation involves additional 
compliance costs, etc. Where available, quantitative and qualitative evidence of the existing problems is given, 
using data from existing studies and available models and feedback from experts and concerned stakeholders. 
On top, as in the section below analysing the impact s, the alternative policy op tions are compared to the 
current baseline scenario, those outcome s can serve as an indication of the "opportunity costs" of the present 
situation. 
 
EN 11   EN 16% of the total tax payments for the surveyed comp anies, the compliance burden appears disproportionately 
high for this tax, not the least when it comes to its international aspects. 
Research undertaken by the European Commission (Europ ean Tax Survey, 2004 – more details in Annex 4) 
confirms both the significance and the regressivity of compliance costs in the corporate sector. 700 
companies across 14 MS of the EU responded to the survey (carried out in 2003), which shows that 
compliance costs for the large companies  averaged € 1.5 million, which represented 2% of the taxes paid  
and 0.02% of sales. By contrast, SMEs  incurred compliance costs, on average, of € 200,000, which 
represented 31% of the taxes paid  and 2.6% of sales. The study also indicates that cross-border activity  
(for example, establishing a subsidiary in another Member State) is likely to lead to higher absolute and 
relative  tax-related compliance costs , as are transfer pricing issues. Thus, these findings corroborate the 
view that cross-border operations make it more difficu lt for companies to comply with the administrative 
aspects of company taxation .  
According to estimates in the 2001 Company Tax Study  based on information from business representatives, 
the tax compliance costs of transfer pricing are significant. These costs re sult from the obligation on 
enterprises to determine what prices could be regard ed as arm's length, including finding comparables, 
assembling the related documentation and defending these prices in audits. Medium-sized multinational 
enterprises are reported to spend approximately € 1 milli on to € 2 million a year on complying with transfer 
pricing rules. Large multinational enterprises incur compliance costs related to transfer pricing of 
approximately € 4 million to € 5.5 million a year24.  
The Ernst & Young Transfer Pricing Surveys  show that transfer pricing has increased compliance burdens 
over the last years, due to two main factors: (i ) more demanding documentation requirements from tax 
authorities accompanied by tax authority reviews; (ii) adjustments and changes of the type and scope of 
business operations around the world. Particularly, the increased documentation demands owing to 
transfer pricing appear to be stretching tax department resources . In the 2007 Survey, 65% of 
respondents saw an increased need for transfer pric ing resources over the former three years, with 72% 
meeting the need through increased reliance on external advisors and 34% by hiring in-house resources. 
Already in the 2005 Survey, many companies seemed to ha ve expanded their internal resources dedicated to 
transfer pricing and task risk management, increasing their average headcount by 1 full-time equivalent to 
2.5. 
II. Double Taxation  
Double taxation is one of the mo st onerous obstacles to intern ational economic activity, with 
detrimental effects on efficiency and growth. At present, there are still numerous instances of 
double taxation  which result from the need to comply with different national tax systems when 
operating in the Internal market a nd from the SA system of profit allocation to taxing jurisdictions. 
In the absence of actual tax data provided by nati onal administrations, it is very difficult to obtain 
reliable estimates of the size of the monetary costs of double taxation. However, a recent public 
consultation carried out by DG Taxation and Cu stoms Union on double taxation confirmed that 
double taxation continues to be considered to be a significant problem by many EU enterprises and 
tax advisors. On the basis of qualitative evidence, some of the most significant instances are:  
i) Cross-border business restructuring operations  
Although the Merger Directive and recent case-law ha ve improved the situation, all instances of double 
taxation in relation with cross-border business restruct uring have not been eliminated. For instance, the 
absence of clear obligations in the Directive may give rise to different interpretations by Member States 
resulting in double taxation of capital gains . Further details and examples on why cross-border 
restructuring operations may still result in double taxa tion and create significant compliance costs, including 
                                                 
24 These figures only refer to the compliance costs associat ed with transfer pricing and do not include the costs 
and risks of double taxation due to transfer pricing disputes. 
 
EN 12   EN the opportunity cost of accepting suboptimal structures can be found in the Comp any Tax Study (e.g. pgs. 
312-315). 
ii) Tax treatment of transfer pricing 
The allocation of tax revenues between Member States on the basis of the "arm's length principle", which lie 
at the heart of transfer pricing, is a source of double taxation for intra-group transactions25. Double taxation 
in transfer pricing occurs when the tax administration of one Member State unilaterally adjusts the price set 
by a company on a cross-border intra-group transacti on, without this adjustment being offset by a 
corresponding adjustment in the other Member State/s concerned. According to the biannual surveys on 
transfer pricing26 published by Ernst & Young, one of the reasons why business considers transfer pricing a 
priority tax issue is indeed its connection with doub le taxation. In some years, ,e.g. 1999, business have 
reported that 42% of cases of adjustment gave rise to double taxation . This is primarily because firms do 
not generally refer cases to mutual agreement proce dures, as they consider the procedures too lengthy and 
costly27. 
Importantly, EU Member States have  developed a network of bilateral double taxation Treaties . 
These treaties do not provide a comprehensive solution for all cas es of double taxa tion, though. 
Indeed, the Company Tax Study alrea dy recognised that th e area of double taxati on conventions is a 
potential source of obstacles and distortions for cross-border economic ac tivities with in the EU. 
Although the intra-EU network of double taxation treaties is largely complete, nevertheless 
important gaps remain. First, although they broa dly follow the OECD model,  the treaties are still 
significantly heterogeneous. Moreover, their provi sions are prone to different, and sometimes 
divergent, interpretation and app lication by the treaty partners, which result in double taxation (e.g. 
in case of triangular situations or in cases of di fferent interpretation of cr ucial concepts such as 
"permanent establishment" within a territory) or non-taxation. Busine ss representatives also refer to 
the increasing complexity of treaty provisions as  a source of complian ce costs and uncertainty. 
Indeed, with increasingly complex group structures and cross-border tr ansactions, the application of 
these treaties often gives rise to  difficult issues of interpreta tion, leading to complex dispute 
procedures and ultimately failure to ensure dou ble taxation relief. In addition, the Company Tax 
Study also showed that tax trea ty provisions based on the OECD  model, in particular non-
discrimination articles, are not adequate to ensure  compliance with the EU law principle of equal 
treatment. Moreover, the lack of coordination in the trea ty practice of Member States in relation to 
third countries, for example regard ing limitation of treaty benefits , is liable to give rise to 
distortions and partitioning of the Internal market. 
                                                 
25 It should be noted that "transfer pricing" requirements can also create problems due to unduly high compliance 
costs (see infra).  Annex 1 gives more details on why transfer pricing rules affect the 'double taxation' and 
'additional compliance costs' tax ob stacles in the Internal market. 
26 The number of companies and countries covered by these surveys has varied through the years. For the last 
report ( 2007-2008 Global Transfer Pricing Survey available at  
http://www.ey.com/global/content.nsf/I nternational/2007-2008_Transfer_Pri cing_Global_Survey) interviews 
with 850 multinational companies across 24 countries (of which 11 EU Member States) were conducted. The 
biannual surveys are conducted by Consensus Research International, a London-bas ed Research Agency, and 
include interviews with the persons responsible for international tax matters in leading multinational organisations. These surveys represent the only available la rge-scale work in this ar ea and its findings give 
valuable insights into business perception of the subject. 
27 The 2007-2008 survey also reveals that over half (52%) of respondents had been subject to a transfer pricing 
audit since 2003, with 27% of these examinations resulting in adjustments by the tax authorities. Intercompany 
services  transactions were the most su sceptible to audit by tax authorities. In audit cases resulting in 
adjustments, parent respondents indicated that tax authorities threatened to impose penalties in 31% of cases, and penalties were actually imposed in 15% of cases. 78% of respondents believed a tr ansfer pricing audit is 
likely in the next two years. 
 
EN 13   EN In addition it will be noted that there has been a year on year increase in the number of unresolved 
cases under the Arbitration Convention as illustrated in the table below. The increase in the number 
of unresolved cases may be taken as evidence of the continuing problems in the area of transfer 
pricing.  
Table 2:  Total amount of pending MAPs under the EU  Arbitration Conventio n as of 31/12/2008 
in relation to the year when the reques t was received by the tax administration 
 Requests 
received prior to 2000 Requests 
received 
in 2000 Requests 
received in 
2001 Requests 
received 
in 2002 Requests 
received 
in 2003 Requests 
received in 
2004 Requests 
received 
in 2005 Requests 
received in 2006 Requests 
received in 2007 Request 
received 
in 2008 Total pending 
cases* 
2008 0 -3 2 -3 1 -3 2 2 -4 4 - 8 21 - 32 36 -41 56 - 60 54-62 178 - 218 
2007 2 1 - 5 1 - 5 4 - 6 3 - 8 6 - 11 29 - 42 45 - 66 55 - 81  146 - 226 
2006 2 - 5 3 - 6 0 - 4 4 - 9 10 - 16 8 - 20 39 - 55 46 - 69   112 - 184 
2005 16 - 24 1 - 13 5 - 10 10 - 18 12 - 23 12 - 25 42 - 68    98 - 181 
2004 24 8 12 24 23 16 0    107 
* discrepancies in the number of pending cases reported by Member States result from differing criteria in 
deciding when a case is finally closed 
III. Over-taxation of cross-border economic activity 
Over-taxation can primarily occur due to the absence or limited availab ility of cross-border loss 
relief. The possibility to set off losses against profits in  computing the tax liabil ity of a taxpayer is a 
basic feature of company tax systems. However, in the current situation, taxation of corporate 
income often does not properly reflect the overall EU -wide result of the business activity when 
foreign investment in the EU is involved. Inde ed, while most Member States allow for domestic 
relief of losses within a group of companies, only a few Member States provide for some limited 
forms of cross-border loss compensation, i.e. allo w relief for the losses of a foreign company 
belonging to the same group of a domestic corporate taxpayer. At  the same time, cross-border 
losses within one company, i.e. losses of a fore ign branch or permanent establishment, may be 
taken into account at th e level of the head office in most Member States28. These loss offsetting 
arrangements entail a risk of over-taxation in inte rnational activities whenever cross-border losses 
cannot be compensated immediately. That is, si nce domestic losses are immediately deductible, 
thus reducing the current tax burden, a group oper ating cross-border would face a liquidity cost 
compared to a domestic group. For the internationa l group, the compensation of losses incurred by 
foreign subsidiaries will be at be st deferred if the source country a llows carry-forward of the losses 
(which creates significant interest cost) and in some cases, where losses cannot be absorbed locally, 
they will never be relieved, and will become permanent.  
As reported in section 5.1.2, evidence based on representative samples of EU multinational groups 
shows that, on average, every year approximately 50% of non-financial and 17% of financial 
multinational groups could  benefit from immediate cross-border loss compensation . The 
additional  losses  that could be compensated cross-border  in the samples amount on average to 
3% and 2.5% of the net taxable profits  for the non-financial and financial groups 
respectively. Overall, the losses  that could be imme diately compensated under the CCCTB scenario 
account on average for 7% and 20% of the net current taxable profits  for non-financial and 
financial groups , respectively.  The current situation also translates into different tax treatment of 
                                                 
28 Only Austria, Italy, Denmark and France have some form of cross-border group loss relief. Belgium, Czech 
Republic, Greece, Lithuania, Hungary and Sl ovakia are the only Member States that do not provide any kind 
of domestic (or cross-border) group relief. 
 
EN 14   EN foreign permanent establishments and foreign s ubsidiaries by Member States, which may affect 
business decisions on the form of establishment in the Internal market. This different treatment, 
which could adversely impact on business decisions , might ultimately run against Art. 49 TFEU on 
freedom of establishment. Other instances of over-taxation can arise in cross-border restructuring 
operations, and in cases of divi dend taxation when different nati onal tax systems are involved.  
2.3. Summary of the problems and the baseline scenario 
The described tax barriers disc ourage cross-border economic activity  and induce firms to prefer 
domestic over cross-border operatio ns, thereby directly hindering the achievement of the Internal 
market (Article 26 TFEU) and the full exploitation of th e benefits of market  integration. This 
implies a lack of a "level playing field", barriers  to a more efficient allocation of resources and 
foregone opportunities for growth and welfare gains across the EU. Moreover, in the framework of 
increased internationalization of economic activitie s, such company tax obstacles are now more and 
more evident and detrimental. The simplification of  the corporate taxation setting in the Internal 
market is therefore at the heart of this policy initiative. 
For the purpose of the economic analysis, the tax barriers faced by EU firms when they expand 
across national borders can be defined as cost -increasing barriers resulting in market-entry 
restrictions. The removal of such barriers is akin to a liberalisation policy to be analysed within 
the framework of the f reedom of establishment in the Internal market. According to article 115 
of the Treaty on the Functioning of the European  Union, Member States can unanimously issue 
directives for the approximation of laws which directly affect the establishment or the functioning of the common market. Against this background, economic integration at the global level is 
progressing steadily, with cross-bor der investment on a clear upward trend, as figure 1 shows for 
the EU. In a framework in which the geogra phy of production is cha nging significantly, the 
fragmented corporate tax landscape is likely to put the EU at a disadvantage in comparison with its 
main economic partners.  
Figure 1. Foreign Direct Investment in the EU27 
Foreign Direct Investment in the EU27
(billion euros)
0100200300400500600700800
2001 2002 2003 2004 2005 2006 2007 2008 20090100020003000400050006000
Intra-EU FDI flows (left scale)
Inward FDI stocks from EU27 (right scale)
Inward FDI stocks from extra-EU27 (right scale) 
Source: Eurostat.  
At the microeconomic level, the internationalisa tion of production increasi ngly involves vertical 
trading chains between groups of firms over a nu mber of countries. Ultimately, this is going to 
 
EN 15   EN contribute significantly to both incr easing the scale of world trade, and to changing its nature, with 
the share of intra-firm trade gaining even more importance. A survey on international sourcing carried out by Eurostat in 12 EU countries show s that insourcing, i.e. moving business functions 
abroad within the same enterpri se group is by far the most common type of international sourcing. 
At the aggregated level, over the period 2001 -2006, insourcing of suppor t and core business 
functions is used respectively by about 80 and 70% of enterprise s with international sourcing 
(roughly 16% of all enterprises surveyed). At the same time, 40% of enterprises who have moved 
certain business functions abroad source within the EU. In perspective, 4% of all the companies not 
having sourced internationally between 2001 and 2006 had plans to do so in the period 2007-2009. 
The percentage almost doubles (re aching 7%) when only the manufact uring sector is considered. 
While, not surprisingly, the most relevant barrie rs for international so urcing are linked to the 
production process (proximity to cl ients and producers, etc), taxatio n issues are considered a very 
important disincentive for expanding abroad by a significant number of enterprises (see figure 2). 
This suggests that the observed and perspective international activity might still be below the 
potential levels reachable in the ab sence of the identified barriers.  
All in all, taking into ac count the depicted evolution of the ba seline scenario, tax related compliance 
costs are likely to increase. At the aggregate level,  more resources will be devoted to compliance as 
a consequence of the increasing cross-border expa nsion of firms. At th e margin, the rising 
complexity in the organisation of production processes will be  likely reflected into more 
cumbersome, and hence costly, tr ansfer pricing requirements.  
 
2.4. Subsidiarity and proportionality 
The right for the Community to act in the field of direct taxation is set out  in article 115 of TFEU, 
which provides that " [t]he Council shall, acting unanimously  on a proposal from the Commission 
and after consulting the European Parliament  and the Economic and Social Committee, issue 
directives for the approximation of  such laws, regulations or adm inistrative provisions of the 
Member States as directly affect the est ablishment and functioning of the common market ". 
Moreover, the envisaged policy options are compatib le with the EU Charter of Fundamental Rights. 
As pointed out in the previous sections, the current framework w ith 27 different national corporate 
tax systems impedes the proper functioning of the In ternal market. Member States cannot provide a 
comprehensive solution to this problem. Non-coor dinated action, planned a nd implemented by each 
Member State individually, would re plicate the current s ituation, as taxpayers would still need to 
deal with as many tax administrations as the number of jurisdictions in which they are liable to tax. 
 
EN 16   EN Community action is necessary in view of estab lishing a juridical framew ork with common rules. 
The Commission has taken initiative having in mind that, under the principle of subsidiarity, 
Member States are free to determine the size and the composition of their tax revenues.  
The measures to be taken under the present initia tive are both suitable and necessary for achieving 
the desired end (i.e. proportionate). The comprehens ive proposals examined in this document do not 
imply a harmonisation of corporate tax rates in the EU and, therefore, they do not restrict Member 
States' capability to influence their desired amount of corporate tax revenues.  They do not interfere 
with national choices in terms of the size of public sector's intervention and composition of tax 
revenues. They propose a more efficient way to co llectively manage the problems arising from the 
segmentation of national corporate tax systems in vi ew of a more efficient Internal market. In line 
with the general understanding of the subsidiarity pr inciple, they offer solu tions allowing managing 
collectively the market failures resulting from th e separate working of 27 national tax systems.  
3. OBJECTIVES 
3.1. General objectives 
The general objectives are to improve the simplicity  and efficiency of the corporate income tax  
systems in the EU and thus contribute to the bett er functioning of the Internal market. This would 
lend support to the objectives of th e Europe 2020 strategy by means of reduced tax distortions to 
investment decisions and increased oppo rtunities for cross-border investments . As a result the 
EU will be a more attractive place to operating a business and fair competition in the Internal 
market will be enhanced. This will contribute to the overall objective of exploiting the full potential 
of an integrated EU economy advocated in th e Single Market Act. Engaging in international 
activities typically also has a positive impact on the competitiveness and performance of 
enterprises . Therefore, an improvement of the overall macroeconomic performance , that is, of 
employment, economic growth and welfare in the EU  can be expected, partic ularly in the medium 
and longer term.  
It should be stressed that the e ffects on the size and the distribut ion of corporate taxable bases 
across the EU (see section 5) are not an intended  aim of the policy initiatives. No objectives are 
therefore defined in terms of revenue dist ribution or revenue neutrality for MS.  
3.2. Specific objectives 
The general objectives spelled out above will be achieved by meeting the following specific 
objectives aimed at removing the remaining corpor ate tax barriers faced by companies operating in 
the Internal market (see section 2.2): 
1. Reduction of additional corporate tax related compliance costs  for companies  
2. Elimination of double taxation  for companies operating in the EU Internal Market  
3. Elimination of the over-taxation  on cross-border economic activit y, mainly stemming from the 
absence or limited availability of cross-border loss relief.  
The elimination or reduction of these obstacles w ill help minimise the tax- induced distortions and 
inefficiencies in the Internal market.  
 
EN 17   EN 4. POLICY  OPTIONS 
4.1. Description of the options 
The extensive public debate on co rporate tax reforms in the EU launched by the Commission in 
2001 revealed that, with a view to removing the tax obstacles in the Internal market, a series of 
targeted actions  could be envisaged as short-term  measures, but alternatives for a comprehensive 
solution based on the provision of common rules for the corporate tax base  should be 
considered as the long-term solution . Thus, only comprehensive  solutions are retained for analysis 
and comparison to the baseline current situation. In any case, harmonisation would involve the 
base and not extend to the tax rates . Each MS will be applying its ow n rate to the taxable base of 
the companies. The five possible  options (status quo  and four comprehensive alternative 
solutions ) envisaged as possible corpor ate taxation policies, which will be assessed and weighed 
against the above-mentioned objectives are the following. 
Option 1 – No further EU action 
The baseline scenario will be the likely evolution of the current situation as described before 
(sections 2.1-2.3), i.e. with no further EU action . All in all, from the general economic trends 
pointing to increasing internationa lisation of production it can be in ferred that the current problems 
deriving from the fragmented EU landscape when it comes to corporate taxation are likely to 
aggravate in the absence of policy intervention.  
Option 2 – Optional Common Corporate Tax Base 
The second policy option to be  evaluated is an optiona l Common Corporate Tax Base  (CCTB). This 
alternative would affect the calcula tion of the corporate tax bases for the relevant companies in the 
EU. It would replace, for the rele vant companies (tax resident in the EU and of EU-located 
branches29 of third-country companies) , the current 27 different company tax codes by a single set 
of tax rules to establish the common  tax base: the CCTB rules. Harmonisation  will only involve 
the computation of the tax base and not interfere with financial accounts . Therefore, MS will 
maintain their national rules  on financial accounting and, at a second stage, adjust the result of the 
Profit & Loss Account ( P&L ) in line with the common rules, to arrive at the taxa ble profits (see 
Annex 5 for more details). However, as the comm on tax base would not be consolidated, the SA 
mechanism would need to remain in place: this  means that for groups operating cross-border all 
intra-group international tr ansactions would continue to be pr iced at arm's length and there would 
be no automatic EU-wide consolidation of the ta x base. Under this polic y option, the CCTB will be 
considered optional  for any company in the EU subject to corporate taxation that may wish to use 
this set of rules to compute its taxable profit with in each Member State in which it operates. For the 
purposes of this Impact Assessment, it will be  assumed that all EU-based multinational groups 
would opt for it in this scenario30. 
Option 3 – Compulsory Common Corporate Tax Base 
The third policy option is a compulsory Common Co rporate Tax Base. This alternative would affect 
the calculation of the corporate tax bases for all EU-based compan ies. It would replace the current 
                                                 
29 Branches create a taxable presence in  their country of location; the term  commonly used for such presence is 
'permanent establishment' (PE). 
30 Although companies will likely have to devote time and resources to decide whether or not to adopt the new 
system, a quantitative assessment is not attempted here due to lack of reliable evidence.  
 
EN 18   EN 27 different company tax codes by a common  EU-wide tax base. In this case the CCTB will be 
considered compulsory  for all EU-based companies subject to  corporate taxation. Thus, this option 
would be applied both to multinational compan ies and to purely domestic companies which, by 
definition, currently do not face an y cross-border tax obstacles. 
Option 4 – Optional Common Consolidated Corporate Tax Base  
The fourth policy option to be evaluated is an optional Common Consolidat ed Corporate Tax Base 
(CCCTB). This option would replace, for the releva nt companies, the current 27 different company 
tax codes and the SA mechanism by the taxatio n of a common (eg, calcula ted under one single set 
of tax rules: the CCCTB rules) EU-wide conso lidated tax base. The CCCTB is a system of 
common  rules  for computing the tax base  of companies which are tax resident in the EU and of 
EU-located branches31 of third-country companies. Specifically the common fiscal framework 
provides for rules to compute each company’s (or branch's) individual tax results, the consolidation  
of those results, when there are other group members, and the apportionment of the consolidated 
tax base to the different jurisdictions in wh ich the group entities operate. The tax base is 
apportioned based on a formula which consists of 3 equally-weighted factors (i.e. assets, payroll 
and sales) . Member States can then apply the nationa l corporation tax rates to their respective 
shares of taxable bases. As another important el ement of this alternative scenario, it is also 
envisaged to simplify the administrative framework  that could facilitate the tax-related 
administrative requirements for companies operating cr oss-border (i.e. ‘one-stop shop’ approach to 
administration and other reforms introducing common tax-related administrative processes32). 
Annex 5 provides more details on th e main features of the option.  
Different policy choices can be envisaged for this alternative. In particular, the design of some 
elements of the tax base and of the apporti onment mechanism will be subject to analysis.33 
                                                 
31 Branches create a taxable presence in  their country of location; the term  commonly used for such presence is 
'permanent establishment' (PE). 
32 A full description of the main features of the CCCTB policy option is included in Annex 5: the definition of the 
taxable base (and its relationship with IAS/IFRS), water’s edge, definition of the group, apportionment mechanism, administrative framework, anti-abuse rules, etc. The CCTB policy (which just entails common 
rules to define the tax base) is also implicitly described in that Annex, since CCTB is a narrower concept than 
CCCTB, which on top takes into account consolidation, cross-border loss compensation and allocation of the 
tax bases to different Member States. 
33 Regarding the latter aspect, in-depth discussion during the consultation process led to considering the three-
factor formula based on company-specific data the most promising mechanism for sharing the tax base among 
Member States. See for example CCCTB/WP/47, CCCTB/WP/52, CCCTB/WP/56, CCCTB/WP/60, DG 
TAXUD Taxation Papers nº8 and nº9. Different alternatives were considered through the way: from apportionment based on macro-factors, a Value Added key (to be retrieved from VAT returns of companies), 
firm-specific factors defined in se veral ways, etc. The experiences in countries that use formulary 
apportionment to split the income of multi-jurisdictional companies were analysed in detail (ie Canadian and US practices). Thus the consolidated tax bases under this policy option –common for all Member States, 
though with certain specificities for certain industries –w ould be based on labour (consisting of equal weighted 
payroll and number of employees), assets (without intangibles, financial assets or inventory) and sales (measured 'at destination'). Stakeholders and experts in th e field have agreed that this  three-factor formula best 
fulfils the principles that have guided the design of the sharing mechanism, i.e. the formula should: (i) be as 
simple as possible for taxpayers and tax administrations to apply and easy for tax administrations to audit; (ii) be difficult for taxpayers to manipulate, that is, it should not rely on factors that can be easily relocated to 
exploit tax rate differentials  across the EU; (iii) distribute the tax ba se among the various entities concerned in 
a way that can be considered fair an d equitable; and (iv) not lead to undesirable effects in terms of tax 
competition. Therefore, this three-factor formula will be the main sharing mechanism subject to analysis in this 
Impact Assessment.  
 
EN 19   EN Under this option the CCCTB system will be considered optional  for any company in the EU 
subject to corporate taxation that may wish to use this set of rules to compute its EU-wide taxable 
profits. For the purposes of this Impact Assessment it will be assumed that all EU-based multinational groups would opt for it in this scenario
34.  
Option 5 – Compulsory Common Consolidated Corporate Tax Base 
The fifth policy option to be evaluated is a comp ulsory Common Consolidated Corporate Tax Base. 
This alternative would affect the calculation of the corporate tax ba ses for all EU-based companies. 
It would replace the current 27 different company tax codes by a common  EU-wide consolidated  
tax base. In this case the CCCTB will be considered compulsory  for all EU-based companies 
subject to corporate taxation. Thus, this option would be applied both to multinational companies 
and to purely domestic companies which, by definition,  currently do not face  any cross-border tax 
obstacles. 
4.2. The choice of the legal instrument 
The choice of the legal instrument may have an effect  on: (i) legal certainty; (ii) proportionality (i.e. 
whether the instrument chosen is  the least interventioni st to achieve the obj ectives, e.g. directive 
should be preferred over the regulati on); (iii) adequacy of the instrume nt with regard to the content 
of the proposal. 
4.2.1.  Recommendation and soft law 
Recommendations or agreements such as a "Code of Conduct" am ong Member States have been 
used with a certain degree of succ ess in some limited ar eas of taxation. However, such instruments 
would not be appropriate in view of the nature  of the tax obstacles a nd identified substantive 
solutions involved. In fact, in the framework of co mpany law, the definition of the taxable base is 
part of the legislation of each State. By its very nature, the taxabl e base is defined by law in order to 
secure the adequate level of legal certainty both for taxpayers and tax administrations. The 
recommendation or another instrument based on so ft law would not secure the adequate level of 
legal certainty. While a soft law instrument could in principle be envisage d for the approximation of 
certain types of national tax legislation, it would be  an inadequate solution for the issues at hand. 
Firstly, a certain degree of a pproximation would not lead to uniformity. Thus, the issue of 
compliance costs would not be adequately addre ssed. Secondly, national co rporation tax systems 
have to be seen as a coherent set of interdepen dent rules. For example, the need for a loss carry-
back depends on the generosity of the rules fo r provisions. Approximating certain rules would 
therefore not be a feas ible solution. Thirdly,  in view of the fact that cr oss-border consolidation is an 
important element for overcoming tax obstacles, any such system requires a specific administrative and legal framework that has to be laid down in community law. 
4.2.2.  Directive 
The directive is an instrument best suited to guarantee basic common rules, applicable in all 
Member States. In particular, th e need for a directive to ensu re legal certainty both for the 
application and in case of litigati on is the normal way to deal with  company law, not only in the tax 
area. A directive is the most adequate way to achiev e the objectives set out in section 3 and it fully 
respects the proporti onality principle.  
                                                 
34 Although companies will likely have to devote time and resources to decide whether or not to adopt the new 
system, a quantitative assessment is not attempted here due to lack of reliable evidence. 
 
EN 20   EN 4.2.3.  Regulation 
As far as direct taxation is c oncerned, art. 115 of TFEU only pr ovides for the use of directives. 
4.3. Main design elements of the tax base 
In line with the a pproach taken in the CCCTB Working Group of examining individual elements of 
each "block" of the tax base, the Working Group also examined the specific approach taken by individual Member States in deta il. The working papers of the Gr oup are listed in Annex I and can 
be found on the TAXUD website
35. The papers contain information on the different MS approaches 
to the construction of their corporate tax bases.  While the technical approach and detail of the 
Member States approaches woul d differ, from a policy perspec tive there was only a material 
difference in relation to the treatment of depreciation36. As a result of the substantive differences 
among MS with regard to the treatment of depr eciation the focus of the work of the Group 
concentrated on the rates of depr eciation. This impact assessment examins two rates; 20% and 25%. 
Following on from the work of the CCCTB Worki ng Group and from working paper 57 the table 
below summarises the main elements of the CCCT B, more detailed info rmation on the elements 
and the construction of the tax base can be found in Annex V. 
Main elements of the CCCTB 
1. The ‘tax base’ (i.e. the individual tax results of each group member) 
• all revenues are taxable  except if expressly listed as exempt ; in addition, taxable revenues are 
reduced by  deductible (business) expenses  and certain other items  treated as deductible. 
• Exempt  items include: received distributions of dividends ; proceeds from the disposal of shares;  
and income from a branch in a third country . Deductible business expenses  commonly involve 
all costs relating to sales and expenses linked to the production, maintenance and securing of 
income. The CCCTB extends deductibility to  costs for research and development ( R&D)  and for 
raising equity or debt  for the purposes of the business. 
• fixed assets are depreciable for tax purposes  subject to certain exceptions.  Depreciable assets 
are distinguished between those subject to depreciation individually  and those placed in a pool . 
Long-life tangible and intangible fi xed assets are individually depreciated  whilst the 
remaining assets go into a pool. 
• Losses may be carried forward indefinitely . No loss carry-back  is allowed. 
2. Consolidation 
A 2-part test  determines the entitlement to participati on in the group. The deciding factors are control  
(>50% of voting rights) and either ownership  (>75% of capital) or rights to profits  (>75% of rights 
giving entitlement to profit). EC-located branches (of third-country companies) are eligible. The 2 
thresholds have to be met throughout the year . Otherwise, the company has to leave the group. There 
is also a 9-month minimum  requirement  for being a group member. 
• Intra-group transactions are eliminated,  
                                                 
35 http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm   
36 Annex XI is the CCCTB WG working paper 4 and annex on tax and depreciation summarises how assets are 
depreciated differently across Member States. 
 
EN 21   EN • Business reorganisations:  
 A. Companies entering the group 
 The underlying rationale  is to create a bridge  between the national tax system and the 
CCCTB scheme. The aim is to strike a balance  between MS individual taxing rights  and 
the concept of a consolidated shared tax base . 
 (i) Pre-consolidation trading losses  are ring-fenced  and carried forward to be set off 
against the taxpayer’s apportioned share. The idea behind this is that the MS participating in 
the consolidated group do not have to b ear the cost of losses already incurred; 
 (ii) Unrealised gains:  the capital gains are taxable upon realisation  and shared  across the 
group; 
 B. Companies leaving the group 
 (i) Group trading losses : nothing  is attributed to the leaving company ; losses produced 
during the period of consolidation remain at group level ; 
 (ii) Unrealised gains: capital gains are taxable upon realisation  at the level of the 
company leaving the group ; 
 C. Reorganisation within a group 
 (i) Trading losses  incurred during consolidation: no impact ; 
 (ii) Pre-consolidation  losses remaining unrelieved continue to be ring-fenced ; 
 (iii) Unrealised gains: tax neutrality  is the overarching principle  
3. Transactions between the group and entities outside the group 
• Tax Treaties with third countries will override conflicting rules  of the Directive, meaning that a 
MS will not be hampered from fulfilling its  commitments vis-à-vis a third country. 
• Relief by exemption  will be given for third-country located branch income ; inbound dividend  
distributions; and the proceeds from the disposal of shares  held in a company outside the group. 
• Relief by credit  for inbound interest  and royalty  payments; the credit is shared  among the group 
members according to the formula  (without inclusion in the consolidated base). 
• Withholding taxes  charged on outbound interest and royalties  will be shared  among the group 
members according to the formula  (without inclusion in the consolidated base); in the case of 
dividends , the withholding tax will not be shared Transactions between associated enterprises  
will be subject to pricing adjustments  in line with the 'arm's length'  principle. 
4. Anti-Abuse 
• A General Anti-Abuse Rule (GAAR) is supplem ented by measures designed to curb abusive 
practices of a cross-border nature:  
 (i) Limitations  apply to the deductibility of interest  paid to associated enterprises in a low-
tax third country which does not exchange inform ation with the Member State of the payer; 
 
EN 22   EN specific rules define the concept of a 'low-tax third country'; 
 (ii) Controlled Foreign Companies  (CFCs) legislation requires that the CFC, resident in a 
low-tax third country, is controlled  at 50%  of its voting rights, owned  at 50% of its capital 
and gives 50% profit entitlement  to the taxpayer. In addition, 30% of CFC income  should 
be tainted . 
5. Formulary Apportionment (FA) 
• The FA comprises 3 equally-weighted factors (i.e. assets, payroll and sales): 
 (i) Labour  is computed based on both payroll  and the number of employees  (each item 
counts for half); 
 (ii) Assets  consist of all fixed tangible assets , meaning that intangibles and financial assets 
are excluded from the FA;  
 (iii) Sales  are taken into account to increase the taxing entitlement of the MS of destination . 
6. Administration 
• The 'one-stop-shop' practice will allow groups with a taxable presence in more than one MS to deal 
with a single tax authority across the EU (i.e. prin cipal tax authority (PTA)), being that of the EU 
parent of the group termed 'princip al taxpayer'. A consolidated tax return will be filed with that 
authority. 
• The Directive contains procedural rules on various matters: 
 (i) How taxpayers should submit their notice to opt  into the CCCTB and subsequently their 
annual tax returns ; 
 (ii) A ruling mechanism,  coupled with an interpretation panel  and a scheme for the 
exchange of information, will be operated by the competen t authority (CA) in each group 
member; 
 (iii) Audits will be initiated and coordinated by the PTA;  
 (iv) In terms of dispute settlement,  disputes between MS  will be referred to Arbitration  
whilst those between taxpayers and MS  will be dealt with by an Administrative Appeals 
Body at a 1st instance and, at a 2nd instance, will have to be brought before the national 
courts of the principal taxpayer . 
 
 
5. ANALYSIS OF IMPACTS OF THE RETAINED OPTIONS 
This section analyses the different impacts of th e tax reforms under analysis. First, specific impacts 
of the main elements of the concerned policy options37 and, subsequently, general economy-wide 
                                                 
37 As specific elements vary across the policy options, not all alternative policy options under scrutiny have an 
impact in all the aspects analysed : for example, the CCTB option has no effect on cross-border loss 
 
EN 23   EN effects of the various options ar e addressed using the different me thodologies summarised in Box 2. 
Thus, hereafter, the impact of each policy op tion on the following aspects will be outlined: 
1) impact on the size of the taxable bases , and on the distribution  of the corporate tax 
bases  among the EU Member States, stemming from both the new corporate tax base 
provisions and the possibility of loss consolidation;  
2) impact on the costs  for tax administrations and on the compliance costs  for taxpayers;  
3) the main economy-wide impact s.  
A qualitative discussion of  the expected dynamic long term eff ects, as well as of the social or 
environmental impacts, is also provided.  
Box 2: Methodologies used to quantify the im pacts of the alternative policy options.  
1. The European Tax Analyzer  (ETA) : a methodology that simulates the development of a 'model' company 
over a 10-year period, taking into account the relevant pr ovisions of the tax system in place. The model is 
used to measure the size of the tax base as defined by current national tax provisions (baseline scenario) in 
each of the 27 EU Member States, and then to compar e the results with the tax base that would result from 
the application of an EU common tax base, but cannot address consolidation and allocation of the tax base, 
and therefore does not measure the final tax base size for the CCCTB options. See Annex 6 for more details. 
2. ORBIS and Amadeus databases : the databases provide balance sheets and profits and loss accounts for 
representative samples of about 6700 EU  multinational groups in the financ ial and about 2000 groups in the 
non-financial sectors, respectively, over the 2002-2005 pe riod. The data have been used to calculate the 
effect of loss consolidation and, with particular refe rence to ORBIS, to calibrate  the CORTAX model. Annex 
3 provides a detailed description of the different ways in which the data have been used.  
3. CORTAX model : an applied computable general equilib rium (CGE) model that describes the 27 
countries of the European Union, plus the US and Japan.  It is designed to simulate  the economic implications 
of unilateral and multilateral corporate tax policies as well as the harmonisation of these policies. The model 
is calibrated using data from the ORBIS database. Importantly, the simulations in CORTAX are run under 
the working assumption that any change s in the corporate tax base would be compensated by changes in the 
national tax rates to guarantee ex-ante budget neutrality. See Annex 10 for more details. 
4. PricewaterhouseCoopers case study : a survey launched in 2008 among multinational companies  
located in the EU . Of the 21 EU multinational companies surv eyed, 17 replied to the questionnaire on the 
quantitative and qualitative views on compliance under the cu rrent national systems for corporate income tax 
and in the two hypothetical scenarios of CCTB and CCCT B. Annex 7 gives more details on this exercise. 
5. Deloitte Tax Experts survey : a survey  among tax experts  of Deloitte's European network was carried 
out in 2009 to evaluate the additional recurrent comp liance time and cost that would be needed if a 
multinational group would set up a new subsidiary in  another EU Member State. See Annex 8.  
5.1. Impact of the policy options on  the size of taxable bases 
Modifying the size of the corpor ate tax bases is not an objective per se  of the company tax reforms 
under analysis. However, all the alternative poli cy options imply new tax rules for defining the 
common tax base. Hence, it is important to assess th e changes in the size of the corporate tax bases 
                                                                                                                                                                  
consolidation or apportionment of tax bases across Member States. Thus, only the concerned  policy options 
are assessed for each of the impacts analysed. 
 
EN 24   EN of the EU companies concerned with reference to the status- quo. This analysis should allow 
answering the question of whether the EU common tax base under consideration would be in 
general broader or narrower than the current corporate tax bases (for individual companies 
and at the national level). Thus , no conclusions should be drawn on the final impact on overall tax 
revenues, as those will depend on Member States' own policy choices with regard to possible adaptations of the mix of different ta x instruments or applied tax rates. 
The change of the tax base can be due to two sets of elements: (i) the establishment of new tax base 
provisions unrelated to consolidation or loss comp ensation (CCTB and CCCTB options); or (ii) the 
new possibilities for loss offsetting (only CCCTB options). The analysis in the following two sections focuses on the two elements described. In  the absence of actual data from national tax 
administrations, several alternativ e methodologies have been employed in this exercise (see Box 2). 
5.1.1.  The impact of the common tax base provisions unrelated to consolidation  
The aim of this section is to assess the impact on the size of the relevant companies' tax bases of 
moving to an EU-wide harmonization of the major stru ctural elements of the corporate tax 
bases unrelated to consolidation: depreciation allowa nces, inventories valua tion, etc. Hence, the 
purpose is to compare the initial co rporate tax bases, as defined by current national tax provisions in 
place in each country (benchmark case) with the size of the tax bases that  would result from the 
application of common  EU-wide tax base provisions (before loss compensation or apportionment in 
the scenarios with a CCCTB). At the policy leve l, tax base broadening measures are generally 
deemed an efficiency-improving strategy to sustain revenues in the globalised economy38. In the 
context of revenue-neutral reform s, low statutory rates not only ma ke countries less vulnerable to 
international profit shifting through transfer-pricing and thin capitali zation, since mobile profits are 
particularly sensitive to tax rates, but are also particularly attractive to high-yielding companies, 
often multinationals earning firm-specific mob ile rents from the exploitation of special 
technologies, brand names, etc (Dischinger, 2007). Promoting inward i nvestment from those 
companies can generate positive spillovers to the host economies, although the success of such 
policies might depend on whether the reforms are undertaken unilaterally by one country or multilaterally by a group of countries like the EU
39. 
Using the ETA model (based on simulations for a standardized company) it is possible, for each of 
the two types of representative co mpany (large vs. SME), to calculate the future value of the tax 
base – i.e. the sum of all yearly tax bases evaluate d at the end of the simula tion period of 10 years - 
in case of application of the na tional tax rules as th ey stood in 2006, alongsid e the % change when 
all provisions of the common tax base (CCTB) are implem ented simultaneously, under two 
different rates applicable for pool depreciation  on machinery and equipment, namely 20% and 
                                                 
38 This approach finds support in the recent economic literature, such  as Sørensen (2006), Haufler and 
Schjelderup (2000), Devereux, Griffith and Klemm (2002)  In fact, the incentives to lower the statutory tax 
rates in a globalising economy, together with the need to raise a certain amount of revenue from the 
corporation tax, explain the policy of rate-cut-cum-base-broadening pursued by most OECD countries in recent decades. 
39 While for individual countries the policy of base broadening and rate reduction may be optimal in order to 
attract profits and investment, a coordinated policy at a European scale reduces the fiscal externalities within 
the EU and the beneficial effects of lower corporate tax rates are smaller (i.e. tax rate reduction attracts fewer 
investments/profits from within the EU if all other Euro pean countries pursue the same policy). In that case, a 
coordinated tax system featuring a narrower base and higher corporate tax rates that creates smaller investment distortions at the margin may be more attractive. Calib ration based on actual data to measure the strength of 
the opposing effects is provided in Section 5.4. 
 
EN 25   EN 25%40. The representative company in all Member St ates, except Cyprus a nd Ireland, would see the 
size of its taxable base increase af ter the introduction of a CCTB. The results of the calculations are 
very similar for the ‘model’ large company and the SME but they differ substantially between a rate 
for pool depreciation on machinery and e quipment of 20% or 25%. On average, for a 20% rate for 
pool depreciation, the future value of tax ba se increases by 6.20% for the representative EU 
large company, and by 5.57% for the representativ e SME, while for a 25% rate it broadens 
by 1.09% and 1.96%  respectively41 (see Table A.12 in Annex 6). The ORBIS database can be 
used to calculate the net value of  depreciation allowances (and there by on the tax bases’ size) of the 
current tax systems and the common tax base for both a 20% and 25% deprec iation rate for plant 
and machinery. The overall findings are cons istent with those from the ETA model: the net present 
value of depreciation allowances decreases on av erage by 5.9 or 4.9 percentage points if the 
20% or 25% depreciation rates hold, respectively. As expected,  the variation across countries 
is substantially reduced by the common tax base : the standard deviation drops from an average 
of 8.9% to 3% (see Table A.10 in Annex 3 – secti on 3.3). This is an import ant result of the common 
tax base, as it may help to reduce the differences in effective taxation  across EU Member States 
which could result in an improved allocation of capital within the EU . Finally, the results from 
the PWC case study show again a 'broadening of the tax base' trend , although these results 
should be taken with caution given the limited sample coverage.  In this approach, 13 EU-based 
multinationals have 'simulated' their taxable bases under both the nationa l systems of the EU 
countries where they operate and the common ta x base scenario – wit hout cross-border loss 
consolidation. According to the simulations, a move towards a CCTB would increase the average  
tax base of MNEs) by 11% (abstracting from the si ze of the companies in the sample). The results 
give a less strong movement in the aggregated  tax base (i.e. summing together the results of all 
companies in the sample, thus giving greater wei ghting to larger MNEs), which would increase by 
around 3% for the whole EU sample. The MNEs’ answers have been aggregated by MS where each company is established: for most individual countries the aggregate effects on the size of tax bases 
of a move towards CCTB
42 seem to be rather limited or within the margins of statistical relevance 
(+/-2%) for this sample of firm s (see table A.13 in Annex 7).  
To sum up, the findings of all the app lied methodologies seem to indicate that the introduction of 
the common tax base provisions unrelated to cons olidation (CCTB) could lead on average and 
for most EU-based companies to tax bases broader than the curren t ones. However, the 
magnitude of this increase se ems to depend essentially on th e depreciation rules applied . The 
common tax base would also reduce the substantial variation in tax bases  across European 
countries that currently exist, pa rtly due to differences in fiscal  depreciation schemes and inventory 
valuations. 
                                                 
40 The value of the corporate tax bases under CCTB still differ across countries even if the rules for tax 
accounting are harmonised and even if the model company is  supposed to be alike everywhere. The reason for 
this is that some Member States levy local taxes whic h in this model are assumed to be deductible from the 
corporate tax base as a business expense (e.g. real estate tax and other local taxes like business taxes) and the 
amount of such local taxes varies widely between the Member States: from no other than corporate income tax in Malta to other taxes that weigh up to almost 60% on  the effective total tax burde n of companies in Hungary. 
The liquidity effects of paying these taxes (which allo w or not further investments) and their deductibility of 
the tax base have accumulative effects through the 10 years simulation period, thus giving  rise to the spread in 
tax bases’ size even in the event of a CCTB. 
41 The difference is to be attributed to the fact that depreciation rules explain in isolation more than 70% of the 
tax base size changes; within those, the provisions  for machinery and equipmen t account for 90% of the 
variation.  
42 Depreciation rate of 20% for the pool assets was assumed in this study. 
 
EN 26   EN 5.1.2.  The impact of consolidat ion of profits and losses 
In the corporate tax regimes in Europe, losses can  be carried forward and offset against future 
profits within the same country. This leads to an asymmetric treatment of losses compared to 
profits, for a twofold reason: i) the possibility of lo ss offset can in fact be limited in time and in the 
amount that can be offset per year; ii) firms ca n only carry forward nominal losses (i.e. without 
indexation), whose value in real terms decreases with inflation. Loss carry backs are only possible 
in very few cases43. The lack of cross-border loss compen sation leads to over-taxation in cross-
border activities. Besides the more symmetric treat ment of profits and losses mentioned earlier, 
there are several further potentially  important economic effects of (cro ss-border) loss consolidation: 
i) improved neutrality between domestic and cr oss-border investment; ii) reduced risk of 
investment, as losses are better insured (Domar-Mus grave effect), which may stimulate risk taking 
and raise returns to capital in the economy; iii) incr eased efficiency in the international allocation of 
productive capital; iv) enhanced investment ability from financ ially constrained firms following 
higher after-tax profits (see e.g. Hubbard, 1997). Hence, allowing the immediate consolidation of 
profits and losses for computing th e EU-wide taxable bases of multin ational groups, would be a step 
towards the goal of achievi ng the specific objective of reducing over-taxation in cross-border 
situations  and thereby towards improving the tax neutra lity conditions between domestic and cross-
border activities to better exploit the potential of  the Internal market. This would contribute to 
achieving the genera l objective of improving efficiency  in the Internal market. 
The policy options involving a CCCTB allow for an EU-wide consolidated tax base with some form 
of immediate cross-border loss offsetting with in the same business group. Therefore, under 
consolidation, the present value of the EU-wid e corporate tax base would shrink somewhat 
compared to the current situation. The analysis in this section tr ies to quantify the impact of EU-
wide loss offset on companies' tax bases in relative terms : what percentage do the losses that could 
be compensated cross-border represent in terms of the overall tax base for an average EU 
multinational? What is the quantitative macro-econo mic effect of EU-wide loss consolidation? The 
statistical analysis for the sample of EU-multinational groups based on the Amadeus and ORBIS databases shows that, on average, every year approximately 50% of non-financial and 17% of 
financial multinational groups could  benefit from immediate cross-border loss compensation . 
The additional  losses  that could be compensated cross-border  in the samples amount on average 
to 3% and 2.5% of the net current taxable profits  for the non-financial and financial groups 
respectively. Overall, the losses  that could be imme diately compensated under the CCCTB scenario 
account on average for 7% and 20% of the net current taxable profits  for non-financial and 
financial groups , respectively.  As a result, given the share of co rporate tax revenues of the non-
financial and financial sectors, on average fo r the groups involved the taxable base under the 
CCCTB scenario would be 2.8% lower than in the status-quo. According to  the PWC case study of 
13 multinational companies on average in th e 2005-2006 period immediate loss compensation 
would involve 10% of the current tax base
44.  
The welfare implications of loss consolidation re lative to loss carry forwar d have been analysed 
using the CGE model CORTAX using the averag e loss probability calculated from the ORBIS 
database and assuming that, in the baseline and CCT B scenarios, loss carry forward applies in all 
EU countries. The simulations show that, given the share of multinationals in the EU and the level 
                                                 
43 The MS that apply loss carry back are DE, FR, IE, NL and UK. See, the Commission staff working paper on 
tax treatment of losses in a cros s border situation, Annex VII. 
http://ec.europa.eu/taxation_customs/resources/documents/sec_2006_1690_en.pdf 
44 On average, losses compensated for this sample represen t 5% of the as-is tax base under existing tax rules, but 
increase to 15% of the current tax base under CCCTB. 
 
EN 27   EN of rates, consolidation alone w ould reduce the corporate tax burde n by 15%, a value in line with 
other studies (e.g. Fuest, Hemmelgarn and Ramb, 2006)45. In the steady state equilibrium of 
CORTAX, the reduction in the tax base is smaller because losses can be carried forward from the 
past. All in all, the decline in the aggregate total economy tax base in the steady state would be 
4.5% . The reduction is higher for countries feat uring high corporate tax rates and a large 
multinational sector. Moreover, given the behavioural assumptions of CORTAX, loss consolidation would require a 1.9 percentage point increase in  corporate tax rates to balance the government 
budget from the tax base reduction. The combination of loss consolidation a nd higher rates raises 
the cost of capital, which results in slightly lower investment and hence in a decrease in GDP. However, the net effect on welfare is negligible
46. 
The analysis above shows that a CCTB policy option  - with common tax base provisions but no 
cross-border loss conso lidation - could imply broader tax bases  than current ones for most 
companies. For a similar assessment of the CCCTB option , the results of the two previous sections 
could be tentatively combined. All methodologies indi cate that the combined effect of the new tax 
base provisions unrelated to cons olidation (which tend to broaden the tax base) and the introduction 
of immediate cross-border lo ss consolidation (which tend to shrink it) would result in aggregate 
tax bases of roughly similar size compared to the current ones (for the companies concerned). 
The MNEs case study yields a slightly positive net effect: over the companies sampled, the average  
tax base over the two year base period increased by 5% by moving from the current scenario to a 
CCCTB47. A further economic assessment of the implica tions of the changes of tax bases' sizes on 
macroeconomic variables for the different policy op tions under analysis is shown in Section 5.4 
below. 
5.2. Impact on the distribution of the ta x bases between the EU Member States 
In addition to 'size effects', the alternative poli cy options imply changes in the distribution of 
taxable profits across national jurisdictions. In pa rticular, the CCCTB policy alternatives entail the 
introduction of an EU consolidated  tax base for multi-jurisdicti onal groups, thus raising the 
question of how the overall tax base should be divided among the Member States in which the 
group operates. Hence, the CCCTB alte rnatives require the definition of a system to allocate tax 
bases across taxing jurisdictions, different from the traditional arm's length methodology48. 
Apportioning mechanisms imply an inter-jurisdictiona l 'redistribution' of tax bases that is worth 
quantifying, although such impact does not reflect a ny policy objectives but is  an unavoidable side-
                                                 
45 See Annex 10 for details.  
46 The incentive effects of loss consolidation on investment and employment are subtle. Despite the lower 
corporate tax burden due to consolidation, the CGE model shows that the cost of capital does not necessarily 
fall. Intuitively, marginal returns on investment can still be positive but taxed later or only partially under loss 
carry forward. Under loss consolidation such positive marginal returns are taxed immediately and always and 
therefore taxed at a higher effective rate. The smaller capital stock exerts a negativ e impact on the marginal 
product of labour and, therefore, on labour demand, wh ich will ultimately lead – with a positive elasticity of 
labour supply – to a contraction in employment.  
47 The EU-wide aggregate  tax base of all sampled MNEs shows howev er a small decrease by 2% of the move 
towards a CCCTB: this result is attributable to important losses incurred by a large company of the sample in the years of study and can be  considered within the margin of error of the sample. 
48 The 'no policy change' scenario and the CCTB would still allocate tax bases across taxing jurisdictions 
according to traditional SA. Under th e CCCTB, on the other hand, Conso lidated profits for firm i are 
apportioned across countries according to a formula like 
wij = ∑k wk ( Xij / Xi )` 
where wk denotes the formula factors, with ∑k wk =1, and Xij denote the share of the multinational i’s factor Xi 
that is operational in country j. The profits apportioned to each country can then be taxed at the national 
corporate tax rates. 
 
EN 28   EN effect of some of the options analysed. Importa ntly, no general conclusions should be drawn on the 
final effect on revenues or on the budgetary position of the different MS, as this will depend on national policy choices with regard to possible adaptations of the mix of different tax instruments or 
applied tax rates.  
First of all, the 'full size of the new tax bases' before distribution (
i.e. accounting for provisions to 
offset losses, and non-related to conso lidation) has been assessed using the  PWC case study  of the 
sample of 13 EU multinational groups. This approach indeed allows for a quantification based on 'actual tax data', although the conclusions should  be taken with caution gi ven the limited sample 
coverage. In this sample of MNEs, changing the weighting of the CCCTB apportionment factors 
has little effect on the relative a pportionment of the tax base between  countries. This result can be 
attributed to the fact that th e underlying apportioning factors have  a very similar distribution 
between countries (see Table A.14 in Annex 7). Data from the ORBIS and Amadeus databases – 
covering representative samples of EU multinational groups operating in the financial and non-financial sectors, respectively – can be used to get some insights on the distribution of tax bases 
across countries under apportionment rules versus  current SA. Two limitations of this analysis 
should be pointed out. First, the effects on the size of the taxable base cannot be fully accounted for 
since accounting profits are used as a rough proxy for taxable profit s and the full imp act of the tax 
base provisions on the size of taxable bases – as analysed above  – is not captured by financial data. 
In turn, only 'consolidation of prof its and losses' is adequately acc ounted for in the analysis. As a 
consequence, for the results in section 5.1.2, the size of the taxable base to be distributed across 
countries is undoubtedly underestimated in this  exercise. Second, missi ng data problems have 
somewhat reduced the sample coverage
49. Therefore, the tax bases of the groups for which 
'consolidation + apportionment' has been calcul ated account for around 15% of (a proxy of) total 
EU corporate tax bases for the year 200450. In this exercise, taxable profits in each country of the 
EU, both under the current tax conditions and under alternative scenarios of 'consolidation + 
apportionment', have been simulated for each of the selected multinationa l groups. (More details on 
the methodology are reported in Annex 3). Shifts in  the national tax bases after apportionment can 
be evaluated comparing the formulary apportionm ent-based distribution of tax bases across 
countries to the current profits-based distributi on. Table 3 reports the results from the formula 
where the labour factor (split into payroll and number of employees), assets and sales by 
destination are equally weighted , whereas the effects of alternative formulae are left for Table 
A.11 in Annex 3 (section 3.3), as a sensitivity check . The results for non-financial and financial 
groups have been aggregated using as weights the respective shares of these sectors in the average 
corporate income tax revenues for the years 2002 to 2005 according to  national accounts in order to 
get an indication for the economy wide  tax base. Overall, the results poi nt to an increase in the tax 
bases mostly in the MS in Central and Easter n Europe, as well as in Germany, Spain, France, 
Greece, Italy and the UK. As pointed out above, th ese results should not be taken as representing 
the overall effect on MS tax revenues. Clearly, for given corporate tax rates any change in the size 
of the base translates into a proportional impact on revenues  from corporate income. However, 
national governments might optimally respond to sh ifts of the taxable base not only by changing 
                                                 
49 Out of the above 2000 multinational groups extracted from the Amadeus database (see Annex 3), just around 
750 groups had sufficient and appropriate data to run accurately all calculations involved in 'consolidation and 
apportionment'. Additionally, data from 2073 financial groups out of the total 6700 from the ORBIS database 
have been analysed. 
50 As an exact figure for corporate tax bases in the EU  countries is not available a proxy based on national 
accounts data was used. The approach followed is simila r to the method for calcula ting the denominator for the 
implicit tax rate on corporate income published in the 'Taxation trends' (European Commission 2009). The 
denominator measures not the actual tax base but indicates on a comparable basis the profits of corporations 
that could potentially be taxed by national tax authorities. 
 
EN 29   EN their corporate rates in the short term, but also by adapting the design of the tax mix in the medium 
and longer run. Evaluating the ultimate effects on the national fiscal positions is therefore very 
difficult51.  
                                                 
51 From a methodological point of view, sound predictions on the effects of the new rules on MS tax rates would 
require modelling national governments' reaction functions . Models currently available to simulate corporate 
tax reforms in the EU, like the CORTAX  model, do not yet reach this degr ee of sophistication. Moreover, the 
economic literature does not offer a conclusive answer to the key question whether the switch from separate 
accounting to formula apportionment will intensify competitiv e pressures on tax rate s. Undeniably, the 
common rules for the calculation of the tax base will make the system more transparent - to the benefit of firms 
when it comes to comparing the eff ective tax burden across different jurisdictions. In addition, having 
(destination based) sales in the formula reduces incentives for countries to cut taxes as the destination of sales 
cannot be easily shifted.  
 
EN 30   EN Table 3. Comparison of tax bases under the 'c urrent' scenario and with 'consolidation + 
apportionment' 
 
  Sample 
current 
tax base  1/6 ‘Cost of employees’ – 
1/6 ‘Number of 
Employees’ - 1/3 ‘Assets’ 
– 1/3 ‘Sales by 
destination’ 
Country Cross-country 
distribution Cross-country 
distribution Change  
AT 4.00% 2.90% -1.10 
BE 5.60% 3.90% -1.70 
BG 0.00% :   
CY : :   
CZ 0.20% 0.40% 0.20 
DE 16.70% 19.50% 2.80 
DK 5.90% 3.90% -2.00 
EE 0.19% 0.20% 0.01 
ES 3.40% 4.60% 1.20 
FI 8.50% 5.50% -3.00 
FR 8.30% 10.00% 1.70 
GR 0.70% 1.30% 0.60 
HU 0.60% 0.40% -0.20 
IE 2.90% 2.50% -0.40 
IT 6.10% 7.90% 1.80 
LT 0.10% 0.20% 0.10 
LU 1.00% :   
LV 0.00% 0.10% 0.10 
MT : :   
NL 6.40% 4.20% -2.20 
PL 2.00% 1.80% -0.20 
PT 1.20% 1.20% 0.00 
RO 0.10% 0.30% 0.20 
SE 5.90% 4.90% -1.00 
SI 0.10% 0.10% 0.00 
SK 0.00% 0.10% 0.10 
UK 20.30% 20.50% 0.20 
Total EU 100.00% 97.30% -2.70 
Source: Own calculations based on Amadeus and ORBIS databases. 
As in the previous section, the statistical analys is is complemented by the approach based on the 
CGE model CORTAX that captures firms' behavioural responses to  the new tax system, allowing a 
quantification of welfare effect of the reforms.  In CORTAX, the shift from SA to consolidation 
with formula apportionment has a number of effects th at can be divided into three categories: i) an 
ex-ante impact on the distribution of corporate tax bases across c ountries; ii) a removal of profit 
shifting within the EU; iii) a shift from current di stortions in international capital allocation towards 
a new type of distortion associated with the fo rmula factors. These are analysed in turn.  
(i) The ex-ante impact on corporate tax revenue occurs because the sharing mechanism will in 
general yield a different distribution of the tax base  across countries than the current system of SA. 
 
EN 31   EN Therefore, formula allocation will cause an ex-a nte reallocation of cor porate tax bases and, for 
given rates, of corporate tax revenues52.  
(ii) The second effect of consolidation and fo rmula apportionment is that multinationals and 
governments no longer need to determine arm's-length prices for intermediate deliveries within the 
EU. Accordingly, the opportunities for multinationals to shift profits are re duced. This affects the 
distribution of corporate tax bases between high-tax  and low-tax EU countri es. The elimination of 
profit shifting is no t a zero-sum game in CORTAX. On the one hand, if tax planning opportunities 
are taken away, firms save resources that can be used more productively. This improves welfare. On 
the other hand, the opportunity of  profit shifting under SA allows multinationals to reduce their 
overall tax burden. Taking away th is opportunity thus raises the tax burden, which discourages 
investment and hurts welfare (see a further discussion on this in Section 5.4 below).  
(iii) In the current system, firms have an incentiv e to locate capital (next to profits) in low-tax 
countries since generated income is taxed at sour ce. The resulting distorti on in the international 
allocation of capital harms production efficiency. Under formulary apportionment, this distortion 
disappears since taxes are levied  on consolidated income. Yet, the formula may introduce a new 
type of distortion stemming from the incentive for MNEs to reallocate factors to low-tax 
jurisdictions to affect the final result of the form ula. In fact, statutory co rporate tax rates become 
taxes on the factors used in the formula. This generates a potential distortion to the international 
allocation of productive factors53.  
The welfare effects under the CCCTB have been simulated using alternative sharing mechanisms 
(see Figure A.3 in Annex 10) 54. The switch to payroll instead of em ployment mainly benefits high-
wage countries (in the former EU15) at the ex pense of low-wage countries (like Romania and 
Bulgaria). The larger weight on capital benefits capital-intensive countries like Belgium, Ireland 
and the Netherlands. On balance, CORTAX suggests that the isolated aggregate effect on welfare 
in the EU of any apportionm ent mechanism is very small .  
The discussion above assumes away other dyna mic effects that would affect the size and 
distribution of the cake of corporat e taxable profits in the EU in the long-term. An analysis of the 
long-term effects on the size of the cake of each a lternative policy option should take into account: 
i) the number of EU companies which are now purely domestic but may choose to operate cross-
border in the Internal Market as a result of the tax reform, thus becoming EU multinationals; ii) the 
                                                 
52 Devereux and Loretz (2008) and Fuest, Hemmelgarn and Ramb (2007) explore the ex-ante revenue 
implications of formula allocation using micro data. In CORTAX, the reallocation of revenue is governed by 
national accounts data (which determine the shares in the formul a for each country).  
53 The effects of FA on relocation have not been unambiguously confirmed by the existing empirical literature. 
For instance, Klassen and Shackelford ( 1998) find evidence that the formula matters for the location of sales in 
the US, but not for decisions about factors like employment and property. In the light of this and other 
evidence, Agundez-Garcia (2006, p.66) concludes that "the effects due just to the distortionary burden on the factors in the apportionment formula remain largely unkn own". In fact, to evaluate the potential relocation of 
labour within Europe follo wing FA one should take in to account a number of fact ors other than the resulting 
overall tax burden, such as labour market regulations, existence of agglomeration economies, productivity levels, etc. Hence, if there are signifi cant differences across countries in these areas, the impact of the fiscal 
factor as a driver for relocation mi ght correspondingly decrease. Moreover , the overall effects are even more 
difficult to gauge if one recognises that the importance of the economic determinants of relocation varies significantly across industries.  
54 These results are based on simulations considering th e CCCTB-WG20 definition of the tax base, assuming that 
the CCCTB system is compulsory for all firms and for the basic version of CORTAX, which does not include tax havens and discrete location choices. Therefore, they  are not readily comparable to the results shown in 
Section 5.4 (which include tax havens and discrete location choices).  
 
EN 32   EN foreign investments that may be attracted into th e EU by the more favourable tax conditions due to 
the reforms, which may generate some additional corporate tax bases; iii) the increased economic 
activity following the positive growth effects from the improved functioning of the Internal Market, etc. A quantitative assessment of these issues is obvi ously very difficult. It can be connected to the 
more general analysis of dynamic effects of th e tax reform discussed in section 5.5 below.  
5.3. Impact on costs to tax administrati ons and on compliance costs to firms 
The prominent objective of the tax reforms consider ed is the reduction of tax compliance costs for 
companies operating in the Internal market. Therefore,  a careful evaluation of this issue is a key part 
of this Impact Assessment exercise . In addition, the reforms analysed will also have an impact on 
tax administrations' costs. 
5.3.1.  Member States tax administrations' costs 
A move to any of the alternative policy options fr om the current situation will entail some new costs 
for Member States' tax administrations. These in clude: the need for coordination with other 
administrations (for example, in  the application of double taxatio n relief methods) and one-off costs 
like the need of personal training, upgrading of IT systems, etc. Some of the alternative systems 
may save some of the current costs which tax admini strations incur, such as the costs of resolving 
intra-EU transfer-pricing disputes or the gene ral costs of monitoring transfer-price setting by 
companies (these costs would be saved only by non-SA based systems like CCCTB, but would remain in place under the SA-based current sy stem and CCTB). In case of optional policy 
alternatives, the costs associated with maintain ing two different systems simultaneously should be 
estimated. These costs would be saved in the co mpulsory versions of the CCCTB, where this 
alternative tax scheme woul d replace all current national corporate tax systems.  
To retrieve information on current and persp ective tax-related costs incurred by national tax 
administrations, Member States – through the CCCT B Working Group – have been asked to answer 
to an " ad hoc  questionnaire " prepared by the Commission Services (see Annex 9)
55. Only four 
Member States gave information on the size of their present tax related outlays. Only two Member States were able to give inform ation on the quantitative foreseen one-off costs in case one of the 
policy options should be implemented, whereas re current administrative costs under the new 
scenarios were not estimated. Some  Member States underline the diffi culty to assess administrative 
costs for the policy alternatives while acknowledgi ng that the implementation of a new system will 
entail one-off costs to training personnel, to adapt informatics systems and to familiarise firms with the new system and that supplementary costs should be anticipated in case the national tax 
administration had to simultaneously manage the "national" system and the "common" system. 
5.3.2.  Companies' tax related compliance costs 
This section aims at ev aluating the savings in recurring tax related compliance costs  for 
companies expected under the different policy op tions. It should be emphasized that when the 
adoption of the new system is made optional for firms, the decision process will most likely be 
based on a cost-benefit analysis that will itself take time and resources. Similarly, learning costs 
should be expected from the comp liance to the new rules. Table 4 reports the areas in which the 
surveyed multinationals expect costs from a ch angeover to arise according to the PWC study. The 
well-known methodological difficulties  in estimating tax related co mpliance costs are exacerbated 
                                                 
55 The methodology used is in line with the model of 'assessment of administrative costs of legislation', in this 
case for public authorities, as described in Annex 10 of the Impact Assessment Guidelines. 
 
EN 33   EN when it comes to estimating costs stemming from the adoption of a new system. However, such 
costs will be by definition one-off, and hence expectedly outweighed by the savings in recurring outlays that companies face in dealing with tax administrations.
Table 4: One-off costs expected to 
arise on a changeover from the current system 
Type of cost % of respondents  
Training staff 100.0% 
Calculations to decide on w hether to opt into CCCTB/CCTB 92.9% 
Calculations to set up asset pool for tax depreciation under CCCTB/CCTB 85.7% 
Development of new processes and systems 85.7% 
Consulting/advisory fees 85.7% 
Software license fees 64.3% 
Other HR costs/relocation of staff 28.6% 
Outsourcing compliance cost obligations 28.6% 
  
Source: PriceWaterhouseCoopers Surv ey on multinational firms.   
Different methodologies have been  used to quantify recurring co mpliance costs. In particular, 
different surveys have been carried out among firm s as well as among tax experts, and their results 
complemented with simulations using the CGE model CORTAX (see Box 2). The results of the PWC survey of 17 multinati onals shows that the respondents predict, on average, an increase of 
4% in time  spent overall for corporate tax compliance activities in the event of a CCTB (see table 
5). Although somewhat puzzling, small increases are expected in the time spent on record keeping, 
on the preparation of tax comput ation and on dealing with tax au thorities. The qualitative results 
show strong belief that the introduction of a CCTB will have little or no impact. An overwhelming 
majority of companies see the CCTB as equall y burdensome across all the categories covered. 
Regarding the shift to a CCCTB system , participants to the survey  predicted, on average, a 
reduction of 8% in the time  spent overall on corporate income tax compliance activities. The main 
areas where time savings are expect ed refer to transfer pricing doc umentation and to the preparation 
of tax computations. On the qualitative side, th e CCCTB option is deemed by the majority of the 
respondents less burdensome than to the current si tuation, with respect to  the following areas: 
keeping up to date with rules and regulations; singl e filing of the tax return and dealing with a 
single tax authority; applying for clearances and rulings. The tasks of keeping records and dealing 
with formulary apportionment are expected more  burdensome. Altogether , the qualitative picture 
confirms, on average, the quantitative estimation of an overall decrease of time devoted to tax 
compliance activities in the event of a CCCTB.  
Table 5: Average changes in compliance time when  moving from the current situation to CCTB and 
CCCTB 
 CCTB CCCTB 
Record keeping 2% 1% 
Transfer Pricing Documentation -1% -4% 
Preparation of tax computations 1% -5% 
Tax returns & payments 0% -1% 
Dealing with the tax authorities 1% 2% 
Mutual agreement procedures -1% -1% 
Securing clearances and rulings 0% -1% 
Learning and education 0% 0% 
Total 4% -8% 
Notes:  
– Changes are expressed as a percentage change to t he total time spent compared to the base case. 
 
EN 34   EN – These data do not include the estimation of one-off variation due to the switching to another system. They relate to the 
permanent time spent associated with th e new definition of the taxable base. 
– The amount of compliance costs will depend on the wage leve l of employees in the different tax activities.  
Source: PriceWaterhouseCoopers Su rvey on multinational firms. 
Switching the focus from existing companies to  multinational enterprises that set up a new 
subsidiary in a different Member States, signi ficantly higher compliance time and cost savings 
under the CCTB and most notably under the CCCT B regime can be expected. Through expert 
assessment, Deloitte estimated that under the current situation with 27 tax codes the additional 
recurrent compliance costs for a large representative parent investing in a me dium sized subsidiary 
amounts to 0.23% of turnover while for a medium pa rent this ratio more than doubles to 0.55% of 
turnover (see table 6) These figures amount  to roughly Euros 141,000 a nd 128,000 respectively, 
calculated from the estimated compliance time.  
Table 6: Compliance time and cost for setting up a new subsidiary *  
Large Parent 
  Current regime CCTB  CCCTB 
                      
  Time Cost Time % Diff. Cost % Diff. Time % Diff. Cost % Diff. 
                      
Record keeping for corporate tax purposes 5,261 3,740.60 3,063 -41.79% 2,992.46 -20.00% 3,592 -31.73% 5,708.94 52.62% 
Transfer pricing documentation 22,255 36,165.74 22,162 -0.42% 36,143.08 -0.06% 0 -100.00% 0.00 -100.00% 
Preparation of corporate tax computations 4,049 2,750.04 1, 976 -51.19% 2,190.86 -20.33% 4,256 5.11% 4,761.47 73.14% 
Prepayments for corporate tax 907 965.56 771 -14.99% 793.10 -17.86% 2,450 170.18% 2,662.13 175.71% 
Corporate tax returns and payments 1,080 1,131.27 987 -8.58% 1,005.12 -11.15% 3,085 185.73% 3,505.17 209.84% 
Dealing with the tax authorities for corporate tax 19,009 37,365.70 16,616 -12.59% 35,038.00 -6.23% 10,509 -44.71% 30,200.90 -1 9.17% 
Mutual agreement procedures on transfer pricing  8,823 17,618.47 8,841 0.20% 17,677.73 0.34% 0 -100.00% 0.00 -100.00% 
Clearances and rulings for corporate tax 14,430 34,912.77 14,541 0.77% 34,928.95 0.05% 1,288 -91.08% 3,996.90 -88.55% 
Learning and education for corporate tax 10,000 5,220.08 8,264 -17.37% 5,388.20 3.22% 1,469 -85.31% 2,104.33 -59.69% 
Any other cross-border corporate tax compliance formality 1,548 733.76 1,548 0.00% 733.02 -0.10% 0 -100.00% 0.00 -100.00% 
Total estimated time spent/cost 87,362 140,603.97 78,768 -9 .84% 136,890.52 -2.64% 26,649 -69.50% 52,939.85 -62.35% 
Total estimated cost (% turnover)   0.23%     0.22%       0.09%   
Medium-sized Parent 
 Current regime CCTB  CCCTB  
                     
 Time Cost Time % Diff. Cost % Diff. Time % Diff. Cost % Diff. 
                      
Record keeping for corporate tax purposes 5,147 3,653.23 3,034 -41.05% 2,957.01 -19.06% 3,178 -38.26% 4,490.57 22.92% 
Transfer pricing documentation 19,962 30,192.40 19,337 -3.13% 30,625.38 1.43% 0 -100.00% 0.00 -100.00% 
Preparation of corporate tax computations 4,023 2,253.53 1,954 -51.42% 1,778.82 -21.07% 3,301 -17.94% 2,862.65 27.03% 
Prepayments for corporate tax 896 636.81 760 -15.20% 524.54 -17.63% 1,880 109.73% 1,497.66 135.18% 
Corporate tax returns and payments 1,075 871.48 987 -8.15% 790.31 -9.31% 2,433 126.34% 2,427.03 178.50% 
Dealing with the tax authorities for corporate tax 18,686 32,968.18 16,347 -12.51% 30,604.60 -7.17% 10,675 -42.87% 24,889.54 -2 4.50% 
Mutual agreement procedures on transfer pricing  8,609 17,076.44 8,434 -2.03% 17,115.31 0.23% 0 -100.00% 0.00 -100.00% 
Clearances and rulings for corporate tax 13,893 34,175.02 14,083 1.37% 34,188.34 0.04% 1,266 -90.89% 3,958.48 -88.42% 
Learning and education for corporate tax 9,997 5,201.14 8,422 -15.75% 5,579.09 7.27% 1,450 -85.49% 2,064.35 -60.31% 
Any other cross-border corporate tax compliance formality 1,459 677.86 1,395 -4.42% 674.05 -0.56% 0 -100.00% 0.00 -100.00% 
Total estimated time spent/cost 83,747 127,706.09 74,754 -1 0.74% 124,837.45 -2.25% 24,184 -71.12% 42,190.28 -66.96% 
Total estimated cost (% turnover)   0.55%     0.54%       0.18%   
* Time in minutes. Costs in Euros. Average of all investment flows          
           
Source: Deloitte Tax Experts survey.          
 
EN 35   EN  
According to the study, the introduction of the CCTB  would on average save approximately 10% 
in compliance time and abou t 2.5% in compliance costs .56 This difference can be explained by 
the fact that higher saving s in time are related to internal comp liance activities (e.g. record keeping, 
preparation of tax computations, prepayments a nd tax returns and payments) estimated as less 
expensive compared to external advisors. Such sa vings are expected to occur because the CCTB tax 
provisions are simpler and more stable compar ed to the current frequently changing tax 
environment. However, the main corporate compliance cost drivers  directly or indirectly related 
to transfer pricing  (transfer pricing documentation, clearan ces and rulings and mutual agreement 
procedures), which account for about 60% of all compliance costs, remain unchanged (see figure 3). 
Due to the elimination or reduction of transfer pric ing related compliance task s, and of those related 
to contacts with tax authorities, an average decrease in total compliance time of 70% can be 
expected if the additional cros s-border investment is made under the CCCTB regime57. This 
results in a reduction of compliance costs of 62%  for a group with a large parent  and of 67% for 
a group with a medium-sized parent58. The corresponding monetary  figures are about Euros 
53,000 and 42,000 respectively. The high savings linked to the abolition of transfer pricing and the 
sharp reduction of costs in de aling with tax author ities are partly counterbalanced by other 
activities: corporate tax computations, (pre)payment s and tax returns will be most likely centralized 
at the level of the principal tax payer, normally the parent company59. However, all these tasks 
account only for about 10% of all compliance costs. A ll in all, as the figures in table 6 suggest, the 
size of the parent seem to have only a minor im pact on total additional compliance time and costs 
savings under the CCTB and the CCCTB regime.60  
Figure 3: Compliance time spent on setting up a new subsidiary  
                                                 
56 The individual investment flow results by country-pairs range between 4% to 16% savings in additional 
compliance time and between -3% and 9% in compliance costs. 
57 The individual results by country-pairs range betw een 11% to 91% savings in additional compliance time. 
58 Deloitte's tax experts expect that the group led by a medium parent can realise more savings on time spent by 
external advisors that generally have higher costs per hour than the internal workforce. 
59 The compliance time and cost savings would be even higher if it would be assumed that compliance activities 
would be centralized at the level of the subsidiary ("CCCTB Sub lead"-scenario) operating in a low wage 
country, rather than at the level of the EU parent ("CCCTB Parent lead"-scenario).  
60 The results are fairly robust with respect to the sensitivity analysis performed. First, it is assumed that the 
parent company and the subsidiary belong to different sectors. This would depict a situation in which the 
central taxpayer lacks sect or-specific and tax-related knowledge for its subsidiary. The assumption has no 
impact on compliance time under the current and the CCTB regimes, whereas under the CCCTB regime an 
increase of 8% of compliance time can  be expected. Accordingly, the sa vings of compliance time and cost 
compared to the current situation would slightly di minish to 65% and 50 % respectively. Second, if the 
investing company would be only a single company without intra-group transactions significant lower 
compliance time can be expected for the current and the CCTB regime whereas for the CCCTB, without the 
transfer pricing related task, compliance time remains the same compared to the baseline investment. Again, in this case the savings due to the CCCTB compared to the current regime would be smaller than in the baseline 
scenario.  
 
EN 36   EN Compliance time spent on setting up a new subsidiary 
- Large parent, average of all countries investigated -
Thousands of minutes 
0102030405060708090100
Current CCTB CCCTB TP MUTUAL AGRREEMENT
PROCEDURES
TP DOCUMENTATION
CLEARANCES AND RULINGS 
LEARNING AND EDUCATION 
DEALING WITH TAX AUTHORITIES
RECORD KEEPING 
PREPARATION OF COMPUTATIONS
PREPAYMENTS
TAX RETURNS AND PAYMENTS
ANY OTHER
 
Source: Deloitte Tax Experts Survey 
The reduction of compliance costs is one  of the most significant sources of welfare gains in  the 
CGE model . A common base ( CCTB ) could result in lower compliance costs in the long run as 
multinationals no longer have to deal with 27 di fferent tax regimes, but only one common set of 
rules. In the short run, companies need to lear n the new rules so that these costs may actually 
increase. Once the learning process has been co mpleted, however, one may expect a reduction in 
compliance costs. Thus, firms can benefit from ec onomies of scale in tax compliance. Calibration in 
CORTAX assumes that compliance costs are currentl y around 4% of total corporate tax payments. 
These costs might fall for multinationals under a CCT B. The reduction in compliance costs relate to 
the size of the multinational sector in each countr y. Simulations of this scenario are carried out 
assuming that compliance costs for subsidiaries due to the CCTB would fall by 30% while compliance costs for domestic firms and headquart ers are kept at their current level in the 
simulations. On average, this would imply a re duction in compliance cost s of 0.4% of the total 
corporate tax revenue in Europe, or 0.01% of GD P. The associated welf are gain is similar. 
Countries hosting more multinationals gain more  than countries hosting few multinationals. Under 
the CCCTB , even stronger effects can be expected from the reduction of compliance costs since 
multinational firms would save time and resources on determining transfer prices for intra-group transactions. The positive effects could be magnified  if a central administration became responsible 
for the tax treatment of multinationals. For the simulation of the CCCTB scenarios CORTAX 
assumes that compliance costs of subsidiaries are reduced to zer o, while compliance costs for the 
multinational headquarter and for domestic firm s remain unchanged. It implies a reduction in 
compliance costs equivalent to 1.3 % of the total corporate tax reve nue in Europe or 0.04% of GDP. 
This translates into an aggreg ate welfare gain in Europe of approximately 0.06% of GDP. Due to 
the specific assumption about the allocation of  compliance cost savings  between parents and 
subsidiaries, countries hosting more foreign subsid iaries gain more than countries hosti ng relatively 
few subsidiaries. 
 
EN 37   EN 5.4. Economy-wide impacts  
The final objective of the proposed company tax re forms is to increase cross-border investments, 
competition in the Internal Market, productiv ity, economic growth and consumers' welfare61. It is 
therefore essential to get a gras p of the possible impact of the alternative policy options under 
analysis. The economy-wide effects of the refo rms at the EU level are analysed using the CGE 
model  CORTAX. The main features of the model, its limitations, as well as the working 
assumptions and their implications for the results are discussed in Annex 1062.  
Tables 7a-d summarise some of the key results of the four alternative policy options under analysis: 
optional CCTB, compulsory CCTB, optiona l CCCTB and compulsory CCCTB. In the optional  
scenarios it is assumed that only MNEs but no do mestic companies opt for the alternative tax 
systems. The results are presented for three different definitions of the common tax base: 
• The CCTB-WG20, which assumes 20% depreciati on of plant and machinery (depreciation 
scheme suggested by the CCCTB Working Group)63. 
• The CCTB-WG25, with plant and machinery depreciated at 25 % (thus implying a narrower tax 
base  than the WG20). 
• The CCTB-EUav, which represents  a definition of the common ba se entailing on average for the 
EU unchanged net present value of depreciation allowances, and is therefore a benchmark case 
(and is narrower than the two former ones give n the more generous depreciation allowances)64. 
All simulations assume that the gove rnments adjust corporate tax rates to keep revenue constant ex-
ante (before behavioural reactions take place). When the reforms apply only to multinationals, the 
corporate tax rates are adjusted only for them, but not for domestic firms. 
CCTB options: the key role of the broadn ess of the tax base for the results 
                                                 
61 Welfare is measured from the individual utility functio n. As such, the welfare effects of a tax reform differ 
from the impact on economic aggregates such as private consumption or gross domestic product. This is because utility depends also on leis ure. More employment may raise inco me, consumption and gross domestic 
product, but the decline in leisure reduces these benefits  in terms of welfare. More over, an increase in gross 
domestic product may be accompanied by an inflow of foreign capital, the return of which flows to foreign 
owners, rather than domestic residents. Welfare may also be affected by multinational profit shifting which 
raises income but leaves the gross domestic product unchanged. 
62 The model is calibrated on tax data for 2005 and in the baseline scenario (representing the current situation) 
the corporate tax changes in  2006 and 2007 are incorpor ated. The reforms explored in the study are therefore 
imposed relative to the corporate tax systems as they stood in Europe in 2007. Like any CGE model, CORTAX ignores certain economic mechanisms, include  specifications which are not undisputed and cannot 
take away the uncertainty about the strength of certain behavioural effects of tax policies. For these reasons, 
numerical outcomes should be taken with proper care, and interpreted in the light of the modelling assumptions (see Annex 10). 
63 The details of this scheme are as follows: 
- Industrial buildings are depreciated straig ht line over 40 years at 2.5% per year. 
- Plant and machinery is depreciat ed at 20% declining balance. 
- Intangibles are depreciated straight line over 15 years at 6.66% per year. 
64 There is a variety of combinations in depreciati on rules that matches the CCTB-EUav. For instance, the 
following structure meets this requirement: 
- Industrial buildings are depreciated straig ht line over 30 years at 4% per year. 
- Plant and machinery is depreciated at 30% declining ba lance, with a switch to straight line at 15% after 3 
years. 
- Intangibles are depreciated straight line over 9 years at 11.11% per year. 
 
EN 38   EN The analysis of the CCTB options ce ntres on the issue of base broade ning versus rate reduction. In 
the context of the neoclassical CGE model, it emphasises the trade-off between a low effective marginal tax rate (result of a na rrow base and high stat utory tax rate), which minimises distortions 
in investment
65, and a low statutory corporate tax rate (c oupled with a broad base), which minimises 
multinational profit shifting to outside locations a nd improves the attractiveness of a location in the 
discrete choice of the place for investment. From Tables 7a-b it can be seen that CCTB-WG20 and 
CCTB-WG25 allow for a reduction in the corporate tax rates between 2.5 percentage points and 3.5 
percentage points. Despite lower rates, however, these reforms reduce investment, employment, and 
GDP (in both cases the optional and the compulsory cases). The CCTB-EUav (a base narrower than the former ones) in turn leaves the average corpor ate tax rate in the EU almost unchanged ex-ante, 
and is accompanied by small positive economic im pacts. CORTAX thus reve als that a policy of 
base broadening and rate reduction at the EU le vel causes overall negative economic and welfare 
effects. Why is that? The reason is that the cost of capital increases. Indeed, less generous depreciation allowances require a higher rate of re turn on marginal investment for the firms to break 
even. Although a lower corporate tax rate partly offsets this, it is in sufficient to prevent an increase 
in the cost of capital. Intuitively, corporate tax a llowances apply to the cost of investments at the 
margin, whereas corporate tax rates apply to both the marginal investment and economic rents. As a 
result, a revenue-neutral reform of base broade ning and rate reduction sh ifts the tax burden from 
economic rents to capital, which is  distortive. Thus, due to the in crease in the cost of capital, 
investment falls. The smaller capit al stock exerts a negative impa ct on the marginal product of 
labour and, therefore, on labour demand, which will ultimately lead – with a positive elasticity of 
labour supply – to a contraction in em ployment. At the European level, base broadening (implied 
by the new definition of the common tax base) co upled with rate reduction to balance national 
budgets reduces aggregate welfare in the EU.  On the other hand, the reduction of compliance 
costs is the main positive effect  of the CCTB reforms: they are estimated to be reduced by 0.4% of 
the total corporate tax re venue in Europe or 0.01% of GDP (see section 5.3.2). All in all, a 
compulsory CCTB leaves welfare at a European le vel nearly constant while the introduction 
of a CCTB optional for multinationa ls renders slight welfare gains.  
Table 7: Macroeconomic effects  
                                                 
65 A policy of “broad base/low rates”, by raising the cost of capital, reduces marginal investment at the individual 
firm's level. On the contrary, having high rates raises the tax on pure rents earned above the 'normal' return to capital, which is non-distortionary, and allows narrowing the base, thus reducing the distortions to the marginal 
investment. 
 
EN 39   EN Table 7.a  Optional CCTB: only multinationals                 
                                                                    CCTB-WG20      CCTB-WG25       CCTB-EUav  
Corporate tax rate    -3.08  -2.48  -0.29 
Corporate tax revenues in %GDP (ex-post)   0.09   0.07   0.01 
Investment     -0.54  -0.44   0.02 
Wage      -0.06  -0.05   0.01 
Employment     -0.05  -0.04   0.00 
GDP      -0.04  -0.03   0.01 Welfare       0.01   0.01   0.00 
Table 7.b  Compulsory CCTB: all firms                     
               CCTB-WG20      CCTB-WG25       CCTB-EUav 
Corporate tax rate    -3.42  -2.80  -0.50 
Corporate tax revenues in %GDP (ex-post)   0.15   0.12   0.00 
Investment     -1.25  -0.97   0.14 
Wage      -0.22  -0.16   0.07 
Employment     -0.13  -0.10   0.00 
GDP      -0.25  -0.18   0.08 Welfare      -0.01   0.00   0.03 
Table 7.c  Optional CCCTB: only multinationals  
                                                                                  CCCTB-WG20    CCCTB-WG25    CCCTB-EUav 
Corporate tax rate    -0.57   0.12   2.44 
Corporate tax revenues in %GDP (ex-post)   0.03   0.00  -0.12 
Investment     -0.88  -0.74  -0.11 Wage       0.02   0.05   0.19 
Employment     -0.01   0.00   0.09 
GDP      -0.17  -0.15  -0.04 Welfare       0.02   0.02   0.03 
Table 7.d  Compulsory CCCTB: all firms                                 
                                                                              CCCTB-WG20    CCCTB-WG25    CCCTB-EUav 
Corporate tax rate    -2.21  -1.56   0.91 
Corporate tax revenues in %GDP (ex-post)   0.10   0.06  -0.10 
Investment     -1.55  -1.25  -0.04 Wage      -0.12  -0.05   0.24 
Employment     -0.08  -0.05   0.09 
GDP      -0.32  -0.25   0.04 Welfare       0.00   0.02   0.06 
  
CCCTB options: the positive eco nomic effects of conso lidation and apportionment 
The CCCTB reforms are assessed in CORTAX addi ng consolidation and formula apportionment to 
the three definitions of the common tax base  previously used (WG20, WG25 and EUav). The 
 
EN 40   EN additional economic effects of consolidation and a pportionment can be divided into three different 
categories: (i) the effect on compliance costs; (i i) a shift from separate accounting to formula 
allocation; and (iii) the shift from loss carry forwar d to loss consolidation. Since these three effects 
have been analysed separately in  the previous sections, here only the net aggregate effects of the 
CCCTB reform are discussed. Tables 7.c and 7.d suggest that the CCCTB-WG20 and CCCTB-
WG25 reforms imply limited broadening of the base. The CCCTB-WG20 would thus allow for a 
reduction of the rate by 0.57 or 2.21 percentage poi nts in the optional and compulsory application 
respectively. The reason is that loss consolidation narrows the corporate tax base for multinationals, 
thus partly offsetting the effect of the new depreciation rules. Under the CCCTB-WG25 applied 
only to multinationals, revenues remain virtually unc hanged so that rates need not be reduced on 
average. In turn, under the CCCTB-EU av, the corporate tax base is eventually narrower than the 
current EU average bases. Compared to the CCTB, the welfar e effects of the CCCTB options 
are more favourable under all of the analysed scenarios , thus suggesting that consolidation and 
formula apportionment exert a positive welfare effect . In particular, the CORTAX analysis 
highlights that:  
(i) the lion's share of the positive economic  impact of consolidation and formula 
apportionment is due to lower compliance costs. This effect is responsible for an aggregate 
welfare gain in Europe of approxima tely 0.06% of GDP (see section 5.3.2).  
(ii) Moving from SA to formula apportionment ex erts a negligible eff ect on GDP and welfare, 
as a result of different offsetting effects: fe wer incentives to shift profits and capital from 
high to low-tax countries but renewed distorti ons in the allocation of  formula factors to 
low-tax countries. CORTAX suggests that the aggregate effect on welfare in the EU is 
very small. However, the results for indi vidual countries, and de pending on the specific 
apportioning mechanisms, can be different. Thus , for example, low tax countries lose from 
the elimination of transfe r-pricing, but may benefit, how ever, from new tax planning 
possibilities in the allocation of the formula factors.  
(iii) Finally, in the model, loss consolidation, reducing the tax ba se, may require an increase in 
corporate tax rates to balance the government  budget. The effect on the cost of capital, 
however, is not certain a priori, given the di fferent treatment of positive marginal returns 
under the consolidation and the carry forwar d regimes. In addition, loss consolidation 
decreases effective labour costs, which tran slates into positive employment effects. On 
balance, investment and GDP slightly fall but the net effect on welfare is positive66.  
Overall, the CCCTB implies a welfare gain of about 0.02% to 0.06% of GDP  in aggregated terms 
for the EU as a whole67. Interestingly, alternativ e available simulations with CORTAX suggest that 
                                                 
66 It is important to note that often the welfare effect s of the tax reforms differ from the impact on economic 
aggregates such as private consumpti on or gross domestic product. This is because utility depends also on 
leisure. More employment may raise income, consumption and gross domestic product, but the decline in 
leisure reduces these benefits in terms of welfare. Moreover, an increase in gross domestic product may be 
accompanied by an inflow of foreign cap ital, the return of which flows to fo reign owners, rather than domestic 
residents. Furthermore, welfare may also be affected by multinational profit shifting which raises income but 
leaves the gross domestic product unchanged. 
67 These results correspond to the apportioning mechanism based on equal weighting for employment, capital and 
turnover. The aggregate welfare re sults of other mechanisms are: 
SM 2: employment (1/6), payroll (1/6), capital (1/3), output (1/3) : + 0.03% GDP; 
SM 3: : payroll (1/4), employment (1/4), capital (1/2): + 0.02% GDP;  
SM 4: payroll (1/3), capital (1/3) and output (1/3): + 0.03% GDP; 
SM 5: payroll (1/2), capital (1/2): + 0.04% GDP.  
 
EN 41   EN under the CCCTB-EUav scenario, adjusting lump-sum transfers, i.e. subsidies in fixed amount, 
instead of increasing corporate tax rates would ge nerate an additional welfare gain of 0.06% of 
GDP68.  
“All firms” (compulsory) versus “on ly multinationals” (optional) 
Both the CCTB and CCCTB scenarios are simulated for two possible cases: a general application to 
all firms and a selective application only to the multinational firms in the economy. In the latter 
case, domestic firms in EU countries would still be  subject to the current national tax regimes. To 
balance the government budget, the corporate tax rates are ad justed only for multinationals , but not 
for domestic firms. 
Hence, the hypothesized selective application of the CCTB or CCCTB implies that marginal 
effective tax rates for multinationals will differ from those of domestic firms. Indeed, the two types of firms face different rules for fiscal depreciation. Especially in countries where the national rules 
differ much from the rules under the common tax base, there can be sizable disc repancies in the cost 
of capital for the different firms. In this situation, resource allocatio n within countries is distorted, 
with a subsequent distortion in production efficiency. Indeed, the tax system favours investment in 
the sector where the effective marginal tax rate is lower at the expense of the other sector. This in 
turn reduces welfare. The negative welfare effect s are, however, more than offset by the smaller 
coverage of the broader tax base, which mitigates  the rise in the cost  of capital under CCTB-WG20 
and CCTB-WG25, compared to the scenario with compulsory application. Accordingly, under the 
base broadening regimes of WG20 and WG25, the optional application of CCTB and CCCTB 
(Tables 7.a and 7.c) is more beneficial  than the compulsory application (Tables 7.b and 7.d).
69  
The role of profit shifti ng in the simulations  
In Tables 7.a-d, the four altern ative policy options have been compared to a baseline scenario 
capturing the current situation with profit shifting (appropriately calibrated). The baseline scenario 
however only captures the “beneficial” effect of pr ofit shifting i.e. that of allowing multinational 
firms to reduce the overall tax burden. As such, pr ofit shifting in the baseline scenario with SA 
encourages investment, raises GDP and improves welfare. Hence, the abolition of profit shifting 
via consolidation and apportionment rais es the tax burden on multinationals  and discourages 
investment. As a consequence of these assump tions, eliminating profit shifting in the CCCTB 
scenarios affects negatively welfare compared to  the current situation. It is plausible that, the actual 
welfare gains of the CCCTB options are underestimated by the simulations. In fact, taking into 
account the costs of profit shifting would lower the initial welfare leve l of comparison, thus 
resulting in higher relati ve gains of the CCCTB (at least a fu rther 0.02% of GDP). A further source 
of downward bias in the estimated  welfare gains arises under the optional CCCTB.  It is reasonable 
to assume that in such case only multinationals benefitting from the new system would adopt it, 
thus reducing their overall burden compared, in terms of tax liabiliti es and compliance costs, to the 
current scenario. As the simulations do not disenta ngle the choices of indivi dual multinationals, the 
estimated gains from consolidation and formul a apportionment are likely underestimated. In 
addition to issues of fairness and legitimacy, profit shifting ma y have other implications for 
efficiency that are not captured by the model. Fo r instance, enforcing transfer pricing rules is 
relatively costly for tax administrations. Moreover,  the possibility of profit shifting creates an 
                                                 
68 Bettendorf L., Devereux M., van der Horst A., Loretz S. and Ruud A. de Mooij, 2009. "Corporate tax 
harmonization in the EU," Working Papers 0932, Oxford University Centre for Business Taxation. 
69 Under the EUav scenario without base broadening compared to the status-quo scenario the suppression of the 
distortion in production efficiency with compulso ry CCCTB develops its full positive welfare impact.  
 
EN 42   EN advantage for multinationals that does not apply to purely domestic firms. By discriminating 
between firms, it creates a dist ortion in production efficiency. 
5.5. Dynamic effects and impact on SMEs 
In the previous sections the effects of the di fferent policy options have been quantified using 
statistical analysis and economic  modeling. The quantification is based on ad hoc statistical and 
survey data on European multinationals; likewise, fi rms' behavioral responses to the new tax policy 
concern adjustment to the amount of capital and la bor employed in the new st eady state, but do not 
involve other decisions such as entry into new mark ets. Thus, the different a pproaches are static in 
nature. For this reason, they do not  capture important dynamic effect s potentially associated with 
the reforms under analysis. Obtain ing a reliable quantif ication of such impacts is extremely 
difficult. Nonetheless, providing at  least a qualitative assessment is crucial in order to better gauge 
the long term effects of the different policy options . The reduction in uncertainty and in the costs 
(actual and perceived) that firms incur when they  operate in international markets is the main 
channel through which these effects are expected to materialize. Ultimately, th is will translate into 
increased cross border investment within the EU, stemming both from further expansion of 
European and foreign multinationals and from de  novo investment of purely domestic firms into 
other Member States. By the same token, as argued below, SMEs might be particularly 
advantaged by the level playing fiel d created by the reforms under analysis .  
First of all, the introduc tion of common rules to calc ulate the tax base will decrease the complexity 
and the uncertainty  that firms active in multiple jurisdictions have to face under the current 
system  of SA. On the one hand, standardization of tax rules implies a simp lified learning process 
for firms getting exposed to different and often complex tax systems. On the other, multinationals will not have to deal with frequently changing na tional tax environments. Both these elements are 
indeed perceived as major ta x obstacle by the business sector
70. Secondly, the reduction in actual 
and perceived compliance costs is expected to ex ert a substantial influence on firms' ability and 
willingness to expand abroad in the long term. In section 5.3.2 it has been shown that isolating the reduction in compliance costs curr ently incurred by multinationals (quantified at 4% of total 
corporate tax payments) translates into a welf are gain of 0.01% of GDP under the CCTB and of 
approximately 0.06% of GDP in the case of CCCTB . Moreover, the survey  evidence reported in 
section 5.3.2 points to a substantia l reduction in compliance costs (> 60%) in the case of new cross-
border investment, i.e. when a new subsidiary is established abroad. Overal l, these findings suggest 
that the dynamic effects of lower compliance costs might be sizable . Available evidence points to 
the same conclusion. The European  Commission's European Tax Survey
 (2004) reports estimates of 
compliance costs by firms. These outlays includ e those required for company taxation (and VAT) 
as well as the costs voluntarily incurred to mi nimize tax payments. Accord ing to the survey, SMEs 
are disproportionately penalized compared to la rge companies: compliance costs are estimated at 
1.9% and 30.9% of taxes paid by la rge firms and SMEs, respectively. Weighing more on SMEs, 
such costs may de facto represent a significant deterrent to invest into international markets 
for this type of firms. Dismantling these barrie rs, as both in the CCTB and CCCTB scenarios, is 
likely to encourage significantly cross border expa nsion of SMEs. The inte rnationalisation process 
                                                 
70 In the annual PricewaterhouseCoopers  global survey of Chief Executive Officers (CEO) published in January 
2009 (PwC 12th Annual Global CEO Survey), CEOs worldwide were asked which aspects of the tax regime 
were most important in influencing investment decisions. The top choice was clarity and stability of the tax 
rules. The second most important aspect was the total amount of taxes that companies pay. The Ernst &Young European Attractiveness Surv ey 2010 as well highlights the importance for business of "policy certainty and 
consistency, and the confidence that  taxes, for example, are not go ing to change without notice".  
 
EN 43   EN would be further facilitated as the 'one-stop shop ' principle limits the exposure of firms to foreign 
(less known) tax systems71.  
In addition, according to the European Tax Surv ey, cross-border activities have a substantial 
influence on the size of comp liance costs. First of all, compliance costs are fo und to be higher for 
companies with at least one subsid iary in another EU Member State  compared to companies 
operating only in the domes tic market. Secondly, such outlays increase with the number of 
subsidiaries abroad . A possible explanation relates to tr ansfer pricing obligations, which are 
growing considerably complex due to both the diffi culty of identifying comparable transactions for 
establishing the arm's length price in the presen ce of new technologies and business structures 
(which imply, for instance, more emphasis on in tangibles) and the tendency among Member States, 
fearing manipulation, to impose increasingly onerous documentation requirements72. Moreover, the 
same survey shows that audits and litigations ar e particularly onerous fo r firms already operating 
across the borders. Taken together, th is qualitative eviden ce suggests that the CCCTB options , 
which eliminate transfer pricing-related obligations within the EU, might indeed positively affect 
MNEs willingness to expand furt her in other EU Member States . The effect would be 
reinforced once the further savings stemming from  cross border loss compen sation are taken into 
account. By the same token, these arguments a pply to SMEs, who might perceive conducting 
business abroad as particularly  onerous due to the current tr ansfer pricing obligations.  
All in all, the proposed standard isation and simplification arrangeme nts are expected to bring about 
important dynamic impacts in terms of enhanced attractiveness of the EU as a whole for productive 
investment. Second order positive effects on producti vity and employment are also expected to 
materialize once more firms will be ope rating into international markets.  
5.6. Social and environmental impacts  
A comprehensive solution for the definition of the corporate tax base in the EU could also have 
some limited social effects, notably linke d to the impacts on employment. Evidence on 
anticompetitive regulation in the product market  (OECD, 2001; Cincera and Galgau, 2005) suggests 
that positive effects on the labou r market, not only in terms of the number of persons employed, can 
be expected from the reduction of compliance cost s for cross-border companies. First, MNEs seem 
to pay higher wages than domestic companies (D riffield and Girma, 2003; Feliciano and Lipsey, 
1999; Navaretti and Venables, 2004) . Secondly, skilled wo rkers appear to be concentrated in 
multinational companies. Finally, MNEs appear to adjust employment relatively quickly compared to domestic companies. In addition, to the extent  that dynamics would translate into increased 
investment abroad also by SMEs that are curre ntly operating only in na tional markets, further 
employment gains are expected in the long term. Gi ven the characteristics of employment in SMEs, 
these gains might be substantial in size, as SMEs  currently contribute for two thirds of total 
employment in non-financial sectors in the EU, and would not be limited to the highest tale of the 
skill (and income) distribution.  
Given the nature of the proposed measures, no direct environmental impacts  are expected. Indirect 
impacts might materialize as a consequence of in creased economic activity, particularly in some 
sectors, if efficiency gains are achieved in the medium and long term.  
                                                
 
71 The one-shop principle means that the tax payer has to  introduce one tax declarat ion in their mother tongue 
according to procedures they know, and the tax declaration is processe d by one tax administration. At the same 
time, there is of course the possibility that other tax administrations have questions or initiate an audit. 
72 Transfer pricing is an important issue for 82.8% of la rge companies, in particular, when it comes to dealing 
with documentation requirements, which are a difficulty for 81.9% of large companies.  
 
EN 44   EN 6. COMPARISON  OF THE  OPTIONS   
In this section the alternative policy options descri bed in section 4 will be assessed by reference to 
the objectives described in section 3 and by comparison with the status  quo scenario. In order to put 
the size of the impacts in perspective, it is importa nt to bear in mind that the reforms under analysis 
apply to corporate taxation. Corporate tax revenu es amount to roughly 3% of the EU GDP, whereas 
total tax revenues – including social  security contributions – stand at about 40% of GDP. The order 
of magnitude of the quantification provided above have  to be judged also in the light of the static 
nature of the analyses performed. Once dynamic be havioural changes are brought into the picture, 
further gains from increased cr oss border investment in the EU  can be expected, although they 
prove very difficult to measure ex ante.  
The changes in the macroeconomic framework  resulting from the implementation of the different 
alternative options are assessed by comparing their effects on real investment, employment, growth, 
and welfare , as obtained from the CGE model CORTAX discussed in section 5.4 . Table 8 shows 
the effects of the different options  under analysis (variation with respect to the option 1 ('baseline 
scenario') under different size of the bases. In particular the, columns EUav report the results 
obtained in the ceteris paribus  case, that is, considering that the new definition of the common tax 
base (before consolidation) leaves the size of the EU tax base unchanged on average. The 
columns  WG-20 and WG-25 show the macro-economic effects of the reforms under analysis 
when they are associated to a base broadening policy , i.e. the definition of  the common tax base 
corresponds to that of WG 20 and WG25 described earlier73. 
Compared to the "status quo" scenario,  all the different policy scenarios analysed result in a 
slight improvement of aggregate welfare . Overall, positive economic effects can be expected by 
the removal of the corporate tax obstacles described in section  2 under the unchanged tax base 
scenario (EUav columns). These effects result from:  
a) the efficiency gains for the EU internal mark et stemming from the lowe r dispersion of tax bases 
due to the common definition of the corporate taxabl e base. This can be seen in the positive overall 
effects of options 2 and 3, which capture  the effects of the common tax base. 
b) the reduction of the corporate tax compliance costs for companies, and the elimination of over-
taxation of cross-border economic  activity and of double taxation fo r companies operating in the 
internal market. This can be seen in the positive overall effects of options 4 and 5, which represent the common consolidated corporate tax base, a nd therefore feature the effects associated to 
consolidation and apportionment. 
                                                
 
73 These results are based on two possible definitions of the Common Tax Base following the discussions 
between the Commission and the Member States Tax Authorities in the context of a joint Working Group 
(20% or 25% depreciation rate for pooled assets). Ac cording to these definitions the Common Tax Base would 
be broader than the present EU average corporate tax base (the 25%-based definition being narrower than the 20%). In the economic modelling, in order to keep total tax revenues constant, corporate tax rates are lowered 
ex-ante to compensate for changes in the size of the tax bases. 
 
EN 45   EN Table 8: Macroeconomic effect s: change compared  to baseline scenario (in percentage) 
Option 2: 
Optional CCTB Option 3: 
Compulsory CCTB Option 4: 
Optional CCCTB Option 5: 
Compulsory CCCTB   
  
 EUav WG-
20 WG-
25 EUav WG-
20 WG-
25 EUav WG-
20 WG-
25 EUav WG-
20 WG-
25 
Investment  0.02 -0.54 -0.44 0.14 -1.25 -0.97 -0.11 -0.88 -0.74 -0.04 -1.55 -1.25 
Employment 0.00 -0.05 -0.04 0.00 -0.13 -0.10 0.09 -0.01 0.00 0.09 -0.08 -0.05 
GDP 0.01 -0.04 -0.03 0.08 -0.25 -0.18 -0.04 -0.17 -0.15 0.04 -0.32 -0.25 
Welfare (% of GDP) 0.00 0.01 0.01 0.03 -0.01 0.00 0.03 0.02 0.02 0.06 0.00 0.02 
Source: Simulations with CGE CORTAX model 
The introduction of a broader tax ba se with lower rates would have in general negative investment 
effects. As explained in section 5.4, this outcome is the consequence of the speci fic features of the 
general equilibrium models available for this ki nd of analysis. In fact, according to the CORTAX 
model a policy of base broadening cu m rate cutting in order to keep revenues constant is associated 
with an increase in the cost of capital and he nce decreasing investment. As a consequence, in 
general, the macro-economic effects of simulations with broader bases are less positive than in the 
case when the size of the EU average tax base was left unchanged. The overall effect  of any of the 
reforms , however, continues to be small  net welfare gains  compared to the cu rrent situation. That 
is, once the positive effects of rate reduction are also modelled - in terms of reduced profiting shifting and increased attr activeness for investment location vis- à-vis the rest of the world - the 
policy of base broadening/rate reduction does not take out so much of the positive effects owing to the elimination of tax barriers achieved by the reforms
74. Comparing the results from options 4 and 
5 shows that under the base broa dening scenarios an op tional CCCTB give bett er results than a 
compulsory one. While the yield in term of welf are gains is the same under WG25, a compulsory 
reform under WG20 leaves welfare unaffected. At the same time, employment drops by 0.08 
percentage points, and the negative effects on the othe r variables are roughly twice as large as in the 
optional scenario. Similarly, notwithstanding the same impact on welfare, under the compulsory 
WG25 case employment, GDP and investment worsen compared to the corresponding optional 
scenario.  
It is worth stressing that the macroeconomic effect s presented in table 8 ca n be obtained leaving the 
total amount of corporate tax re venues in the EU unaffected ex-a nte, i.e. before behavioural 
reactions by economic agents. This is achieved by assuming that national cor porate tax rates in the 
CGE model be modified to compensate for a ny changes in the taxable bases following the 
introduction of the policy options under analysis . Clearly, alternative adjustments could be 
hypothesized75. Abstracting from the stylized modelling environment, it should be kept in mind 
that, in practice, governments can resort to alternative tax instru ments to balance their budget. In 
this respect, the economic literature has emphasized  that taxes on different bases have dissimilar 
implications for economic growth (OECD, 2009).  
                                                 
74 It has to be underlined that the size of the taxable base, as such, is not an objective of the reforms under 
analysis. In this context, changes in the size of the taxa ble base have to be considered as a side effect of the 
elimination of tax barriers, which are the objectives underlying the different policy options. 
75 In particular, available simulations for the case of unc hanged corporate tax base before consolidation suggest 
that using lump sum transfers to balance the budget following reduced revenues would result in an additional 
0.06 % welfare gain in terms of GDP. 
 
EN 46   EN The reduction of compliance costs related to corporat e taxation stands out as particularly relevant 
for the estimated economy-wide effects. Disent angling the macroeconomic effects of reduced 
compliance costs isolates welfare gains in the terms of  GDP in the range of  0.01% of GDP in the 
case of CCTB and approximately 0.06% under the CCCTB options. Moreover, the survey evidence summarized in table 9 points to significant implica tions at the microeconomic level, particularly in 
the case of new investment flow s. The CCCTB could result in comp liance cost savings in the range 
of 60% for a large parent entering a new MS by se tting up a subsidiary. Based on this evidence, the 
reduction in compliance costs is the main cha nnel through which the proposed policy options are 
expected to exert dynamic effects in the l ong term. Although reliable quantification proves 
extremely difficult, available qualitative evidence suggests that lower tax obs tacles are likely to 
translate into further expansion of existing multina tionals in the EU. Likewise, eliminating the costs 
associated to the learning proce ss of different tax systems and establishing the 'one-stop shop' 
principle for tax administration woul d particularly benefit SMEs' capacity to enter into international 
markets. The overall implication is increased cro ss-border investments in the EU as a whole. The 
effect is expected again part icularly pronounced in the case of CCCTB, given the importance of 
transfer pricing requirements on total compliance costs.  
Table 9: Change in compliance time and cost* 
   
   CCTB CCCTB 
Time -9.84 -69.5 Large parent investing in a new subsidiary   
(Deloitte case study ) Cost -2.64 -62.3 
Time 4 -8 Established multinationals   
(PWC survey ) Cost 3 -1 
* In percentage (compared to the current regime).  
Even if it is difficult to quantitatively disentan gle the specific contributi on of each objective taken 
separately to the overall outcome, the analysis presented in this document has allowed for some 
insights. All in all, the economic results of this Impact Assessmen t show that the removal of the 
three types of identified corpor ate tax obstacles would allow bus iness to make sounder economic 
choices thus improving the overall efficiency of  the economy. On the basis of the quantified 
economic impacts, the optional CCCTB and the com pulsory CCCTB are preferred to the alternative 
options given the savings in compliance costs they generate. However, the macroeconomic 
evidence points to the optional CCCTB  as the overall preferred policy option of the scenarios 
analysed (table 10). In absolute terms, as explained a bove, the actual welfare gains, particularly in 
the case of CCCTB, are likely to be underestimate d. By the same token, larger gains might be 
expected once dynamic effects are brought into the pi cture. The reduction in uncertainty and in the 
costs (actual and perceived) that firms incur when they operate in international markets is the main 
channel through which these effects are expected to materialize. Ultimately, th is will translate into 
increased cross border investment within the EU, stemming both from further expansion of 
European and foreign multinationals and from de  novo investment of purely domestic firms into 
other Member States. Similarly, SMEs might be pa rticularly advantaged by the level playing field 
created by the reforms under analysis. 
This Impact Assessment shows that there are qua ntifiable economic benef its arising from the 
completion of the Internal market in the corporate tax area that can be obtained without limiting the 
capacity of Member States to infl uence the size of their corporate ta x revenues. These results are in 
line with the expected effects from a liberalisatio n policy and represent the contribution that a more 
efficient corporate tax system can  offer to the Europe 2020 strategy. 
 
EN 47   EN Table 10: Ranking of policy-options (1 = best option) 
 Option 1: 
status-quo Option 2: 
Optional 
CCTB Option 3: 
Compulsory 
CCTB Option 4: 
Optional 
CCCTB Option 5: 
Compulsory 
CCCTB 
PWC study (compliance costs) 2 3 1 
Deloitte study (compliance costs) 3 2 1 
CORTAX study (macroeconomic va riables) 4 3 5 1(2) 2(1) 
7. MONITORING  AND  EVALUATION 
The main objectives of the proposed policy Directiv e are the elimination of  the risk of double and 
over-taxation, as well as the reduction of complia nce costs for firms having operations in multiple 
jurisdictions. Ultimately, reducing these distortions  would enhance the functioning of the Internal 
market. The Commission services will offer assist ance for the implementation of the legislative 
changes. In order to achieve unif ormity of interpretation and reduction in legal uncertainty, further 
discussion and guidance in respect of  key concepts may prove necessary. 
The proposed policy intervention will exert eff ects on a number of variables that should be 
monitored. At the microeconomic level, the eff ects of the policy options on firms' tax related 
compliance costs and on their investment behaviour  across national borders should be assessed. To 
overcome the well known difficulti es in obtaining re liable estimates of actual and perceived 
compliance costs, ad hoc surveys should be desi gned, and particular attention devoted to the 
representativeness of the select ed samples. Propensity to expa nd abroad by SMEs might be 
particularly revealing on the exp ected long term impacts of the po licy options. Such effects can be 
gauged both by means of surveys among the relevant  companies and by analysing observed changes 
in actual investment choices. At the macroeconomic level, consistent with the general objectives of 
improving the allocation of productive capital in the EU, evidence should be gathered on foreign direct investment flows directed to the EU and among EU countries.  
In line with the Commission work on the reduction of administrative costs, further indicators could 
be envisaged to measure the changes in the burden for tax administrations following the 
implementation of the new system and the elimination in outlays related to transfer pricing requirements and related disputes.  
The evaluation of the consequences of the appli cation of the legislative measure could take place 
five years after the entry into force of the legi slative measures implementing the Directive. The 
Commission could then submit to the European Parliament and the Council a report on the technical functioning of the Directiv e. The content of such a report would vary according to the scope of the 
Directive as finally agreed in the Council.  
 
EN 48   EN Annex 1. Further details on the consultation process  
The origin of the present initiative goes back to  early studies on company taxation in the European 
Union. Already in 1990, a Committee of Indepe ndent Experts in Company Taxation (Ruding 
Committee) was asked by the Commission to determ ine whether the co-existence of different 
national corporate tax systems lead to major di stortions affecting the functioning of the single 
market and to examine all possible remedial meas ures. This Committee confirmed the existence of 
such distortions and proposed recommendations76. The findings of the "Ruding report" were not 
followed by comprehensive policy action at the ti me, and 10 years later the Council asked the 
Commission to re-examine the situation, consid ering that the overall economic framework had 
changed significantly since the early 1990's.  
The Council of Ministers in 1999 invited the Comm ission to undertake a study on company taxation 
in the European Union with the following formal mandate :  
"The Commission is invited to present an analytic al study on company taxa tion in the European 
Community. This study will be undertaken in th e general context of the Vienna European Council 
conclusions emphasising the need to combat harmful  tax competition whilst ta king into account that 
cooperation in the tax policy area is not aiming at uni form tax rates and is not inconsistent with fair 
tax competition but is called for to  reduce the continuing distortions in  the single market also with a 
view to stimulating economic growth and enhanci ng the international competitiveness of the 
Community, to prevent excessive losses  of tax revenue or to get tax st ructures to develop in a more 
employment-friendly way. This study will also be  undertaken on the basis of the Ecofin Council 
conclusions asking to illuminate existing differences in effective corporate taxation in the Community and the policy issues that  such differences may give ri se to. This study should also 
highlight remaining tax obstacles  to cross-border economic activ ity in the Internal Market.
 The 
study will analyse differences in effective levels of corporate tax in Member States, taking into 
account, inter alia , the results of the report of the Rudi ng Committee (1992). Attention should be 
given to the influence of corporate tax bases on  effective levels of taxa tion. Moreover, the study 
should also identify the main tax provisions wh ich may hamper cross-bord er economic activity in 
the single market. On this basis, an assessment shoul d be undertaken of th e effects on the location 
of economic activity and investment. The Co mmission should highlight the tax policy issues 
involved in reducing tax-induced distortions and examine possible remedial  measures, taking into 
account of the respective spheres of competen ce of the Member States and the Community".  
The results of the study were publ ished in 2001 in the so-called Company Tax Study77 and a related 
Communication78. 
* The Company Tax Study 
In preparing the 2001 Company tax study, following the Council mandate, the Commission was 
assisted by two specifically created panels of expe rts. The task of the first panel, composed of 
academics and experts, was to advise the Comm ission services on the choice of methodology for 
the evaluation of the effective tax rates in Member  States as well as the interpretation of the 
qualitative and quantitative results of the analysis. The task of the second panel was to advise the 
                                                 
76 Report of the Committee of Independent Experts on Company Taxation ("Ruding report”), 1992, Brussels. 
77 ‘ Company Taxation in the Single Market ’. SEC (2001) 582 final. 
78 ‘ 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. 
 
EN 49   EN Commission services on the remaining company tax obstacles to  the proper functioning of the 
Single Market  and to analyse these taxation obstacles fr om the point of view of the European 
business community and social partners79. 
Thus, Part III of the Study reflects the results of the work of the 2nd panel. It dealt with "burdens 
which companies incur as a result of doing busi ness in more than one Member State and which 
therefore represent a barrier to cross-borde r trade, establishment and investment".  
The main burdens identified can be cl assified in three broad categories: 
• Income flows between associated companies 
• Transfer pricing 
• Double taxation treaties 
First, concerning income flows, by 2001, the Parent -Subsidiary Directive ha s abolished withholding 
taxes on payments of dividends between associated companies of different Member States. 
However, its effectiveness was found to be reduced by the fact that it did not cover all companies subject to corporation tax and appl ied solely to direct holdings of 25% or more (at the moment of 
the study). Payments of interest and royalties  between associated companies of different Member 
States were often still subject to  withholding taxes that  effectively created situations of double 
taxation. Restructuring operations  were found to incur one-off costs – the tax-cost induced by 
cross-border mergers, acquisitions  and internal reorganisations being often excessively high and 
forcing companies to choose econo mically sub-optimal structures. The study identified particular 
difficulties in relation to cross-border loss-compensation . 
All these obstacles together with specific featur es of certain tax systems lead to an in-built bias in 
favour of domestic investment .
80 
Second, the study identified grow ing problems in the area of transfer pricing , mainly in the form 
of high compliance costs and potential double taxati on for intra-group transact ions. The application 
of the various methods for determining the "corre ct" (i.e. "arm's length") transfer price for a 
determined intra-group transaction has become in creasingly complex and costly. According to the 
study, EU businesses faced uncertainty as to whether their transfer prices w ould be accepted by the 
tax administrations upon an audit. The cost and time relating to th e dispute settlement procedures 
were often too high for enterprises with the result th at it was often less cost ly to accept the double 
taxation. 
Third,  double taxation conventions  (DTCs) were identified as a potential source of obstacles and 
distortions for cross-border econom ic activities within the EU. Although the intra-EU network of 
                                                 
79 The Commission services contacted a variety of leading business associations, trade unions and accountancy 
associations. The associations represented were: CEEP (European Centre of Enterprises with Public Participation), CFE (Conféderation Fiscale Européenne),  EFFEI (European Federation of Financial Executives 
Institutes), Eurochambres (Association of European Chambers of Commerce and Industry), Eurocommerce, 
ERT (European Round Table of Industrialists), IFA (International Fiscal Association), TEPSA (Trans European Policy Study Association), UEAPME (European Association of Craft, Small- and Medium-Sized 
Enterprises), UNICE (Union of Industrial and Employer’s Confederations of Europe) and ETUC (European 
Trade Union Confederation). 
80 For example, under imputation systems, foreign investors cannot benefit from tax credits available to domestic 
ones 
 
EN 50   EN DTCs was largely complete by 2001, some gaps remained. Even though tr eaties within the EU 
followed the OECD Model, the study finds significant differences in the terms of the various treaties and their interpretation. Inst ances of divergent application of  treaties by the treaty partners, 
leading to double taxation or non-ta xation, were also recorded. Busine ss representatives referred to 
the increasing complexity of treaty provisions as  a source of complian ce costs and uncertainty. 
What is more, the study shows that  DTC provisions based on the OE CD Model, in particular non-
discrimination articles, were not ad equate to ensure compliance with the EU law principle of equal 
treatment.  
Apart from these specific obstacl es, the study maintains that "[ t]he need to comply with a 
multiplicity of different rules entails a considerable compliance cost and represents  in itself  a 
significant barrier to cros s-border economic activity." 
Part IV of the Study presented a framework for possible remedies  and put forward targeted 
solutions  to the above problems as well as comprehensive measures  to tackle tax obstacles in the 
Internal market.  
Why transfer pricing rules affect the 'dou ble taxation' and 'additional compliance costs'  tax obstacles  in 
the Internal market 
In the area of transfer pricing, the tax problems fo r cross-border economic activity in the Internal market 
have increased over the past few years and are still gr owing. The problems consist essentially in high 
compliance costs  and potential double taxation for intra-group transactions as explained below. 
Goods and services are often transferred within a Multi- National Enterprise (MNE ) before they generate 
actual profits by being sold to third parties. Accord ing to WTO estimates, approximately 60% of total world 
trade consists of dealings between related parties . Within the EU, this figure is closer to 70% . This means 
that the majority of international trade is carried out between differen t parts of the same group: between 
parents and subsidiaries or between subsidia ries under the control of the same parent. 
Successful MNEs are organised to target their third par ty customers most effectively and in their external 
activities they generally operate as a single entity. However, for tax purposes th e MNE must "draw down the 
corporate veil" and pay tax based on accounts in each state where it operates. Th is means that some way 
must be found of pricing the goods and services that ha ve been transferred between the different parts of the 
same MNE. A price must be established but since the par ties to such dealings are associated the price is 
open to manipulation. The high share of inter national trade conducted within MNEs leads tax 
administrations to fear that they are losing out on thei r fair share of tax on any profit, either because MNEs 
are inadvertently using incorrect transfer pricing or b ecause they are deliberately exploiting opportunities to 
artificially shift profits to low taxing jurisdictions. 
In order to deal with this problem most countries ha ve transfer pricing rules. All such rules broadly follow 
the same principle: dealings between parts of the same MNE must be priced as they would have been 
between independent enterprises. This is known as the arm's length principle because independent 
enterprises are described as dealing at "arm's length". 
Why are transfer pricing rules so difficult to apply ? When goods or services are bought and sold between 
independent traders on the open market the buyer and seller agree a market price. But different parts of an 
MNE are under the control of the same shareholders – there is no open market price. Since companies and 
tax administrations have to imagine a hypothetical s ituation – what price would have been charged if the 
transaction had taken place betwee n independent traders? – transfer pricing rules are genuinely very 
difficult to apply. Not to let alone the potential scope for manipulation. 
Nearly all transfer pricing rules follow the arm's length  principle and are interpret ed in accordance with the 
OECD transfer pricing guidelines. But these guidelines only provide indications of how transfer prices 
should be set – they do not say what the transfer price s hould be. Transfer pricing is no exact science as it is 
often difficult if not impossible to find comparable ma rket prices. There is also the problem of finding 
 
EN 51   EN comparable independent companies and proving how th ey would have acted. The need to comply with 
transfer pricing rules is therefore a major inconvenience for businesses. 
There is an international consensus that businesses shoul d pay tax only once on the same profit: there should 
be no double taxation. However, when one tax aut hority imposes a transfer pr icing adjustment, double 
taxation is created unless and until another tax author ity gives a corresponding adjustment downwards. In 
practice, tax administrations may also disagree on the appropriate transfer prices. Resolving such disputes 
between tax administrations on highly complex matters takes time. The company has to wait while these 
disputes between the two tax administrations are resol ved, living with the uncertainty of the final outcome 
and possibly financing the cost of paying the tax twice while the dispute is pending. 
Hence transfer pricing rules give rise to disput es between tax administrations and taxpayers and also 
between tax administrations. Resolving such disputes  can take many years. Applying transfer pricing rules 
and documenting transfer prices are both costly and tim e-consuming for taxpayers. Auditing a taxpayer's 
transfer pricing is time consuming and resource inte nsive for both tax administrations and taxpayers. 
* Targeted actions:  
Income flows between related companies 
Responding to the shortcomings identified in the Merger and Parent-Subsidiary Directive , the 
study  identifies the need for amendments  to those directives: 
• To broaden their scope to specific transfer taxes; 
• To make it clear that instances of eco nomic double taxation should be avoided;  
• To extend the scope of the Merger Directiv e for the purpose of deferring tax charges, 
until the gain is realised, where assets are moved to another Member State while 
preserving the departing State's tax claims. 
It was also suggested to amend the Parent-Subsidi ary, so that it covers both direct and indirect 
shareholdings or, alternatively, provid e for a lower minimum holding threshold. 
Finally, the study proposed to make technical amendm ents for the purpose of  revitalising a proposal 
for a Directive of 1990 in the field of cross-border losses.81  
Transfer pricing 
The study identified several remedial measur es in the field of transfer pricing:   
• The practical application of the Arbitra tion Convention could be improved and its 
provisions made subject to in terpretation by the Court.  
• To tackle uncertainty, Member States coul d be encouraged to introduce or expand 
bilateral or multilateral Advance Price Agreement programmes. 
                                                 
81 ‘Proposal for a Council Directive Concerning Arrangements for Taking into Account by Enterprises of the 
Losses of their Permanent Establishments and Subsidiaries Situated in Other Member States’ COM (90) 595 
final, 28 November 1990. 
 
EN 52   EN • Subject to safeguards to prevent aggressi ve tax planning, a framework for prior 
agreement or consultation before tax ad ministrations enforce transfer pricing 
adjustments could also be considered.  
Double Taxation Conventions 
Proposed remedies in the field of DTCs  include:  
The filling of the few remaining gaps in the exis ting network of double taxa tion treaties within the 
EU, 
• Current DTCs of Member States could be adjusted, in order to comply with the 
principles of the single market, in particul ar in relation to access to treaty benefits, 
• Better co-ordination of treaty polic y in relation to third countries, 
• Binding arbitration where conflicts arise between treaty partners in the interpretation 
and application of a treaty. 
The most complete solution to such problems woul d be the conclusion of a multilateral tax treaty 
between Member States, conferring interpretativ e jurisdiction on the Court. Another possibility, 
leaving intact the existing bilateral system, woul d be to elaborate an EU  version of the OECD 
model convention and commentary (or of certain  articles) which would meet the specific 
requirements of the acquis communautaire .  
In addition, according to the study, various problems relating to the divergent application of (both 
the existing and future) EU Tax Directives by th e Member States could be tackled via a regular 
exchange of best practices or some form of peer review. 
* Comprehensive approaches   
The solutions targeted at solving specifically  identified problems cannot fully tackle the 
impediments to cross-border commercial activity that companies face in dealing with up to 27 
different tax systems. Namely, compliance cost s would remain high and complications caused by 
disparities and mismatches among national corporate tax systems would not allow companies to 
enjoy the full benefits of the si ngle market. This led the Commission to conclude that , in the longer 
term, a more comprehensive approach for a Europ ean company tax system was the most promising 
way forward.  
The study discussed four such options for comprehensive approaches:  
• "Home State Taxation ", implying that all, or a group of, Member States agree that 
certain groups of companies with operati ons in a number of Member States may 
compute their taxable base according to the tax code of a single Member State (i.e. Home State), instead of following all the di fferent tax codes of the respective Member 
States where they have operations (principle of mutual recognition). Only the method for calculating the base would change, as each  Member State would continue to set the 
tax rate applicable to its share of the group’s profits.  
• A Common Consolidated Corporate Tax Base  is a system of common rules for 
establishing the corporate tax base. Groups of companies of which the parent is tax 
resident in a Member State would have th e option to adopt a se t of common rules for 
 
EN 53   EN computing the tax base of each individual group member (i.e. subsidiary or permanent 
establishment (PE)) in the EU. The scheme would invol ve consolidating the tax-
adjusted results of each group member and then , allocating the consolidated tax base to 
the eligible group memb ers by apportionment. Companie s would be entit led to opt in 
the system individually if they did not fulfil the tests for consolidation. 
• The European Union Company Income Tax  (EUCIT) would require the drafting of a 
new corporate tax code to apply across the EU. In its purest form, it would be 
administered by a single tax authority, provide  for a single EU-wide tax rate and the 
revenues would be used to fund the EU in stitutions and activit ies whilst any excess 
would be allocated to Member States according to an agreed formula. However, it could also be administered by individual Member  States in much the same way as Value 
Added Tax. In such case, each Member Stat e could apply its own tax rate to its 
allocated share of the tax base.   
• A compulsory harmonised tax base in the EU  would require that  a single corporate 
tax code applies to all companies across the EU and replaces the existing domestic tax 
codes.  
The study identified the fundament al advantages of providing EU businesses with a common 
consolidated corporate tax base for their EU-wide activities as follows:  
• The compliance cost resulting from the need to deal with 27 tax systems within the 
single market would be  significantly reduced; 
• Transfer pricing problems  within the group of comp anies would disappear; 
• Profits and losses would, in pr inciple, be automatically c onsolidated on an EU basis; 
• Many international restructuri ng operations would be fiscal ly simpler and less costly. 
The business representatives of the expert panel assisting the Commission emphasised the 
fundamental advantages of comprehensive pr oposals under which comp liance costs would be 
reduced, many situations of double taxation would be  avoided and many discriminatory situations 
and restrictions would be rem oved. The study furthermore highli ghts that the introduction of a 
comprehensive option would contribute to the re duction of administrativ e costs and that many 
remedial measures would make the fight agains t tax evasion and avoidance more efficient. 
* Additional Consultation and the CCCTB Working Group  
As early as 2003, the Commission services carried out a formal  public consultation on the 
possibility of using IFRS/IAS as a starting point for arriving at a co mmon set of corporate tax rules. 
External consultation intensifie d after an informal ECOFIN C ouncil in September 2004 led to the 
establishment of a Working Group on the CCCTB. Th e group consisting of technical experts from 
all Member States and met quarterly between November 2004 and April 2008 and went through the 
elements of the scheme in detail. It also met a nnually in extended format three times (i.e. December 
2005, 2006 and 2007) to allow all key e xperts and stakeholders from the business, the professions 
and the academia to express their views. TAXUD had initialy proposed that the Working Group be 
Member States’ experts and external stakeholders  but Member States objected and the compromise 
solution was an annual extended meeting, quarterly  meetings with Member States and frequent 
 
EN 54   EN separate ad hoc meetings between TAXUD and stak eholders. In addition, six separate sub-groups 
were established, which met three or four times each; five chaired by Member States (Germany, 
Italy, France, Spain, and Denmark) and one by TAXUD. To support the work of the group, the 
Commission services produced 66 technical documents  for discussion covering every aspect of the 
CCCTB system. 
The work on the CCCTB rapidly gained considerable visibility and the Commission services started 
to receive a fast growing number of invitations for meetings and presenta tions. Since then, around 
15 front-line European and national business associations and think- tanks have sent in technical 
documents setting out their views on specific features of a CCCTB for the single market. Business 
Europe, in particular, has furnished the Commissi on with separate contribu tions containing detailed 
comments on the technical elements of almost every document submitted to the Working Group. 
The list of stakeholders82 who took part in the extended-fo rmat meeting of the group on 10-11 
December 2007 illustrates the extent of the c onsultation. Over the years the CCCTB has been 
discussed with a broad range of stakeholders. It is  also noteworthy that, regardless of the fact that 
the project was less exposed to  the public eye between Autu mn 2008 and the beginning of 2010, 
contributions dealing with specific technical asp ects (e.g. insurance) continued to be submitted to 
TAXUD. 
Although the CCCTB Working Group forms the core of  the work in order to widen the debate, 
particularly within the academic and business world, the Commission services also organised 
conferences in Brussels (April 2002) and Rome (December 2003). Another event, co-sponsored by 
the Commission and an academic institution, took place in Vienna in February 2008 and discussed 
in detail several highly technical items relevant  to the CCCTB. The articles submitted to the 
conference were subsequently published in book fo rm. Further, the literature in all high-tier 
international tax journals has co vered almost every aspect of the issues emerging from the last 
official outline of the CCCTB83. 
From the establishment of the Working Group a specific CCCTB section of  the website of DG 
TAXUD has been dedicated to the CCCTB and has all the key documentation in the field. In 
addition to the main policy documents, it includ es all 66 papers produced  for the Working Group 
coupled with summary records of th e meetings. It also contains links  to most of the technical input 
given by stakeholders on various te chnical aspects of the tax base. 
The latest consultation session on the CCC TB took place on 20 October 2010 when the 
Commission Services held a CCCTB Workshop. Th e Workshop which included representatives of 
all 27 Member States, business associations, academics and think tanks84 focused on four papers 
that the Commission services put on th e table as a basis for discussion: 
                                                 
82 EU AMCHAM (American Chamber of Commerce), CEA (Comité européen des assurances), CEPS (Centre 
for European Policy Studies), CFE (Confédération Fiscale Européenne), EATLP (European Association of Tax Law Professors), EBIT (European Business Initia tive on taxation), EUROCHAMBRES (Association of 
European Chambers of Commerce), FBE (European Banking Federation), FEE (Fédération des Experts 
Comptables Européens), UEAPME (European Associatio n of craft & small and me dium sized enterprises), 
BUSINESSEUROPE and th e OECD Secretariat. 
83 Commission (EC), ‘CCCTB: possible elements of  a technical outline’ (Working Document) 
CCCTB\WP\057\doc, 26 July 2007 
84 AMCHAM (American Chamber of Co mmerce), Business Europe, CEA (Com ité européen des assurances), 
CEPS (Centre for European Policy Studies), CFE (Con fédération fiscale européenne), EATLP (European 
Association of Tax Law Professors), EBIT (Europ ean Business Initiative on Taxation), ETUC (European 
Trade Union Confederation), EURO CHAMBRES (Association of European Chambers of Commerce), FBE 
(European Banking Federation), FEE (Fédération des experts comptables européens), UEAPME (European 
 
EN 55   EN 1. Eligibility Tests for Companies and Definition of a CCCTB Group; 
2. Business Reorganisations; 3. Transactions and dealings between the Group and entities outside the Group; 
4. Anti-Abuse Rules in the CCCTB. 
The workshop allowed for constructive discussions about the policy initiatives. In particular, 
practical solutions to techni cal aspects on the application of the new rules were found. 
                                                                                                                                                                 
 
Association of Craft & Small- and Medium-Sized Enterprises), OECD Secretariat and EESC (European 
Economic and Social Committee). 
 
EN 56   EN CCCTB Working Group Working Papers 
http://ec.europa.eu/taxation_cu stoms/taxation/company_tax/ common_tax_base/index_en.htm   
CCCTB/WP/001 General Tax Principles (1.2)  
CCCTB/WP/001/Rev1 General Tax Principles Revised (1.2)  
CCCTB/WP/002 Draft Terms of Refere nce & Rules of Procedure (1.2)  
CCCTB/WP/003 Draft Work Programme (1.2)  
CCCTB/WP/004 Assets and Tax Depreciation (1)  
Annex CCCTB/WP/004  Assets and Tax Depreciation - Annex (Table) (1)  
CCCTB/WP/005a Summary Record of Nov 2004 Meeting (1)  
CCCTB/WP/005) Intangible assets (2  
Annex1 CCCTB/WP/005 Intangible assets Annex Table (2)  
Annex2 CCCTB/WP/005 Annex – Potential Structure (2)  
CCCTB/WP/006 Reserves, Provis ions and Liabilities (2)  
CCCTB/WP/007 Overview of SG1 January Meeting (2)  
CCCTB/WP/008   
CCCTB/WP/009 Summary Record of March 2005 Meeting (2)  
CCCTB/WP/010 Capital Gains (3)  
CCCTB/WP/011 Overview of SG2 April Meeting (3)  
CCCTB/WP/012 Overview of SG1 – Two meetings (3)  
CCCTB/WP/013) Summary Record of June 2005 Meeting (3  
CCCTB/WP/014 Overview of SG1 July Meeting (4)  
CCCTB/WP/015 Overview of SG2 June meeting (4)  
CCCTB/WP/016 Concept of Tax balance Sheet (4)  
CCCTB/WP/017 Taxable income (4)  
CCCTB/WP/018 Summary Record of September 2005 Meeting (4)  
CCCTB/WP/019  International aspects (5)  
 
EN 57   EN CCCTB/WP/020 Progress and future plan (5)  
CCCTB/WP/021 Overview of SG2 October meeting (5)  
CCCTB/WP/022 Overview of SG3 November meeting (5)  
CCCTB/WP/023 Financial assets (5)  
Annex CCCTB/WP/023 Annex 1 – Table (5)  
Annex CCCTB/WP/023 Annex 2 – Table (5)  
CCCTB/WP/024 Chair Record of 071205 Meeting (5)  
CCCTB/WP/025 Summary Record of 081205 Meeting (5)  
CCCTB/WP/026 Territorial scope of the CCCTB (6)  
CCCTB/WP/027 Financial Institutions (6)  
CCCTB/WP/028 Overview of SG3 February meeting (6)  
CCCTB/WP/029  Overview of SG4 February meeting (6)  
CCCTB/WP/030 Administrative and lega l framework (questionnaire) (6)  
CCCTB/WP/031 Summary Record of March 2006 Meeting (6)  
CCCTB/WP/032 Overview of SG1 April 2006 meeting (7)  
CCCTB/WP/033 Overview of SG4 April 2006 meeting (7)  
CCCTB/WP/034 Overview of SG3 May 2006 meeting (7)  
CCCTB/WP/035 Group Taxation (7)  
CCCTB/WP/036 Point for discussion Admi nistrative and Legal Framework (7)  
CCCTB/WP/037 Summary Record of 1 June 2006 Meeting (7)  
CCCTB/WP/038 Chair Record of  2 June 2006 Meeting (8)  
CCCTB/WP/039  Business reorganisations (9)  
CCCTB/WP/040 Scope of the CCCTB (9)  
CCCTB/WP/041 Related parties in CCCTB (10)  
CCCTB/WP/042 Dividends (9)  
CCCTB/WP/043 Overview of SG3 June 2006 meeting (9)  
 
EN 58   EN CCCTB/WP/044 Overview of SG5 June 2006 meeting (9)  
CCCTB/WP/045 Summary Record of 12 September 2006 Meeting (9)  
CCCTB/WP/046 Progress and future plan (10)  
CCCTB/WP/047 Formulary apportionment (10)  
CCCTB/WP/048 Overview Copenhagen (10)  
CCCTB/WP/049  Overview Madrid (10)  
CCCTB/WP/050  Chair Record of 12 December 2006 Meeting (10)  
CCCTB/WP/051 Summary Record of 13 December 2006 Meeting (10) 
CCCTB/WP/052  Overview SG6 1-2 February 2007 (11)  
CCCTB/WP/053  Overview Copenhagen 5-6 February 2007 (11)  
CCCTB/WP/054  Summary on foreign passive income (11)  
CCCTB/WP/055  Summary Record of 13 March 2007 Meeting (11)  
CCCTB/WP/056  Overview SG6 4 June 2007 (12)  
CCCTB/WP/057  CCCTB: Possible elements of a technical outline (12)  
CCCTB/WP/057  ANNOTATED CCCTB: Po ssible elements of a technical outline 
(13) 
CCCTB/WP/058  Input from national tax administrations (12)  
CCCTB/WP/059  Summary Record of 27-28 September 2007 Meeting (12)  
CCCTB/WP/060  Sharing mechanism: Possible elem ents of a technical outline 
(13) 
CCCTB/WP/061  Administrative Framework: Possi ble elements of a technical 
outline (13)  
CCCTB/WP/062 Explanatory note on the comitology procedure 
CCCTB/WP/063  Summary Record of 12 December 2007 Meeting  
CCCTB/WP/064  Summary Record of 10-11 December 2007 Meeting  
CCCTB/WP/065  Anti-abuse rules  
CCCTB/WP/066  Various detailed aspects of the CCCTB  
CCCTB/WP/067  Request of input from national  tax administrations for the 
 
EN 59   EN Impact Assessment of the reforms at the EU level of corporate 
tax systems  
CCCTB/WP/068  Summary Record of 14-15 April 2008 Meeting (13)  
 
EN 60   EN Annex 2. The framework of the acquis communa utaire in the field of corporate income 
taxation 
The framework of the acquis communautaire in the area of corporate income taxation is composed 
of legislation, the ECJ jurisprudence and ot her acts in the area of  company taxation. 
* EU legislative acts in the fiel d of corporate income taxation 
Secondary legislation in the area of direct taxation is not extensive. Le gislative acts take the form of 
Directives as prescribed by the Treaties (i.e. Article 115 of the Treaty on the Functioning of the 
European Union (TFEU) which replaced Article 94 of the Treaty on the European Community 
(TEC)). Two “packages” of EC legislation, adop ted in 1990 and 2003, address some of the tax 
obstacles that place barriers to the achievement of the single market. Con cerning company taxation, 
the Council has so far ad opted three directives: 
The Merger Directive85 aims at mitigating the tax burden arising from cross-border restructuring 
operations of companies within the EU. 
The Parent-Subsidiary Directive86 ensures that certain cross-borde r payments of dividends do not 
suffer economic double taxation within the EU. 
The Interest and Royalties Directive87 provides for the elimination of double taxation of certain 
interest and royalty payments between associat ed companies which are resident in different 
Member States, by exempting such payments fr om withholding tax in the State of source. 
These three Directives are supplem ented by the Arbitration Convention88 which addresses the 
problems of transfer pricing in transactions th at involve goods, services and intangibles between 
associated companies. This instrument has not  yet yielded significant results, although several 
recent Communications containing guidelines should render  its application more effective (see 
infra). 
* Case-law of the Court of Ju stice of the European Union 
The number of cases in the area of company ta xation referred to the C ourt of Justice of the 
European Union (ECJ) has grown considerably over the last 10 years. After some 150 decisions in 
                                                 
85 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, 
divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different 
Member States and to the transfer of the register ed office of an SE or SCE between Member States (codified 
version, OJ L 310, 25.11.2009, p 34) . 
86 Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of 
parent companies and subsidiaries of different Member States (OJ L 225, 20.8.1990, p. 6–9) . 
87 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and 
royalty payments made between associated  companies of different Member States (OJ L 157, 26.6.2003, p. 
49–54) . 
88 Convention 90/436/EEC of 23 July 1990 on the elimination of double taxation in connection with the 
adjustment of profits of associated enterprises – Fi nal Act – Joint Declarations – Unilateral Declarations (OJ 
L225, 20.8.1990, p. 10–24).  
 
EN 61   EN this area89, there can be no doubt that the case-law of the ECJ has si gnificantly influenced the 
shaping of company tax policy in the EU . 
Some of the cases that the ECJ has ruled on in th is area concerned the application and interpretation 
of the direct tax directives (i.e. Parent-Subsidiary or Merger Directives). However, the vast majority 
of cases deal with the compatibility of corporat e tax provisions of the Member States with the 
fundamental freedoms of the EC Treaty, in particul ar the freedom of establishment (the right of 
companies to establish themselves by setting up bran ches, subsidiaries or agencies in other Member 
States (Art. 49 TFEU)), the free movement of services and free movement of capital. Regarding 
multinational groups of companies,  the Court has issued landmark  judgments on the tax treatment 
of branches and subsidiaries, cross-border losses, the application of anti-a buse rules in the EU and 
the taxation of outbound and inbound dividends. 
Case-law developments can contribute to the comp letion of the single market. The judicial process 
however has its limitations, as it is rather tim e-consuming, expensive and focuses on individual 
situations. It thus does not produ ce generally applicable solutions.  As a result, taxpayers often face 
considerable uncertainty as to how to interpret th e principles of the jurisprudence of the ECJ when 
structuring cross-border activities within the EU . Furthermore, since the Court only rules on the 
specific questions it has been addressed to, its jurisprudence cannot offer a systematic tool for 
tackling features of the Member States’ corpor ate tax systems which ar e in breach of EU law90. 
It follows that it would not be advisable to rely solely on the judicial process to secure compliance 
with EU law. It is necessary to work in parall el and try to resolve problems through legislation, 
particularly where those are common  to a number of Member States. 
* Other EU acts and initiatives in th e field of corporate income taxation 
Besides EU hard law and the jurisprudence of the EC J, several other initiativ es have been taken by 
the Commission in recent years to  remove obstacles to the freedom  of movement. As part of the 
framework of the two-track strategy launche d in 2001, the Commission announced a series of 
targeted measures in the area of corporate ta xation, aimed at removing specific corporate tax 
barriers in the short term. Mo st of these targeted measures have since been adopted: 
- a proposal for a Code of Conduct on transfer pricing documentation for associated enterprises in 
the EU91; 
- a proposal for a Code of Conduct for the eff ective implementation of the EU Arbitration 
Convention92; 
- a proposal for a revised Code of Conduct for th e effective implementation of the Arbitration 
Convention93; 
                                                 
89 See the 2008 study " The Impact of the Rulings of the European Court of Justice in the area of Direct 
Taxation ", Policy Department - Economic and Scientific Policy, European Parliament (IP/A/ECON/ST/2007-
27). 
90 In 2004, a Price Waterhouse Coopers study concluded that possible violations of EC freedoms existed in all 
(then 25) Member States. See Press Re lease, PWC LLP, 14 October 2004. 
91 COM(2005)543. 
92 Code of conduct COM(2004)297 for the effective implementation of the Convention on the elimination of 
double taxation in connection with the adjustment of profits of associated enterprises (OJ C 176, 28.7.2006, p. 
8–12).  
93 COM (2009)472. 
 
EN 62   EN - guidelines for the use of Advance Pr icing Agreements (APAs) in the EU94; 
- a Communication for a possible Home State Taxation pilot scheme for SMEs95; 
- a Communication on cross-border loss relief96; this issue has also been the object of a Parliament 
resolution97; 
- a Communication on exit taxation and the need for co-ordination of Member  Sates’ tax policies98; 
- a Communication on the application of anti-abuse meas ures in the area of di rect taxation – within 
the EU and in relation to third countries99; 
- The fight against tax fraud and tax ev asion in the area of direct taxa tion has also been the object of 
recent initiatives100. 
Some of these initiatives have b een more successful than others but  many of them have so far not 
led to any action by Member States. Indeed, even being part of the status quo, they have had no 
practical impact. The effective implementation by Member States is a long-term exercise. 
Considering that these instruments are of a non-bi nding legal nature, the re sults currently remain 
uncertain. Therefore, their overall  practical impact on removing re maining tax obstacles has been 
insufficient.
                                                 
94 COM(2007)71. 
95 COM(2005)702, accompanied by the corresponding Impact Assessment (SEC(2005) 1785). 
96 COM(2006)824. 
97 European Parliament, Resolu tion of 13 December 2007 on Tax Treatment of Losses in Cross-Border 
Situations , Report of 30 November 2007, Committee of Economic and Monetary Affairs. 
98 COM (2006)825. 
99 COM (2007) 785. 
100 See among others, COM (2010)156/01. 
 
EN 63   EN Annex 3. The samples of EU-based multinat ional groups from the Amadeus and ORBIS 
databases   
3.1 Description of EU-based multinational grou ps operating in the non-financial sector 
based on the Amadeus database 
The Amadeus  database has been used for some of th e quantitative analysis in this Impact 
Assessment (February 2006 version). Amadeus contains standardized annual accounts of 
approximately 8 million companie s in 38 countries, in cluding all EU Member States. It also 
contains information on (domestic and cross-bord er) linkages between companies in its so-called 
“ownership” database. These features imply that this dataset is useful for cross-border company 
analysis. As an indicative figure, it can be said  that Amadeus reports information on about 14000 
'EU-based multinational groups' (as defined below). Th is doesn’t prevent from  raising, however, the 
difficult question of how representative the results of  such an analysis will be for the total actual 
population of companies with cross-border linkages in  the EU, since data collection reported in this 
dataset sometimes is biased, as it differs between countries and depends on th e institutional settings 
in each country. Unfortunately, a database with information on all EU multinational companies (or 
a geography-wise 'representative' sample of them) and their foreign affiliates does not exist in Europe. 
The Amadeus database has been first used to gain some insight into the EU-based companies that 
will most likely be affected by th e alternative tax systems under scru tiny in this Impact Assessment: 
EU-based multinational groups
101. Internal research in DG TAXUD has dealt with the database in 
order to extract the relevant data to obtain a picture of EU -based multinational groups . For the 
purpose of this study, an EU mu ltinational group exists when an  EU-based company owns (at 
different possible ownership thresholds – see below) at least one subsidiary in a Member State other 
than that of the parent company. A first objective of this analysis has been to provide a thorough 
description of the existing 'EU-based multinational groups'. For example, it has been of interest to know: how many such EU multinati onal groups exist, their break- down across Member States (ie 
the geographical distribution of parent companies w ith foreign subsidiaries, the main destination of 
foreign direct investment of parent companies in  the form of majority-owned affiliates across EU 
MS…), the average number of Member States in  which an EU multinational group operates, the 
average number of subsidiaries of EU multinati onals (domestic and foreign - both EU-based and 
non-EU), main sectors of economic activities in wh ich the EU multinational groups operate, etc.  
Thus, using the ‘ownership’ database of Amad eus, the information has been arranged by ‘EU 
multinational groups’ (ie matching companies that  belong to the same multinational group). For 
each of the companies that is a member of a multin ational group, the particular data extracted from 
the database has been: country of residence, owne rship percentage, cost and number of employees 
per company and financial data for the years 2002, 2003, 2004: profit (loss) before tax, operating 
revenue/turnover, export turnover, fixed assets (tangi ble and intangible), adde d value, etc (the data 
extracted for each group has been used for further quantitative assessments base d on this dataset, as 
explained in this report). 
                                                
 
101 Obviously, in the cases where the policy alternatives under scrutiny are 'compulsory'  all EU-based companies  
subject to corporate taxation will be affected by th e relevant tax system: that is, not only EU-based 
multinational groups, but also EU-based domestic (national) companies/groups will be concerned. This has 
been taken into account when evaluating the relevant options. Anyhow, the EU-based multinational groups 
require special attention because they are affected by all (optional and compulsory) policy alternatives 
analysed and because they are the eco nomic agents most directly concerne d by the various alternative policy 
options. 
 
EN 64   EN Two samples of such EU multinational groups in the 27 Member States ha ve been selected from 
Amadeus: (i) a sample of multinational groups whos e parents are large size enterprises (i.e. LSEs 
with more than 250 employees) and (ii) a samp le of multinational groups whose parents are 
small/medium-sized enterprises (SMEs) (i.e. with less than 250 employees). 
For the first category (EU multinational groups whos e parents are large companies) different sub-
samples have been analyzed by varying the owners hip threshold from 50% to 75% and 100% (in all 
subsidiary levels of the parent) in order to te st how the composition of the groups changes when 
ownership thresholds are increased or d ecreased (See Table A1 in this Annex). 
These results show that by increasing the ownershi p thresholds the sample size does not decrease 
enormously, that is, most subsidiaries of EU mu ltinational groups are owned at very high levels of 
ownership (e.g. 85% of the sample remains when changing the ownership threshold from 50% to 
100%). 
The picture of the main characteristics of EU-based multinational groups with 75% ownership  
has been analysed in greater deta il (See Table 2 in this Annex), sinc e this is the proposed ownership 
threshold for consolidation. For this sample with 2060 groups in the 27 Member States , the 
average number of subsidiaries per parent is  25.95, of which 11.11 (43%) on average are domestic 
subsidiaries (established  in the same country as the pare nt company), 10.06 (38.5%) on average are 
subsidiaries in an EU Member State other than that of the pa rent company and 4.78 (18.5%) are 
subsidiaries established in a non- EU country. A further analysis of  these figures has been carried 
out, in order to get a bett er idea of the frequency distribution of the number of subsidiaries/parent. 
When compared to the average of  the distribution (25.95 subsidiaries /parent) this analysis shows 
that most EU multinational groups have a 'small' numbe r of subsidiaries (6 or  less), but at the same 
time there are a few groups that have a very la rge number of subsidiaries biasing the average 
upwards. 
Further investigation has been done on other issues to complete the picture of EU-based 
multinational groups (75% ownership threshold). For example, the following features can be 
highlighted: 
- 48.67% of the subsidiaries of the EU-based multin ational groups are owned directly by the parent 
company at the first level. 
- On average, parent companies have subsidiaries in four EU Member States  (other than that of 
the parent home State), thus, they have to deal with as many corpor ate tax rules. Some parents reach 
the maximum number of EU fore ign destinations which is 26. 
- In most cases, neighbouring coun tries are the main destination of foreign investment of parents in 
form of majority owned subsidiaries. 
- The so-called sandwich situations  (i.e. situations when an EU parent/subsidiary owns a non-EU 
company, which in turn owns an EU-based subsidiary) have also been investigated. Within the 
sample of 2.060 parents only 48 pare nts in 11 Member States (a to tal of 59 situations) held EU-
based subsidiaries through non-EU companies. 
- The main activities of all parents per country in  the selected 75% ownership sample have also 
been examined and grouped in 62 sectors acco rding to the NACE intern ational classification 
system. 24.9% of the parents operate in ‘Other business activities’, and after that the sector with the 
largest number of parents is ‘Wholesale trade a nd commission trade, except of motor vehicles and 
 
EN 65   EN motorcycles’ (7.33%). The Amad eus database does not contain any information on companies 
working in the financial and insurance field (thus the analysis in this part is restricted to the non-financial sector). 
The other sample of EU multinationa l groups analysed is that of pa rent companies which have less 
than 250 employees, i.e. parents are small and medium -sized enterprises. Ownership threshold is set 
at 75% ownership. The total sample of SMEs pare nts meeting the above criteria in the Amadeus 
database is 18096, out of which a sample of 471 pa rents and groups has been extracted and analysed 
(See Table 3 in this Annex). This sample shows th at the average number of subsidiaries per parent 
in these groups is 5.41, which is considerably less than the average for the MNEs. Of these, on 
average, 1.62 are domestic companies (in the same Member State as the parent), 2.25 are foreign 
subsidiaries in other EU Member States and 1,54 are subsidiaries in non-EU countries. 
 
EN 66   EN  ( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 1 ) ( 2 ) ( 3 ) ( 4 )
Count
ry of 
LSE 
ParenTotal 
LSE 
Parent
sTotal 
Subs of the LSE 
Parent Total 
Parent
s+SubsCount
ry of 
LSE 
ParenTotal 
LSE 
Parent
sTotal 
Subs of the LSE 
Parent Total 
Parent
s+Sub
sCount
ry of 
LSE 
ParenTotal 
LSE 
Parent
sTotal 
Subs of the LSE 
Parent Total 
Parents
+SubsCountr
y of 
LSE 
ParentTotal 
LSE 
Parent
sTotal 
Subs of the LSE 
Parent Total 
Parent
s+Subs
1 AT 168 1606 1774 AT 168 1608 1776 AT 146 1181 1327 AT 135 881 1016
2 BE 373 4619 4992 BE 150 2901 3051 BE 135 2246 2381 BE 104 1212 13163 BG 1 3 4 BG 1 2 3 BG 1 2 3 BG 1 1 2
4 CY 7 45 52 CY 7 45 52 CY 7 37 44 CY 6 26 32
5 CZ 43 109 152 CZ 43 108 151 CZ 36 76 112 CZ 31 48 79
6 DK 317 5876 6193 DK 317 5842 6159 DK 307 5015 5322 DK 300 4610 4910
7 EE 8 71 79 EE 8 71 79 EE 8 55 63 EE 6 40 46
8 FI 171 2534 2705 FI 171 2534 2705 FI 161 2132 2293 FI 150 1807 1957
9 FR 864 52173 53037 FR 150 15416 15566 FR 141 11274 11415 FR 120 6106 6226
10 DE 1168 25637 26805 DE 150 7946 8096 DE 137 5889 6026 DE 130 4844 4974
11 GR 33 331 364 GR 33 333 366 GR 29 239 268 GR 26 137 163
12 HU 12 66 78 HU 12 67 79 HU 11 47 58 HU 6 29 35
13 IE 98 1307 1405 IE 98 1307 1405 IE 92 1056 1148 IE 90 819 90914 IT 851 7677 8528 IT 150 3597 3747 IT 139 2423 2562 IT 114 1588 1702
15 LV 3 8 11 LV 3 8 11 LV 3 7 10 LV 2 4 6
16 LT 2 5 7 LT 2 5 7 LT 1 2 3 LT 1 2 3
17 LU 35 556 591 LU 35 559 594 LU 33 478 511 LU 33 386 419
1 8 M T 000 M T 00 0 M T 0 00 M T 000
19 NL 802 13596 14398 NL 150 7569 7719 NL 144 5946 6090 NL 136 4945 5081
20 PL 31 196 227 PL 31 196 227 PL 27 143 170 PL 26 83 109
21 PT 54 1083 1137 PT 54 1076 1130 PT 47 774 821 PT 41 512 553
2 2 R O 62 43 0 R O 61 8 2 4 R O 4 1 11 5 R O 4 81 2
23 SK 6 28 34 SK 6 28 34 SK 5 20 25 SK 4 16 20
24 SI 20 71 91 SI 20 71 91 SI 19 63 82 SI 18 45 6325 ES 485 4323 4808 ES 150 4654 4804 ES 143 2825 2968 ES 111 1375 1486
26 SE 433 10731 11164 SE 150 4898 5048 SE 148 4363 4511 SE 145 3996 4141
27 UK 984 135778 136762 UK 150 8801 8951 UK 136 7153 7289 UK 122 6285 6407
Total: 6975 268453 275428 Total: 2215 69660 71875 Total: 2060 53457 55517 Total: 1862 39805 41667
N.B.:  P=Parents; S=SubsidiariesTable A1.2.
Sample 50%  Table A1. Total LSE parents and subsidiaries in varying ownership thresholds (Amadeus database)
Sample 75% Sample 100%Table A1.3. Table A1.4.
Total 50% in AMADEUSTable A1.1.
 
EN 67   EN  ( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 5 ) ( 6 ) ( 7 ) ( 8 ) ( 9 ) ( 10 ) ( 11 ) ( 12 ) ( 13 )
Country 
of LSE parentTotal 
Parents in AMADEUS Abb.LSE  
Parents 
SampleLSE Subs in 
SampleTotal 
LSE 
Parents + 
Subs 
SampleAverage 
N° of 
Subs per 
Parent 
(5/4)N° of 
Domestic 
SubsAverage N° 
of Domestic 
Subs per 
Parent (8/4)EU Foreign 
Subs (Total 
EU Subs - 
Domestic 
Subs)Average 
N° of EU 
Foreign 
Subs per 
Parent 
(10/4)Non EU 
SubsAverage 
N° of Non-
EU Subs 
per 
Parent 
(12/4)
1 Austria 168 AT 146 1181 1327 8.09 484 3.32 606 4.15 91 0.62
2 Belgium 373 BE 135 2246 2381 16.64 601 4.45 1189 8.81 456 3.383 Bulgaria 1 BG 1 2 3 2.00 0 0.00 2 2.00 0 0.004 Cyprus 7 CY 7 37 44 5.29 11 1.57 25 3.57 1 0.145 Czech Rep
u 43 CZ 36 76 112 2.11 27 0.75 49 1.36 0 0.00
6 Denmark 317 DK 307 5015 5322 16.34 1180 3.84 2717 8.85 1118 3.647 Estonia 8 EE 8 55 63 6.88 33 4.13 21 2.63 1 0.138 Finland 171 FI 161 2132 2293 13.24 827 5.14 1045 6.49 260 1.619 France 864 FR 141 11274 11415 79.96 4612 32.71 4396 31.18 2266 16.07
10 Germany 1168 DE 137 5889 6026 42.99 2502 18.26 1955 14.27 1432 10.4511 Greece 33 GR 29 239 268 8.24 106 3.66 104 3.59 29 1.0012 Hungary 12 HU 11 47 58 4.27 10 0.91 34 3.09 3 0.27
13 Ireland 98 IE 92 1056 1148 11.48 354 3.85 617 6.71 85 0.92
14 Italy 851 IT 139 2423 2562 17.43 869 6.25 989 7.12 565 4.0615 Latvia 3 LV 3 7 10 2.33 3 1.00 4 1.33 0 0.0016 Lithuania 2 LT 1 2 3 2.00 0 0.00 2 2.00 0 0.0017 Luxembour
g 35 LU 33 478 511 14.48 48 1.45 301 9.12 129 3.91
18 Malta 0 MT 0 0 0 0.00 0 0.00 0 0.00 0 0.0019 Nehterland
s 802 NL 144 5946 6090 41.29 1493 10.37 2649 18.40 1804 12.53
20 Poland 31 PL 27 143 170 5.30 101 3.74 39 1.44 3 0.1121 Portugal 54 PT 47 774 821 16.47 490 10.43 215 4.57 69 1.4722 Romania 6 RO 4 11 15 2.75 4 1.00 7 1.75 0 0.0023 Slovakia 6 SK 5 20 25 4.00 12 2.40 7 1.40 1 0.2024 Slov enia 20 SI 19 63 82 3.32 18 0.95 29 1.53 16 0.8425 Spain 485 ES 143 2825 2968 19.76 1560 10.91 692 4.84 573 4.0126 Sweden 433 SE 148 4363 4511 29.48 1689 11.41 2019 13.64 655 4.4327 United Kin
g 984 UK 136 7153 7289 52.60 5846 42.99 1019 7.49 288 2.12
Total in 
Amadeus : 6975Sample
: 2060 53457 55517 25.95 22880 11.11 20732 10.06 9845 4.78
N.B.: Subs = SubsidiariesTable A2. Total LSE parents and subsidiaries and their averages for 75% ownership threshold (Amadeus database)
 
EN 68   EN Table A3. Total parents and subsidiaries for SMEs (Amadeus database)
( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 5 ) ( 6 ) ( 7 ) ( 8 ) ( 9 ) ( 10 ) ( 11 ) ( 12 ) ( 13 ) ( 14 ) ( 15 )
Country 
of the 
SME 
parent Abb.Total EU 
SME 
Parents 
in 
AmadeusTotal SME 
Subs (to 
thes e EU 
SME 
Parents) in 
AmadeusTotal EU 
SME 
Parents + 
respectiv
e Subs  in AmadeusSample 
EU SME 
ParentsSample 
SME 
SubsTotal 
sa mple  
Parents 
+ SubsAver N° 
of subs 
per 
parent in 
the 
sa mpleN° of 
Domesti
c SubsAverage 
N° of 
Domestic 
Subs per 
Parent Foreign 
Subs 
(Total EU 
Subs - 
Domestic 
Subs)Average 
N° of EU 
Foreign 
Subs 
per 
Parent Non 
EU 
SubsAverage 
N° of 
Non-EU 
Subs 
per 
Parent 
1 Austria AT 555 1604 2159 10 25 35 2.50 11 1.10 14 1.40 0 0.00
2 Belgium BE 2640 7793 10433 10 94 104 9.40 12 1.20 77 7.70 5 0.503 Bulgaria BG 7 16 23 7 16 23 2.29 10 1.43 6 0.86 0 0.00
4 Cyprus CY 3 3 6 3 7 10 2.33 2 0.67 5 1.67 0 0.00
5C z e c h  R
eCZ 42 47 89 42 55 97 1.31 4 0.10 50 1.19 1 0.02
6 Denmark DK 1467 5295 6762 10 124 134 12.40 60 6.00 54 5.40 10 1.00
7 Estonia EE 54 67 121 54 72 126 1.33 16 0.30 56 1.04 0 0.00
8 Finland FI 195 404 599 10 39 49 3.90 3 0.30 32 3.20 4 0.409 France FR 1684 9738 11422 20 249 269 12.45 84 4.20 105 5.25 60 3.00
10 Germany DE 2267 9265 11532 20 270 290 13.50 132 6.60 124 6.20 14 0.70
11 Greece GR 34 53 87 34 75 109 2.21 29 0.85 46 1.35 0 0.0012 Hungary HU 7 8 15 7 9 16 1.29 1 0.14 8 1.14 0 0.00
13 Ireland IE 621 1373 1994 20 65 85 3.25 10 0.50 49 2.45 6 0.30
14 Italy IT 1118 1507 2625 20 122 142 6.10 17 0.85 65 3.25 40 2.0015 Latvia LV 6 11 17 6 11 17 1.83 4 0.67 7 1.17 0 0.00
16 Lithuania LT 13 20 33 13 20 33 1.54 4 0.31 15 1.15 1 0.08
17 Luxembo
uLU 66 679 745 10 547 557 54.70 0 0.00 25 2.50 522 52.20
18 Malta MT 0 0 0 0 0 0 0.00 0 0.00 0 0.00 0 0.00
19 Nehterlan dNL 2433 9156 11589 20 156 176 7.80 44 2.20 81 4.05 31 1.55
20 Poland PL 24 65 89 24 69 93 2.88 33 1.38 36 1.50 0 0.0021 Portugal PT 48 97 145 48 142 190 2.96 79 1.65 62 1.29 1 0.02
22 Romania RO 10 8 18 10 10 20 1.00 0 0.00 10 1.00 0 0.00
23 Slovakia SK 6 4 10 6 6 12 1.00 0 0.00 6 1.00 0 0.0024 Slovenia SI 7 13 20 7 13 20 1.86 1 0.14 10 1.43 2 0.2925 Spain ES 1042 1921 2963 20 72 92 3.60 30 1.50 33 1.65 9 0.45
26 Sweden SE 1761 8092 9853 20 224 244 11.20 153 7.65 56 2.80 15 0.75
27 United Ki
nUK/G B 1986 12769 14755 20 55 75 2.75 25 1.25 28 1.40 2 0.10
Total 
EU27: 18096 70008 88104 471 2547 3018 5.41 764 1.62 1060 2.25 723 1.54
 
EN 69   EN 3.2 Description of EU-based multinational gro ups operating in the financial sector based 
on the Orbis database 
The analysis of EU-based multinational groups operat ing in the financial sector has been done using 
the commercial Orbis database. Orbis is a global database which contains standardized annual accounts of over 50 million companies worldwide. It  also contains information on domestic and 
cross-border linkages between companies in its so- called “ownership” database which is useful for 
cross-border company analysis. All EU-based multin ational groups operating in the financial sector 
that have met initially set criteria and that have  provided financial informa tion have been extracted 
from the database for analysis. The financial data in the Orbis database has been collected directly 
from the companies, from official bodies or from associated information providers. 
The initially set criteria are related to the definition of an EU-multinational group. An ‘EU-
multinational group operating in the financial sector ’ is defined as a group of related companies 
(with a direct ownership threshold of 75%– as  specified by the CCCTB proposal) whose members 
are established and operate in at least two different  Member States (MSs) of the EU and such that 
either the parent of the group or/and some of  its subsidiaries are financial companies102 (while the 
rest of the companies in the group may be non-fina ncial companies). The dataset used for analysis 
contains only those subsidiaries that operate in an EU MS – as  opposed to the industrial company 
database [see first part of this annex] whic h contains third country companies, as well. 
Two samples of 'EU groups operatin g in the financial sector' have been compiled using the original 
'ownership' information from the database. These samples correspond to: 
(i) a sample of EU multinational gr oups of which the parents are larg e-sized enterprises (LSEs), i.e. 
with more than 250 employee. This sample will be  referred to as 'EU large multinational groups 
operating in the financial sector' or 'LSE groups' from here onwards. 
(ii) a sample of EU multinational groups of whic h the parents are small/m edium-sized enterprises 
(SMEs), i.e. with less than 250 employees. This  sample will be referred to as 'EU small 
multinational groups operating in the financial sector' or 'SME groups' from here onwards. 
The companies have been arranged on a group- by-group basis, following the exact 'ownership' 
structure of the groups. For each of the companie s that is a member of a multinational group, the 
particular data extracted fr om the database has been:  
• country of residence,  
• ownership percentage,  
• cost and number of employees per company, 
• financial data for the years 2002, 2003, 2004:  profit (loss) before tax, operating 
revenue/turnover, tangible fixed assets, tota l investment, gross premium income, net 
investment income, etc.  
An important objective of the analysis has been to  provide a thorough descri ption of the existing 
'EU-based multinational groups operating in the financial sector'. For example, it has been of 
                                                 
102 Financial institutions cover insurance companies and banks. 
 
EN 70   EN interest to know: how many such  EU multinational groups exist, their break-down across Member 
States (i.e. the geographical distri bution of parent companies with fo reign subsidiaries), the average 
number of subsidiaries in EU multinational groups , share of financial and non-financial companies, 
etc.  
The dataset contains 6771 groups (5102 LSE and 1669 SME groups) and 107113 companies (89251 
of them in LSE groups and 17862 in SME groups ). Financial and non-financial companies' 
variables are presented by three accounting schedules – for banks us ually a banking schedule, for 
insurance companies usually an insurance schedul e and for non-financial companies an industrial 
schedule. (More than 80% of companies have an industrial accounting schedule.)  
The current datasets comprise a potential ca. 7. 7 million entries (107113 companies x 18 financial 
variables [the average for th e three accounting schedules] x 4 years) including missing data. 
Financial data missing from the Orbis database has been imputed for the purpose of analysis. In the 
case of individual data points missing among the fina ncial variables of companies, a new value was 
imputed by deductive imputation, using auxiliar y variables, a regression method or 'donor 
imputation'. When all financial data of a particul ar company were missing, re presentativeness of the 
sample was maintained by re-weighting existing data.  
The total number of financial companies in the sample is 24060 of whic h 19517 are in LSE groups 
and 4543 (19%) are in SME groups. This means that the average number of financial companies per 
LSE group is 3,83 and 2,72per SME group. The total number of banks is 1118 and the number of insurance companies is 1132 , more than  90% of them belonging to LSE groups.  
The number of parents that are themselves fi nancial companies is 2533 among LSEs (49,6% of all 
parents) and 1147 among SMEs (70,3%). 4,7% of th e groups contain only fi nancial companies and 
3,8% of groups have only 1 financial company. 
In LSE groups the average number of subsidiaries  is 16.49, while in SME groups this figure is 9.70. 
It is noteworthy that for LSE financial groups, th e number of subsidiaries is much less than the 
figure found among LSE groups in the industrial comp any database (25.95 – see first part of this 
annex); whereas among SME groups, the financial da tabase has a much higher figure (being only 
5.41 for industrial SME groups) .  
Similarly to the industrial database, most groups  have only a small number of subsidiaries. The 
median is 3 with 31% of groups having 1 subsidiary  and only a quarter of them having at least 10. 
The share of subsidiaries that ar e in countries different from the parent is 42 %. 36% of foreign 
subsidiaries are located in countries neighbouring th e country of the parent. 30 % of the s ubsidiaries 
are owned directly by the pa rent company of the group. 
On average, parent companies have subsidiaries  in 2.07 Member States apart from the Member 
State of the parent, thus they have to  deal with more than 3 tax codes. 
 
EN 71   EN Table A.4 Large-size financial groups and their averages for 75% ownership threshold (ORBIS database)
( 1 ) ( 3 ) ( 4 ) ( 5 ) ( 6 ) ( 7 ) ( 8 ) ( 9 ) ( 10 ) ( 11 )
Country 
of LSE parent Abb.LSE  
Parents 
SampleLSE 
Subs in 
SampleTotal 
LSE 
Parents 
+ Subs 
SampleAverage 
N° of 
Subs per 
Parent 
(5/4)N° of 
Domestic 
SubsAverage 
N° of 
Domestic 
Subs per 
Parent 
(8/4)EU 
Foreign 
Subs 
(Total EU 
Subs - 
Domestic 
Subs)Average 
N° of EU 
Foreign 
Subs per 
Parent 
(10/4)
1 Austria AT 114 1351 1465 11.85 559 4.90 792 6.95
2 Belgium BE 803 4297 5100 5.35 984 1.23 3313 4.133 Bulgaria BG 3 9 12 3.00 6 2.00 3 1.004 Cyprus CY 196 1211 1407 6.18 38 0.19 1173 5.985 Czech Re
pC Z 93 74 6 4 . 1 12 2 2 . 4 41 5 1 . 6 7
6 Germany DE 330 10847 11177 32.87 6854 20.77 3993 12.107 Denmark DK 243 2132 2375 8.77 760 3.13 1372 5.65
8 Estonia EE 2 2 4 1.00 0 0.00 2 1.00
9 Spain ES 110 2850 2960 25.91 2033 18.48 817 7.43
10 Finland FI 44 1368 1412 31.09 445 10.11 923 20.9811 France FR 274 10142 10416 37.01 5182 18.91 4960 18.1012 UK GB 549 18390 18939 33.50 15436 28.12 2954 5.3813 Greece GR 32 332 364 10.38 171 5.34 161 5.0314 Hungary HU 13 78 91 6.00 31 2.38 47 3.6215 Ireland IE 147 1935 2082 13.16 592 4.03 1343 9.1416 Italy IT 239 3883 4122 16.25 1973 8.26 1910 7.9917 Lithuania LT 6 31 37 5.17 6 1.00 25 4.1718 Luxembou
rLU 359 2550 2909 7.10 128 0.36 2422 6.75
19 Latvia LV 5 12 17 2.40 2 0.40 10 2.0020 Malta MT 16 41 57 2.56 1 0.06 40 2.5021 Nehterlan
dNL 1327 16172 17499 12.19 9658 7.28 6514 4.91
22 Poland PL 3 25 28 8.33 20 6.67 5 1.6723 Portugal PT 35 425 460 12.14 280 8.00 145 4.1424 Romania RO 2 9 11 4.50 4 2.00 5 2.5025 Sweden SE 233 5985 6218 25.69 2871 12.32 3114 13.3626 Slovenia SI 5 30 35 6.00 21 4.20 9 1.8027 Slovakia SK 3 5 8 1.67 0 0.00 5 1.67
Total 5102 84149 89251 16.49 48077 9.42 36072 7.07
 
 
EN 72   EN ( 1 ) ( 3 ) ( 4 ) ( 5 ) ( 6 ) ( 7 ) ( 8 ) ( 9 ) ( 10 ) ( 11 )
Country 
of LSE 
parent Abb.LSE  
Parents 
SampleLSE Subs 
in SampleTotal LSE 
Parents + 
Subs 
SampleAverage 
N° of 
Subs per 
Parent 
(5/4)N° of 
Domestic 
SubsAverage 
N° of 
Domestic 
Subs per 
Parent 
(8/4)EU 
Foreign 
Subs 
(Total EU 
Subs - 
Domestic 
Subs)Average 
N° of EU 
Foreign 
Subs per 
Parent 
(10/4)
1 Austria AT 48 463 511 9.65 237 4.94 226 4.71
2 Belgium BE 206 1480 1686 7.18 525 2.55 955 4.64
3 Bulgaria BG 1 5 6 5.00 4 4.00 1 1.004 Cyprus CY 1 1 2 1.00 0 0.00 1 1.005C z e c h  R e
pCZ 1 1 2 1.00 0 0.00 1 1.00
6 Germany DE 81 1572 1653 19.41 1122 13.85 450 5.56
7 Denmark DK 92 862 954 9.37 466 5.07 396 4.30
8 Estonia EE 3 14 17 4.67 11 3.67 3 1.009 Spain ES 79 669 748 8.47 449 5.68 220 2.78
10 Finland FI 18 256 274 14.22 152 8.44 104 5.78
11 France FR 89 998 1087 11.21 478 5.37 520 5.84
12 UK GB 61 2193 2254 35.95 1971 32.31 222 3.6413 Greece GR 2 5 7 2.50 1 0.50 4 2.0014 Hungary HU n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
15 Ireland IE 10 80 90 8.00 11 1.10 69 6.90
16 Italy IT 191 1629 1820 8.53 942 4.93 687 3.6017 Lithuania LT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.18 Luxembou
rLU 9 31 40 3.44 0 0.00 31 3.44
19 Latvia LV 1 5 6 5.00 3 3.00 2 2.00
20 Malta MT 1 4 5 4.00 3 3.00 1 1.0021 Nehterland NL 631 4284 4915 6.79 2796 4.43 1488 2.3622 Poland PL n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
23 Portugal PT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
24 Romania RO 2 2 4 1.00 0 0.00 2 1.0025 Sweden SE 140 1634 1774 11.67 1086 7.76 548 3.9126 Slovenia SI 1 4 5 4.00 3 3.00 1 1.00
27 Slovakia SK 1 1 2 1.00 0 0.00 1 1.00
Total 1669 16193 17862 9.70 10260 6.15 5933 3.55Table A.5 SME financial groups and their averages for 75% ownership threshold
 
 
EN 73   EN 3.3 The effects of formula apportionment on the distribution of corporate tax bases  
The exercise has consisted of simulating for a sample of 750 multinationa l industrial groups 
extracted from Amadeus and 2073 multinational financial groups extracted from Orbis, their taxable profits in each country of the EU, bot h under the current tax conditions and under 
alternative scenarios of  'consolidation + apportionment'. Th e assumptions for simulating each of 
these scenarios have been the following: 
* Benchmark case: in what concerns loss offsetting provisions, the current tax bases are calculated 
assuming that (i) there is national loss offset regi mes in the 18 Member States that currently allow 
so and (ii) when domestic compen sation is not possible, carry-forwa rd of losses at the individual 
companies' level is allowed. There is no international loss offset system in pl ace. The taxable profits 
of all groups are then aggregated  by country. This yields what we call the 'current national tax 
bases' for the sample. Table A.6 sh ows country tax shares in the sa mple of industrial and financial 
groups and an overall share, calculated as the wei ghted average of the two samples. The weighting 
factors for each country are the shares of cor porate tax revenues from fi nancial and non-financial 
companies. (These data are missing for Cyprus, Luxembourg and Malta and have been replaced by 
the overall EU shares.) 
* Alternative scenarios of 'cons olidation + apportionment': in what concerns loss offsetting 
provisions (cross-border) consolidation has been assumed at the level of each multinational group. 
Thus, under this scenario, losses of a group comp any in a given year c ould be offset against 
contemporary profits of any other group companies (either in the sa me country of the loss-making 
group company or in other countries)
103. The EU consolidated tax base obtained for each 
multinational group in this way has then been distributed across c ountries according to different 
apportioning formulae. The following six apportioning formulae have been tested: 
*1/3 ‘Cost of employees’ – 1/3 ‘Total Fixed Assets’104['Assets105' for financial groups]– 1/3 
(Proxy) ‘Sales by Destination106’ 
*1/6 ‘Cost of employees’ – 1/6 ‘Number of  Employees’ - 1/3 ‘Total Fixed Assets’[ 'Assets'  
for financial groups] – 1/3 (Proxy) ‘Sales by Destination’ 
* 1/3 ‘Cost of employees’ – 1/3 ‘Total Fixed Assets’ [ 'Assets'  for financial groups]– 1/3 
‘Turnover’ ['Sales by origin'] 
                                                 
103 Once the loss is offset in a given year, it is not carried -forward to next year: so, in the simulations double 
counting of the losses is excluded. 
104 Excluding intangible and financial fixed assets. 
105 For banks: 'Loans'/10 + 'Fixed assets'; for insurance companies: 'Total investment'/10; for industrial companies 
within financial groups, 'Total fixed assets' minus 'Total intangible assets' (as for industrial groups) 
106 Companies do not report the place of destination of their sales in their financ ial accounts. Therefore the 
simulation of this factor cannot be based on firm-specific data. The alternative approach taken to 'roughly' 
simulate the effects of the mechanisms including 'sales by destina tion' has been to use a 'macro factor': that is, 
one third of the groups' total taxable profits has been  shared by reference to the relative position of each 
country in the aggregated Consumption Expenditure macro- variable (ie an aggregated  proxy for the destination 
of sales by companies). This is clearly an extreme si mplification, because the definition of the 'sales by 
destination' factor would be more complex than this approach (e.g. spread throw-back rule when the company has no physical presence in the country of destination, etc.). This calls for extreme caution in interpreting the 
results. 
 
EN 74   EN * 1/6 ‘Cost of employees’ – 1/6 ‘Number of  Employees’ - 1/3 ‘Total Fixed Assets’[ 'Assets'  
for financial groups] – 1/3 ‘Turnover’ ['Sales by origin'] 
* ½ ‘Cost of employees’ – ½ ‘Total Fixed Assets’ [ 'Assets'  for financial groups] 
* ¼ ‘Cost of employees’ – ¼ ‘Number of  Employees’ – ½ ‘Total Fixed Assets’[ 'Assets'  for 
financial groups]  
Table A.7 compares the current ta x bases' distribution with the apportioning factors distribution by 
country for the sample of 750 MNEs in 2004 (s ee Section 5.2). Table A .8 and A.9 present the 
sample tax bases under the current scheme and th e 6 apportionment mechan isms for industrial and 
financial groups, respectively. Figu res A.1 and A.2 show for these two samples how country shares 
of the EU-total tax base evol ve under the various apportionment mechanisms. Table A.10 shows the 
net value of depreciation allowances of the curre nt tax systems (as of 2007) and the common tax 
base for both a 20% and 25% depreciation rate fo r plant and machinery. Finally, Table A.11 reports 
the effects of "consolidation + apportionment" on th e tax bases for different sharing mechanisms.  
 
EN 75   EN Table A.6 Country shares in current tax bases 
 Share of the MS 
base in the EU total. 
Amadeus sample 
(2002-2004) - 
industrial groups Share of the MS 
base in the EU total. 
Orbis sample (2002- 
2005) - financial 
groups Share of financial 
groups in corporate 
tax revenues 
(Eurostat. 2002-
2005) Share of the MS 
sample tax base in 
the EU total. 
industrial and 
financial groups 
Austria 4.7% 0.7% 17.4% 3.82%
Belgium 5.0% 7.8% 22.8% 5.62%
Bulgaria 0.0% 0.0% 13.0% 0.01%
Cyprus 0.0% 0.0% : 0.03%
Czech Re public 0.2% 0.4% 14.3% 0.23%
German y 18.3% 13.6% 34.8% 17.28%
Denmar k 6.5% 4.0% 23.2% 5.97%
Estonia 0.2% 0.1% 8.9% 0.17%
Spain 2.5% 8.0% 15.6% 3.70%
Finland 9.2% 0.7% 8.2% 7.36%
France 8.5% 7.8% 22.6% 8.34%
Greece 0.8% 0.2% 8.6% 0.64%
Hungary 0.6% 0.4% 17.9% 0.55%
Ireland 3.8% 0.6% 28.3% 3.07%
Italy 6.4% 5.2% 26.2% 6.11%
Lithuania 0.1% 0.0% 2.4% 0.06%
Luxembour g 1.1% 0.7% : 1.00%
Latvia 0.0% 0.0% 13.0% 0.04%
Malta : 0.0% : : 
Netherlands 7.1% 4.4% 25.7% 6.52%
Poland 2.3% 0.2% 15.3% 1.86%
Portu gal 1.3% 1.1% 10.0% 1.22%
Romania 0.0% 0.1% 5.2% 0.07%
Sweden 5.1% 9.0% 20.5% 5.92%
Slovenia 0.1% 0.0% 17.6% 0.10%
Slovakia 0.0% 0.1% 6.4% 0.03%
UK 16.3% 34.8% 21.9% 20.30%
Total EU 100.0% 100.0% 21.8% 100.00%
Source: own calculations on the Amadeus and ORBIS databases.  
 
EN 76   EN Table A.7 Comparison of the current tax bases' di stribution with the apportioning factors' 
distribution by country, 2002-2004 (NPV 2002) 
Country Share of cost 
of EMP in the 
EU total (%) Share of Nr 
of EMP in 
the EU total 
(%) Share of 
operating 
revenue in 
the EU 
total (%) Share of 
fixed 
tangible 
assets in the 
EU total 
(%) Share in 
the EU 
total 
current tax 
base 
Austria 3.01 3.40 3.01 6.47 4.70
Belgium 2.90 2.83 2.62 2.95 5.00
Bulgaria 0.00 0.01 0.00 0.00 0.00
Cyprus 0.08 0.02 0.01 0.02 0.03
Czech Re public 0.09 0.70 0.22 0.39 0.19
German y 28.09 27.24 32.18 24.41 18.32
Denmar k 5.33 5.42 3.96 3.97 6.53
Estonia 0.04 0.54 0.14 0.09 0.21
Spain 3.03 3.23 2.04 2.70 2.50
Finland 7.50 6.79 5.16 4.10 9.21
France 5.54 4.68 6.79 12.23 8.49
Greece 1.49 0.36 0.23 0.26 0.76
Hungary 0.00 0.07 0.31 0.20 0.60
Ireland 1.93 1.96 2.15 0.91 3.76
Italy 4.04 3.96 5.04 4.52 6.36
Lithuania 0.13 0.13 0.08 0.09 0.08
Luxembour g 0.68 0.16 0.31 0.21 1.09
Latvia 0.12 0.29 0.04 0.03 0.04
Malta n.a. n.a. n.a. n.a. n.a.
Netherlands 1.31 1.40 10.14 2.31 7.08
Poland 0.00 2.51 2.20 2.62 2.31
Portu gal 1.01 1.38 1.65 1.83 1.27
Romania 0.00 0.24 0.06 0.08 0.05
Sweden 5.04 4.75 4.44 8.38 5.06
Slovenia 1.00 0.61 0.17 0.20 0.12
Slovakia 0.00 0.05 0.02 0.03 0.01
United Kin gdom 28.57 27.27 17.04 20.98 16.24
Total EU 100 100 100 100 100
Source: calculations on the Amadeus and ORBIS databases.  
 
EN 77   EN Table A.8 Comparison of the current tax bases with 'consolidation+apportionment' tax bases for different apportioning mechanism s, 2002-2004 (NPV 2002) , in millions of Euros and % 
change, industrial groups 
1/3 cost of employees+ 1/6 cost of employees+ 1/3 cost of emplo yees+ 1/6 cost of employees+ 1/2 cost of employees+ 1/4 cost of employees+ 
1/3 fixed tangible assets+ 1/6 N°of emplo yees+ 1/3 fixed tangible assets+ 1/6 N°of em ployees+ 1/2 fixed tangible assets 1/4 N°o f employees+ 
1/3 sales by destination 1/3 fixed tangible assets + 1/3 sales by origin 1/3 fixed tangible assets+   1/2 fixed tangible assets 
      1/3 sales by destination   1/3 sales by origin     
Country Sample 
current tax 
base  'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change (%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative change 
(%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change (%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change (%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change (%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change (%) 
AT 4964 3626 -27.0% 3639 -26.7% 4424 -10.9% 4437 -10.6% 4326 -12.9% 4345 -12.5%
BE 5281 3899 -26.2% 3967 -24.9% 4533 -14.2% 4601 -12.9% 4529 -14.2% 4631 -12.3%
BG 0.117 : : : : : : : : : : : :
CY 35 72 104.3% 71 104.0% 32 -10.0% 31 -10.3% 34 -3.3% 34 -3.8%
CZ 196 456 132.4% 497 153.3% 250 27.4% 291 48.3% 286 45.7% 347 77.1%
DE 19329 25194 30.3% 23528 21.7% 25449 31.7% 23786 23.1% 2718 1 40.6% 24681 27.7%
DK 6885 4088 -40.6% 4504 -34.6% 5612 -18.5% 6028 -12.4% 5236 -24.0% 5860 -14.9%
EE 218 164 -24.6% 190 -12.6% 221 1.6% 247 13.6% 203 -6.6% 243 11.4%
ES 2638 4389 66.4% 4473 69.6% 2643 0.2% 2727 3.4% 2662 0.9% 2788 5.7%
FI 9726 6377 -34.4% 6264 -35.6% 8696 -10.6% 8584 -11.7% 8887 -8.6% 8717 -10.4%
FR 8958 10863 21.3% 10774 20.3% 8281 -7.6% 8192 -8.5% 8100 -9.6% 7966 -11.1%
GR 802 1658 106.8% 1434 78.9% 1294 61.3% 1070 33.4% 1477 84.3% 1142 42.4%
HU 636 460 -27.7% 459 -27.9% 446 -30.0% 444 -30.1% 309 -51.4% 308 -51.6%
IE 3965 3763 -5.1% 3437 -13.3% 4783 20.6% 4450 12.2% 5107 28.8% 4618 16.5%
IT 6710 9040 34.7% 9164 36.6% 6815 1.6% 6939 3.4% 6797 1.3% 6984 4.1%
LT 82 219 165.6% 166 101.6% 189 129.1% 136 65.1% 240 191.2% 161 95.2%
LU 1145 773 -32.5% 621 -45.7% 999 -12.7% 848 -25.9% 1055 -7.9% 828 -27.7%
LV 42 102 144.4% 92 120.2% 85 103.7% 74 77.8% 99 137.3% 84 101.0%
MT : 18 : 18 : : : : : : : : :
NL 7492 3878 -48.2% 3915 -47.7% 4031 -46.2% 4074 -45.6% 3589 -52.1% 3644 -51.4%
 
EN 78   EN PL 2440 1861 -23.7% 2188 -10.3% 1883 -22.8% 2210 -9.4% 1705 -30.1% 2195 -10.1% 
PT 1339 1359 1.5% 1349 0.7% 1258 -6.0% 1248 -6.8% 1272 -5.0% 1257 -6.1%
RO 49 240 391.5% 303 521.2% 73 50.4% 137 180.1% 69 41.5% 164 236.0%
SE 5338 4499 -15.7% 5094 -4.6% 5965 11.7% 6560 22.9% 5441 1.9% 6333 18.6%
SI 127 132 4.4% 143 12.6% 86 -32.0% 96 -24.4% 74 -41.3% 90 -29.0%
SK 14 111 685.7% 110 674.1% 20 39.2% 18 27.6% 21 47.7% 18 30.3%
UK 17162 15344 -10.6% 16184 -5.7% 14439 -15.9% 15279 -11.0% 13956 -18.7% 15215 -11.3%
Total EU 105573 102655 -2.8% 102655 -2.8% 102509 -2.9% 102509 -2.9% 102655 -2.8% 102655 -2.8%
Source: own calculations on the Amadeus database.  
 
EN 79   EN Figure A.1 Distribution of the cake by country (sha res in total EU tax base): current tax base versus 
'consolidation+apportionment'. Six different apportioning mechanisms, industrial groups 
(Amadeus database) 
Austria012345Tax base share of EU total (%) 
Belgium0123456Tax base share of EU total (%) 
Bulgaria0,000,020,040,060,080,10Tax base share of EU total (%) 
Cyprus0,000,020,040,060,080,10Tax base share of EU total (%) 
Czech Republic0,00,10,20,30,40,50,6Tax base share of EU total (%) 
Germany0481216202428Tax base share of EU total (%) 
Denmark01234567Tax base share of EU total (%) 
Estonia0,000,050,100,150,200,250,30Tax base share of EU total (%) 
Spain012345Tax base share of EU total (%) 
France024681012Tax base share of EU total (%) 
Finland0246810Tax base share of EU total (%) 
Greece0,00,40,81,21,62,0Tax base share of EU total (%) 
Hungary0,00,20,40,60,8Tax base share of EU total (%) 
Ireland0123456Tax base share of EU total (%) 
Italy0246810Tax base share of EU total (%) 
Lithuania0,000,050,100,150,200,25Tax base share of EU total (%) 
Luxembourg0,00,20,40,60,81,01,2Tax base share of EU total (%) 
Latvia0,000,020,040,060,080,100,12Tax base share of EU total (%) 
Netherlands02468Tax base share of EU total (%) 
Poland0,00,51,01,52,02,5Tax base share of EU total (%) 
Portugal0,00,40,81,21,6Tax base share of EU total (%) 
 
EN 80   EN Romania0,00,10,20,30,4Tax base share of EU total (%) 
Sweden01234567Tax base share of EU total (%) 
Slovenia0,000,040,080,120,16Tax base share of EU total (%) 
Slovakia0,000,020,040,060,080,100,12Tax base share of EU total (%) 
United Kingdom048121620Tax base share of EU total (%) 
 
. 
█ - % of the total current tax base  
█ - % of apportioned tax base (1/3 cost of employees+1 /3 fixed tangible assets+1/3 sales by destination) 
█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of employees+1/3 fixed tangible asse ts+1/3 sales by destination) 
█ - % of apportioned tax base (1/3 cost of employ ees+1/3 fixed tangible assets+1/3 sales by origin) 
█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of  employees+1/3 fixed tangible assets+1/3 sales by origin) 
█ - % of apportioned tax base (1/2 cost of employees+1/2 fixed tangible assets) 
█ - % of apportioned tax base (1/4 cost of employees +1/4 N°of employees+1/2 fixed tangible assets) 
 
EN 81   EN Table A.9 Comparison of the current tax bases with 'consolidation+apportionment' tax bases for different apportioning mechanism s, 2002-2005 (NPV 2005), in millions of Euros and % 
change, financial groups 
2 4 3 5 1 6 
    1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 ‘Sales by 
destination’ 1/6 ‘Cost of employees’ – 
1/6 ‘Number of Employees’ 
- 1/3 ‘Assets’ – 1/3 ‘Sales 
by destination’ 1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 
‘Turnover’ 1/6 ‘Cost of employees’ – 
1/6 ‘Number of Employees’ 
- 1/3 ‘Assets’ – 1/3 
‘Turnover’ ½ ‘Cost of employees’ – ½ 
‘Assets’ ¼ ‘Cost of employees’ – ¼ 
‘Number of Employees’ – 
½ ‘Assets’ 
Country Sample 
current 
tax base 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change 
(%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change 
(%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change 
(%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change 
(%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change 
(%) 'Consolidation 
+ 
Apportionment' 
Tax Base Relative 
change 
(%) 
AT 7641 3984 -47.9% 4050 -47.0% 5934 -22.3% 6000 -21.5% 4353 -43.0% 4453 -41.7% 
BE 90195 52285 -42.0% 51024 -43.4% 55399 -38.6% 54139 -40.0% 71445 -20.8% 69554 -22.9% 
BG 566 336 -40.6% 440 -22.3% 387 -31.6% 491 -13.2% 481 -15.1% 637 12.4% 
CY : : : : : : : : : : : : : 
CZ 4224 2526 -40.2% 2393 -43.3% 3294 -22.0% 3160 -25.2% 3286 -22.2% 3086 -26.9% 
DE 156367 159105 1.8% 165215 5.7% 143459 -8.3% 149569 -4.3% 129183 -17.4% 138348 -11.5% 
DK 46175 32698 -29.2% 32760 -29.1% 40130 -13.1% 40192 -13.0% 42910 -7.1% 43003 -6.9% 
EE 661 1968 197.7% 1726 161.1% 2131 222.3% 1889 185.7% 2901 338.9% 2538 284.0% 
ES 92201 79314 -14.0% 77468 -16.0% 77872 -15.5% 76026 -17.5% 76751 -16.8% 73982 -19.8% 
FI 8063 5365 -33.5% 5575 -30.9% 6620 -17.9% 6829 -15.3% 6954 -13.8% 7268 -9.9% 
FR 89917 100846 12.2% 105198 17.0% 83054 -7.6% 87406 -2.8% 85861 -4.5% 92389 2.7% 
GR 2603 1077 -58.6% 1283 -50.7% 1651 -36.6% 1856 -28.7% 1113 -57.3% 1421 -45.4% 
HU 4364 3864 -11.5% 2820 -35.4% 5160 18.2% 4116 -5.7% 5422 24.2% 3857 -11.6% 
 
EN 82   EN IE 6887 4103 -40.4% 4674 -32.1% 7027 2.0% 7597 10.3% 5093 -26.0% 5949 -13.6% 
IT 60213 66092 9.8% 64550 7.2% 61524 2.2% 59982 -0.4% 62044 3.0% 59730 -0.8% 
LT 166 471 183.7% 1302 684.5% 538 224.4% 1370 725.2% 627 277.8% 1874 1029.1% 
LU 7876 11328 43.8% 12033 52.8% 30541 287.8% 31246 296.7% 16199 105.7% 17256 119.1% 
LV 493 1089 121.0% 809 64.2% 1142 131.8% 863 75.1% 1609 226.5% 1190 141.4% 
MT 27 1 -97.6% 1 -97.6% 0 -99.8% 0 -99.8% 0 -100.0% 0 -100.0% 
NL 51240 65195 27.2% 65159 27.2% 66480 29.7% 66444 29.7% 78384 53.0% 78330 52.9% 
PL 2705 2312 -14.5% 2184 -19.3% 2938 8.6% 2810 3.9% 2116 -21.8% 1924 -28.9% 
PT 12236 10251 -16.2% 9963 -18.6% 12033 -1.7% 11744 -4.0% 12260 0.2% 11826 -3.3% 
RO 1611 1602 -0.5% 1469 -8.8% 1812 12.5% 1679 4.3% 2145 33.1% 1945 20.8% 
SE 103706 57609 -44.4% 59545 -42.6% 73544 -29.1% 75480 -27.2% 70074 -32.4% 72978 -29.6% 
SI 69 104 50.3% 69 -0.4% 222 222.4% 187 171.7% 145 110.3% 93 34.2% 
SK 892 1127 26.4% 1126 26.2% 1431 60.5% 1430 60.3% 1644 84.4% 1643 84.2% 
UK 401108 457604 14.1% 449393 12.0% 437728 9.1% 429517 7.1% 439257 9.5% 426941 6.4% 
Total EU 1152206 1122257 -2.6% 1122257 -2.6% 1122257 -2.6% 1122257 -2.6% 1122257 -2.6% 1122257 -2.6% 
Source: own calculations on the ORBIS database.  
 
EN 83   EN Figure A.2 Distribution of the cake by country (sha res in total EU tax base): current tax base versus 
'consolidation+apportionment'. Six different apportioni ng mechanisms, financial groups (Orbis database) 
Austria012345Tax base share of EU total (%) 
Belgium012345Tax base share of EU total (%) 
Czech Republic0,00,10,20,30,40,5Tax base share of EU total (%) 
Germany048121620242832Tax base share of EU total (%) 
Denmark01234567Tax base share of EU total (%) 
Estonia0,000,050,100,150,200,250,30Tax base share of EU total (%) 
Spain012345Tax base share of EU total (%) 
France024681012Tax base share of EU total (%) 
Finland0246810Tax base share of EU total (%) 
Greece0,00,40,81,21,6Tax base share of EU total (%) 
Hungary0,00,20,40,60,8Tax base share of EU total (%) 
Ireland012345Tax base share of EU total (%) 
Italy0246810Tax base share of EU total (%) 
Lithuania0,000,050,100,150,200,25Tax base share of EU total (%) 
Luxembourg0,00,51,01,5Tax base share of EU total (%) 
Latvia0,000,020,040,060,080,100,12Tax base share of EU total (%) 
Netherlands02468Tax base share of EU total (%) 
Poland0,00,51,01,52,02,5Tax base share of EU total (%) 
 
EN 84   EN Portugal0,00,40,81,21,6Tax base share of EU total (%) 
Romania0,00,10,20,30,4Tax base share of EU total (%) 
Sweden012345678Tax base share of EU total (%) 
Slovenia0,000,040,080,120,16Tax base share of EU total (%) 
Slovakia0,000,020,040,060,080,100,12Tax base share of EU total (%) 
United Kingdom0481216202428Tax base share of EU total (%) 
 
. █ - % of the total current tax base  
█ - % of apportioned tax base (1/3 cost of employees+1 /3 fixed tangible assets+1/3 sales by destination) 
█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of employees+1/3 fixed tangible asse ts+1/3 sales by destination) 
█ - % of apportioned tax base (1/3 cost of employ ees+1/3 fixed tangible assets+1/3 sales by origin) 
█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of  employees+1/3 fixed tangible assets+1/3 sales by origin) 
█ - % of apportioned tax base (1/2 cost of employees+1/2 fixed tangible assets) 
█ - % of apportioned tax base (1/4 cost of employees +1/4 N°of employees+1/2 fixed tangible assets) 
 
EN 85   EN Table A.10 Net present value (NPV) of fiscal depreciation schemes  
MSs NPV 
(Ranked from 
Narrowest to 
Broadest Tax 
Base as in 'as-
is') Current 
systems      
(1) 
 -2007 
  
  NPV 
CCTB-20 
(2) Difference 
Current 
systems – 
CCTB-20 
(2)-(1) tax base 
change* NPV 
CCTB-25 
(3) Difference 
Current 
systems – 
CCTB-25 
(3)-(1) tax base 
change* 
Lithuania 49.53% 35.66% 13.87 27.48% 37.10% 12.43 24.63% 
Latvia 46.17% 35.87% 10.3 19.13% 37.20% 8.97 16.66% 
Slovenia 46.01% 41.31% 4.7 8.71% 42.90% 3.11 5.76% 
Denmark 45.72% 35.69% 10.03 18.48% 36.70% 9.02 16.62% 
Belgium 44.37% 32.48% 11.89 21.37% 33.50% 10.87 19.54% 
Slovak Republic 44.30% 35.75% 8.55 15.35% 37% 7.3 13.11% 
Romania 43.65% 39.51% 4.14 7.35% 41.10% 2.55 4.53% 
Cyprus 41.78% 36.83% 4.95 8.50% 37.70% 4.08 7.01% 
Greece 41.09% 32.58% 8.51 14.45% 33.70% 7.39 12.54% 
Finland 40.46% 34.41% 6.05 10.16% 35.50% 4.96 8.33% 
France 40.07% 31.27% 8.8 14.68% 32% 8.07 13.47% 
Bulgaria 39.93% 34.68% 5.25 8.74% 35.90% 4.03 6.71% 
Sweden 39.68% 32.14% 7.54 12.50% 33.10% 6.58 10.91% 
Portugal 39.63% 32.89% 6.74 11.16% 34.10% 5.53 9.16% 
Luxembourg 39.35% 32.55% 6.8 11.21% 33.50% 5.85 9.65% 
United Kingdom 39.28% 33.29% 5.99 9.86% 34.30% 4.98 8.20% 
Czech Republic 39.26% 35.74% 3.52 5.80% 37.10% 2.16 3.56% 
Italy 38.04% 30.32% 7.72 12.46% 31.30% 6.74 10.88% 
Poland 37.41% 38.04% -0.63 -1.01% 39.40% -1.99 -3.18% 
Austria 36.83% 34.00% 2.83 4.48% 35.20% 1.63 2.58% 
Ireland 35.79% 31.13% 4.66 7.26% 32.10% 3.69 5.75% 
Netherlands 35.70% 31.99% 3.71 5.77% 32.90% 2.8 4.35% 
Germany 35.67% 31.26% 4.41 6.86% 32.30% 3.37 5.24% 
Hungary 35.32% 35.57% -0.25 -0.39% 36.90% -1.58 -2.44% 
Spain 32.95% 31.72% 1.23 1.83% 32.60% 0.35 0.52% 
Malta 28.79% 26.85% 1.94 2.72% 27.60% 1.19 1.67% 
Estonia 0.00% 34.61% -34.61 -34.61% 35.80% -35.8 -35.80% 
EU-27 Average 37.90% 32.00% 5.9 9.50% 33.00% 4.9 7.89% 
Standard deviation 8.90% 3.00%   3.20%   
 
 
EN 86   EN  
 
  
     
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
Notes: the NPV of fiscal depreciation schemes are expressed in % of the purchase price. The % change in the tax base is 
calculated subtracting the estimated NPVs  from the normalized value of 1. 
Source: calculations on the ORBIS data base used to calibrate the CORTAX. 
 
 
EN 87   EN Table A.11 Comparison of the current tax ba ses with 'consolidation+apportionment' tax bases for different apportioning mechanis ms.  
Cross country distribution and change to the current tax base  
  Sample 
current 
tax base  1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 ‘Sales 
by destination’ 1/6 ‘Cost of employees’ – 
1/6 ‘Number of 
Employees’ - 1/3 ‘Assets’ 
– 1/3 ‘Sales by 
destination’ 1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 
‘Turnover’ 1/6 ‘Cost of employees’ – 
1/6 ‘Number of 
Employees’ - 1/3 ‘Assets’ 
– 1/3 ‘Turnover’ ½ ‘Cost of employees’ – 
½ ‘Assets’ ¼ ‘Cost of employees’ – 
¼ ‘Number of 
Employees’ – ½ ‘Assets’ 
Country Cross-country 
distribution Cross-country 
distribution Change Cross-country 
distribution Change Cross-country 
distribution Change Cross-country 
distribution Change Cross-country 
distribution Change Cross-country 
distribution Change 
AT 4.00% 2.90% -1.1 2.90% -1.1 3.60% -0.4 3.60% -0.4 3.50% -0.5 3.50% -0.5 
BE 5.60% 3.90% -1.7 3.90% -1.7 4.40% -1.2 4.40% -1.2 4.70% -0.9 4.80% -0.9 
BG 0.00% : : : : : : : : : : : : 
CY : : : : : : : : : : : : : 
CZ 0.20% 0.40% 0.2 0.40% 0.2 0.20% 0 0.30% 0.1 0.30% 0.1 0.30% 0.1 
DE 16.70% 20.40% 3.7 19.50% 2.8 20.10% 3.4 19.20% 2.5 20.70% 4 19.40% 4 
DK 5.90% 3.60% -2.3 3.90% -2 4.90% -1 5.20% -0.7 4.70% -1.2 5.10% -1.2 
EE 0.19% 0.16% -0.03 0.20% 0.01 0.20% 0.01 0.20% 0.01 0.20% 0.01 0.20% 0.01 
ES 3.40% 4.60% 1.2 4.60% 1.2 3.20% -0.2 3.20% -0.2 3.20% -0.2 3.20% -0.2 
FI 8.50% 5.60% -2.9 5.50% -3 7.60% -0.9 7.50% -1 7.80% -0.7 7.60% -0.7 
FR 8.30% 9.90% 1.6 10.00% 1.7 7.70% -0.6 7.70% -0.6 7.60% -0.7 7.70% -0.7 
GR 0.70% 1.40% 0.7 1.30% 0.6 1.10% 0.4 0.90% 0.2 1.30% 0.6 1.00% 0.6 
HU 0.60% 0.40% -0.2 0.40% -0.2 0.40% -0.2 0.40% -0.2 0.30% -0.3 0.30% -0.3 
IE 2.90% 2.70% -0.2 2.50% -0.4 3.40% 0.5 3.20% 0.3 3.60% 0.7 3.30% 0.7 
IT 6.10% 7.80% 1.7 7.90% 1.8 6.20% 0.1 6.20% 0.1 6.20% 0.1 6.20% 0.1 
LT 0.10% 0.20% 0.1 0.20% 0.1 0.20% 0.1 0.10% 0 0.20% 0.1 0.20% 0.1 
LU 1.00% : : : : : : : : : : : : 
LV 0.00% 0.10% 0.1 0.10% 0.1 0.10% 0.1 0.10% 0.1 0.10% 0.1 0.10% 0.1 
MT : : : : : : : : : : : : : 
NL 6.40% 4.20% -2.2 4.20% -2.2 4.30% -2.1 4.30% -2.1 4.30% -2.1 4.30% -2.1 
PL 2.00% 1.50% -0.5 1.80% -0.2 1.60% -0.4 1.80% -0.2 1.40% -0.6 1.80% -0.6 
PT 1.20% 1.20% 0 1.20% 0 1.20% 0 1.20% 0 1.20% 0 1.20% 0 
RO 0.10% 0.20% 0.1 0.30% 0.2 0.10% 0 0.10% 0 0.10% 0 0.20% 0 
SE 5.90% 4.40% -1.5 4.90% -1 5.80% -0.1 6.30% 0.4 5.30% -0.6 6.10% -0.6 
SI 0.10% 0.10% 0 0.10% 0 0.10% 0 0.10% 0 0.10% 0 0.10% 0 
SK 0.00% 0.10% 0.1 0.10% 0.1 0.00% 0 0.00% 0 0.00% 0 0.00% 0 
 
EN 88   EN UK 20.30% 20.00% -0.3 20.50% 0.2 19.00% -1.3 19.40% -0.9 18.70% -1.6 19.40% -1.6 
Total EU 100.00% 97.30% -2.7 97.30% -2.7 97.20% -2.7 97.20% -2.7 97.30% -2.7 97.30% -2.7 
 
        
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
 
EN 89   EN               
              
              
              
              
              
              
              
              
              
              
Source: own calculations on the Amadeus and ORBIS databases.  
 
EN 90   EN Annex 4. The European Tax Survey  
In order to have a better unders tanding of the impact of taxa tion on companies' decisions and 
activities, and potential costs that may arise fo r the lack of coordination in this area at EU 
level, the European Commission's Taxation a nd Customs Union Direct orate-General launched 
a European Tax Survey in 2003. 700 companies active in the EU participated in the Survey providing information on a large number  of tax compliance related issues
107. Company 
responses included quan titative estimates of their complia nce costs and opinions on a number 
of issues related to tax systems. 
Companies from the then EU-15 countries had th e opportunity to particip ate in the survey and 
the 700 companies that participated cover 14 EU Member States. In order to correct for 
under- or over-representation of some countries the responses of companies were weighted in 
order to reflect the number of companies of the same size in their country. However, due to 
the relatively low number of responses, the results  presented did not pretend to provide a fully 
representative picture of the EU. This did not preclude, however, dr awing interesting and 
innovative insights from the considerable amount of info rmation provided by the 700 
companies involved in the survey. 
The European Tax Survey contained both quan titative and qualitative questions, which are 
briefly summarised here. 
Main results of the quantitative analysis 
The first part of the study bore on a quantitativ e analysis of data concerning the perceived 
total absolute compliance costs of companies.  These compliance costs consisted of company 
taxation and Value Added Tax (VAT) compliance costs in the EU and company taxation compliance costs outside the EU. The first stage of this quantitative analysis presented the weighted perceived compliance costs of the EU companies. The second stage presented a 
series of regression analyses. 
* Compliance costs relative to sales are la rger for SMEs than for large companies
  
The data provided by companies on their percei ved compliance costs, taxes paid and sales 
produced the following main results: 
• Weighted total absolute compliance costs were estimated at EUR 1.460.000 for large 
companies. This corresponds to 1.9% of taxes paid and at 0.02% of sales, respectively. The 
figures for large companies are consistent with figures presented in other studies. 
                                                 
107 The European Tax Survey was launched on the 1st of September 2003 and closed on the 31st of 
January 2004. In order to take part in this survey  companies needed to regi ster as a member of the 
European Business Test Panel (EBTP) set up by th e Commission's Internal Mark et Directorate-general. 
The EBTP has been introduced to provide companie s the opportunity to express their views on new 
legislative proposals and policy initiatives under consideration by the Commission. The European Tax 
Survey covered the 2141 EU companies that were regi stered at the time in the European Business Test 
Panel. Furthermore, not all registered companies in the EBTP responded to the questionnaire. At the 
closure date of the survey 700 EU companies across 14 Member States of the EU had responded (no 
companies from Luxembourg participated in the survey and for most of the topics, information for France was not available); that is, 32.7% of the registered EU compan ies participated in the survey. 
This figure is relatively high compared to participation rates in other international surveys of 
administrative burdens.  
 
EN 91   EN • Weighted total absolute compliance costs were estimated at EU 203.000 for Small and 
Medium-sized Enterprises (SMEs). This amount  corresponds to 30.9% of taxes paid and to 
2.6% of sales, respectively. 
• Econometric regressions provided significant an d recurrent evidence that total, VAT and 
company taxation compliance costs increase  with company size and impose a higher 
relative burden on smaller companies. These results are in line with established findings in the economic literature.  
* Cross-border activity leads to higher ta x-related compliance costs for companies
 
Furthermore, the econometric analysis of th e replies provided convi ncing evidence of the 
importance of cross-border activities for co mpliance costs and highlighted some of the 
variables that are correlat ed with compliance costs: 
• Compliance costs are higher for companies with  at least one subsidiary in another EU 
Member State compared with companies withou t subsidiaries in a nother Member State. 
• Compliance costs increase with the number of subsidiaries abroad. 
In the context of an analysis focusing on th e impact of taxation on th e functioning of the  
Internal market, these results n eed to be particularly stressed . The econometric results based 
on the data provided by the 700 EU companies participating in the European Tax Survey 
provided quantitative evidence that there is an additional cost for companies that are active cross-border in the EU. Significant results in th is respect recurred in the various estimated 
models. 
Main results of the qualitative analysis 
The quantitative analysis was complemented by  a qualitative analysis. The latter aimed to 
provide better information on the sample comp anies' opinions on a number of tax related 
issues and to facilitate the interpretation of the quantitative results. 
Companies participating in the European Tax Survey were asked to indicate whether a 
number of tax requirements lead  to difficulties. In relation to foreign-sourced income, the 
results highlighted that large companies with a branch or a subsidiary in another EU Member 
State have particular difficulties with regard to  audits and litigations. Furthermore, transfer 
pricing appeared as a major tax obstacle. The estimates highlighted  that transfer pricing is an 
important issue for 81.5% of large companies, in  particular when it comes to dealing with 
documentation requirements, which are a di fficulty for 81.9% of large companies. 
To sum up, the evidence obtained from the res ponses provided in the European Tax Survey 
strongly indicates that compliance costs of EU companies increase when they undertake 
cross-border activities in the EU . These costs also increase when company activities 
increase, for example by setting up new subsidia ries in other EU Member States, ceteris 
paribus. 
 
EN 92   EN Annex 5. The basic elements defining the comprehensive policy options consisting in a 
common consolidated corporate tax base 
The following provides for a description of the policy option for a  Common Corporate Tax 
Base (CCTB) , and for an optional Common Consolidated Corporate Tax Base  (CCCTB ). 
The other policy options analysed in this Im pact Assessment are also implicitly described 
here, by selecting or dropping the corresponding elements (i.e. a compulsory system would 
ignore the element of optionality).  
5.1 Common Corporate Tax Base (CCTB) 
The basic elements of a Common Corporate Tax Base. 
* The rules for defining the common tax base  
• There is no formal link between the base and International Acc ounting Standards/IFRS. 
The rules for the common tax base would theref ore define the tax base itself but not the 
methodology for adjusting the accounts (sometimes called the 'bridge') to arrive at the tax base. That would not be possible as companie s will potentially be starting from financial 
accounts prepared under 27 different  national GAAP. However, it should be noted that the 
work for defining the common tax base has made  constant reference to IAS/IFRS. Further, 
unless uniform treatment is explicitly provided for in the legislation, the tax base would be 
computed by reference to the genera l principles in the Directive.  
• Resident taxpayers (i.e. EU-resident companies)  shall be subject to corporate tax on their 
worldwide income. Non-resident taxpayers (i.e . third country companies) shall be subject 
to tax on business income attributable to thei r EU-located PE(s), as defined in the OECD 
Model (subject to exis ting treaty obligations with third countries). 
• The tax base shall be calculated as revenues less exempt revenues, deductible expenses and 
other deductible items. As a matter of principl e, the tax base would be calculated for each 
tax year. 
• Revenues include proceeds of any kind, whethe r monetary or non-monetary. That is, not 
only trading income but also proceeds from disposals of assets and rights, interest, dividends and other profit dist ributions, royalties, subsidies and grants, gifts, compensation 
and ex-gratia payments. 
• Deductible expenses shall mean all expenses incurred by the taxpayer for business 
purposes in the production, maintenance or secu ring of income, includi ng costs of research 
and development or costs for raising equity or  debt for business purposes. The definition is 
accompanied by an exhaustive lis t of non-deductible expenses. 
• Fixed assets are all tangibles, those intangib les acquired for a value and financial assets 
where they are capable of being valued independently and are used in the business in the 
production, maintenance or securing of income  for more than 12 months. Such assets 
would be depreciated. However, where the cost of its acquisition, construction or 
improvement is less than EUR 1,000, an asset would not be treated as a fixed asset and 
would be immediately deductible. 
 
EN 93   EN • Fixed assets with a useful lif e longer than 15 years shall be  depreciated on an individual 
basis whereas short- to medium-term assets  shall be pooled for depreciation purposes. 
• Tangible assets not subject to wear and te ar and obsolescence such as land, fine art, 
antiques, or jewellery and intangible assets with  an indefinite life and financial assets shall 
not be depreciated unless the taxpayer demonstr ates that they have permanently decreased 
in value; by exception, financial assets which, if  disposed of, give rise to exempt gains 
would not be depreciable under any circumstances. 
• Income and expenses shall be recognised on an accruals basis in the tax year to which they 
relate. Generally speaking, the expense shoul d be established and the amount known in 
order to be accrued. However, when an amount arising from a legal obligation or a likely 
legal obligation relating to activities or transac tions carried out in the current or previous 
tax years, such as potential warranty claims , can be reliably estimated, the expense would 
be deductible in the current tax year. An a ppropriate deduction shall be allowed for a bad 
debt receivable by the taxpayer wh en certain conditions are met. 
• Income and expenditure shall be measured by reference to: 
- the monetary consideration for the relevant transaction, such as the price of goods or 
services, 
- the market price where the consideration fo r the transaction is wholly or partly non-
monetary, 
- the arm's length price in the case of transactions between  related parties, 
- the fair value of financial assets  and liabilities held for trading. 
• Tax base, income and expenses shall be measured in EUR or translated into EUR on the 
last day of the tax year. 
• Inventories shall be valued on the last day of  the tax year at the lower of cost and net 
realisable value. The total am ount of deductible expenses for a tax year would be increased 
by the value of inventories at the beginning of  the tax year and re duced by the value of 
inventories at the e nd of the tax year. 
• CCTB losses shall be eligible for carry forward indefinitely. No loss carry-back shall be 
allowed and the oldest loses shall be used  first. Transitional arrangements may be 
necessary for losses incurred under the National system wher e a CCTB would be 
mandatory. 
• A CCTB would not involve a consolidation of ta x results or the apportionment of the tax 
base using the three factor formula. 
• A CCTB would not solve the major issues faci ng companies operating cross border such as 
loss relief, double taxation or remove barriers to the smooth functioning of the Internal 
Market. 
5.2 Optional Common Consolidated Corporate Tax Base (CCCTB)  
 
EN 94   EN The optional Common Consolidated Corporate Tax Base  aims to provide groups of 
companies with the option to apply a common set of rules across the EU for determining their 
taxable base, which would be consolidated for their EU-wide activities. The scheme consists 
of three basic elements: (i) optio nality, (ii) common rules to de termine the taxable income and 
(iii) consolidation and allocation of taxable shares by formulary apportionment (FA). The 
administrative framework envisaged for the CCCTB is also briefly described 
* Scope   
The Directive shall apply to EU companies list ed in an annex which are subject to national 
corporate income taxes (or simila r subsequently introduced taxes)  listed in another annex. It 
would also apply to third country companies wh ich have a similar form to EU companies and 
which maintain a taxable presence in the EU through a PE. 
* Optionality  
Under an optional system, eligible companies,  resident in the EU, may opt for the common 
rules. Eligible companies not resident in the EU  may opt in respect of their EU-located PEs. 
The option shall be valid for 5 years and be automatically renewed for successive periods of 3 years unless notice is given to  the contrary. Companies that  fulfil the requirements for 
consolidation must either al l opt into the CCCTB or not apply the system at all. 
* The rules for defining the common tax base
 
• There is no formal link between the base and International Accounting Standards/IFRS. 
The rules for the common tax base would theref ore define the tax base itself but not the 
methodology for adjusting the accounts (sometimes called the 'bridge') to arrive at the tax base. That would not be possible as companie s will potentially be starting from financial 
accounts prepared under 27 different  national GAAP. However, it should be noted that the 
work for defining the common tax base has made  constant reference to IAS/IFRS. Further, 
unless uniform treatment is explicitly provided for in the legislation, the tax base would be 
computed by reference to the genera l principles in the Directive.  
• Resident taxpayers (i.e. EU-resident companies)  shall be subject to corporate tax on their 
worldwide income. Non-resident taxpayers (i.e . third country companies) shall be subject 
to tax on business income attributable to thei r EU-located PE(s), as defined in the OECD 
Model (subject to exis ting treaty obligations with third countries). 
• The tax base shall be calculated as revenues less exempt revenues, deductible expenses and 
other deductible items. As a matter of principl e, the tax base would be calculated for each 
tax year. 
• Revenues include proceeds of any kind, whethe r monetary or non-monetary. That is, not 
only trading income but also proceeds from disposals of assets and rights, interest, dividends and other profit dist ributions, royalties, subsidies and grants, gifts, compensation 
and ex-gratia payments. 
• Deductible expenses shall mean all expenses incurred by the taxpayer for business 
purposes in the production, maintenance or secu ring of income, includi ng costs of research 
and development or costs for raising equity or  debt for business purposes. The definition is 
accompanied by an exhaustive lis t of non-deductible expenses. 
 
EN 95   EN • Fixed assets are all tangibles, those intangib les acquired for a value and financial assets 
where they are capable of being valued independently and are used in the business in the 
production, maintenance or securing of income  for more than 12 months. Such assets 
would be depreciated. However, where the cost of its acquisition, construction or 
improvement is less than EUR 1,000, an asset would not be treated as a fixed asset and 
would be immediately deductible. 
• Fixed assets with a useful lif e longer than 15 years shall be  depreciated on an individual 
basis whereas short- to medium-term assets  shall be pooled for depreciation purposes. 
• Tangible assets not subject to wear and te ar and obsolescence such as land, fine art, 
antiques, or jewellery and intangible assets with  an indefinite life and financial assets shall 
not be depreciated unless the taxpayer demonstr ates that they have permanently decreased 
in value; by exception, financial assets which, if  disposed of, give rise to exempt gains 
would not be depreciable under any circumstances. 
• Income and expenses shall be recognised on an accruals basis in the tax year to which they 
relate. Generally speaking, the expense shoul d be established and the amount known in 
order to be accrued. However, when an amount arising from a legal obligation or a likely 
legal obligation relating to activities or transac tions carried out in the current or previous 
tax years, such as potential warranty claims , can be reliably estimated, the expense would 
be deductible in the current tax year. An a ppropriate deduction shall be allowed for a bad 
debt receivable by the taxpayer wh en certain conditions are met. 
• Income and expenditure shall be measured by reference to: 
- the monetary consideration for the relevant transaction, such as the price of goods or 
services, 
- the market price where the consideration fo r the transaction is wholly or partly non-
monetary, 
- the arm's length price in the case of transactions between  related parties, 
- the fair value of financial assets  and liabilities held for trading. 
• Tax base, income and expenses shall be measured in EUR or translated into EUR on the 
last day of the tax year. 
• Inventories shall be valued on the last day of  the tax year at the lower of cost and net 
realisable value. The total am ount of deductible expenses for a tax year would be increased 
by the value of inventories at the beginning of  the tax year and re duced by the value of 
inventories at the e nd of the tax year. 
• CCCTB losses shall be eligible for carry forwar d indefinitely. No loss carry-back shall be 
allowed. 
* Consolidation  
A 2-part test  determines the entitlement to particip ation in the group. The deciding factors 
are control  (>50% of voting rights) and either ownership  (>75% of capital), or rights to 
 
EN 96   EN profits  (>75% of rights giving entitl ement to profit). EC -located branches (of third-country 
companies) are treated as individual group me mbers in the allocation of their apportioned 
share and all inbound and outbound group payments . The 2 thresholds have to be met 
throughout the year . Otherwise, the company has to leave the group. There is also a 9-
month minimum  requirement  for being a group member (i.e . the taxpayer joins when the 2 
thresholds are met but, if those are not reached for at least 9 months without interruption, the 
taxpayer will be treated as never having been part of the group). 
• Intra-group transact ions are eliminated , meaning that no pricing adjustments will be 
required in line with the ‘arm’s  length’ principle. Further, no withholding tax or other 
source taxation  will apply to transactions within the same group. 
• Business reorganisations:   
A. Companies entering the group 
The underlying rationale  is to create a bridge  between the national tax system and the 
CCCTB scheme. The aim is to strike a balance  between MS individual taxing rights  and the 
concept of a consolidated shared tax base. 
(iii) Pre-consolidation trading losses are ring-fenced  and carried forward to be set off 
against the taxpayer’s apportioned share. The idea behind this is that the MS participating in the consolidated group do not  have to bear the cost of losses already 
incurred;  
(iv) Hidden reserves: the capital gains are taxable upon realisation  and shared  across 
the group;  
The draft proposal contains  rules put in place to protect the taxing rights of 
individual MS  in connection with values larg ely built up under their national tax 
systems (i.e. before a company opted for consolidation); 
A proxy (i.e. R&D, marketing and advert ising costs over a specified period) is 
used to deal with the problem of self-generated intangible assets. Those are 
difficult to identify because they are not re gistered and do not appear separately in 
companies' accounts. 
B. Companies leaving the group 
(iii) Group trading losses : nothing  is attributed to the leaving company ; losses 
produced during the period of  consolidation remain at group level ; 
(iv) Hidden reserves: capital gains are taxable upon realisation  at the level of the 
company leaving the group ; 
The draft proposal contains  rules put in place to protect the consolidated tax base
 
in connection with values largely built up during the period of consolidation. Namely, since all group members have borne pa rt of the cost linked to the creation of 
those values, they should be given a ta xing right over the gain when realised. 
A proxy is used to deal w ith the problem of self-generated intangible assets: the 
concern is that potential future profits may risk not  being taxed at all under the tax 
 
EN 97   EN system that succeeds consolidation.  Further, those profits will have been funded by 
the group in the sense that they gave rise to expense deductions shared by all MS 
over the past years. 
C. Reorganisation within a group 
(iv) Trading losses  incurred during consolidation have no impact from a tax point of 
view; 
(v) Pre-consolidation  losses remaining unrelieved continue to be ring-fenced ; 
• Hidden reserves: tax neutrality  is the overarching princi ple [coupled with certain 
interventions in the allocation of taxing rights  within the group for the purpose of 
avoiding stripping the 'departing'  MS of its taxing entitlement (if no branch is left in its 
territory as a result of the reorganisation)]. 
*Transactions between the group and entities outs ide the group 
• Relief by exemption  will be given for third-country located branch income ; inbound 
dividend distributions; and the proceeds from the disposal of shares  held in a company 
outside the group.108 
• Relief by credit for inbound interest  and royalty  payments; the credit is shared  among 
the group members according to the formula  (without inclusion in th e consolidated base). 
• Withholding taxes  charged on outbound interest and royalties  will be shared  among 
the group members according to the formula  (without inclusion in th e consolidated base); 
in the case of dividends , the withholding tax will not be shared  (since, contrary to interest 
and royalties, dividends have not led to a previous deduc tion borne by all group 
companies). 
• Transactions between associated enterprises will be subject to pricing adjustments  in 
line with the 'arm's length'  principle. 
*Anti-Abuse 
• A General Anti-Abuse Rule  (GAAR) is supplemented by measures designed to curb 
abusive practices of a cross-border nature:  
(i) Limitations apply  to the deductibility of interest  paid to associated enterprises in a 
low-tax third country which does not excha nge information with the Member State 
of the payer; specific rules define the concept of a 'low-t ax third country'; 
(ii) Controlled Foreign Companies  (CFCs)109 legislation requires that the CFC, 
resident in a low-tax third country, is controlled  at more than 50%  of its voting 
                                                 
108 A number of anti-avoidance provisions  apply to curb potentially abusive tax practices. An example is 
the 'switch-over clause' : exemption switches over to credit  where the received di vidends, the entity of 
which the shares are disposed of or the branch were subject to low or no taxation in the state of source. 
Specific rules define the concept of 'low taxation'. 
109 For the purpose of the Draft Proposal, a CFC is a company under the 'definitive influence' of a group 
member which is tax resident in a low-tax third country without exchange of information. Further, the 
 
EN 98   EN rights, owned  at more than 50%  of its capital and gives more than 50% profit 
entitlement  to the taxpayer. In addition, 30% of CFC income  should be ' tainted' . 
*Formulary Apportionment (FA) 
• The consolidated tax base shall be shared thr ough a formula, uniform to all Member States, 
between each individual taxpayer of a group and each EU permanent establishment which 
is situated in a different jurisdiction fr om that of the taxpayer's headquarters. 
• The consolidated tax base of a group sha ll only be shared when it is positive. 
• The FA comprises 3 equally-weighted f actors (i.e. assets, payroll and sales)110: 
(i) Labour  is computed based on both payroll  and the number of employees  (each 
item counts for half); 
(ii) Assets consist of  all fixed tangible assets , meaning that intang ibles and financial 
assets are excluded from the FA; the reason for this exclusion mainly lies with the 
mobile nature of those assets and the risks of circumventing the system; 
(iii) Sales are taken into account to increase the taxing entitlement of the MS of 
destination.  
To apportion the tax base to a given jurisdicti on, the company must have a taxable presence 
(i.e. a PE or subsidiary).  
*Administration 
• The 'one-stop-shop'  practice will allow groups with a ta xable presence in more than one 
MS to deal with a single tax authority across the EU  (i.e. principal tax authority (PTA)), 
being that of the EU parent of the group term ed 'principal taxpayer'. A consolidated tax 
return will be filed with that authority. 
• The draft proposal contains pro cedural rules on various matters: 
(i) How taxpayers should submit their notice to opt  into the CCCTB and subsequently 
their annual tax returns ; 
(ii) Amended assessments shall be issued by the PTA, in agreement with the other 
concerned tax authorities, a nd shall be enforced by i ndividual tax authorities. 
(iii) A ruling mechanism,  coupled with an interpretation panel  and a scheme for the 
exchange of information, shall be operated by the competent authority (CA) in each 
group member; 
                                                                                                                                                         
CFC does not engage in genuine co mmercial activity which, in the Draft Proposal, is evidenced by the 
fact that it earns more than 30% of  its income from certain sources identified as 'tainted' (e.g. passive 
income from interest and royalties coming from transactions with associated companies at more than 
50%). 
110 There is provision for sector-specific formulae;  in practice, those are adjustments of the mainstream 
FA customised to serve features peculiar to certa in industries (i.e. credit institutions, insurance 
undertakings, shipping, inland waterways transport and air transport and the oil and gaz industry). 
 
EN 99   EN (iv) Audits  shall be initiated and coordinated  by the PTA; CAs of other group members 
may also request the initiation of audits; th e PTA and all relevant CAs shall have to 
agree, by joint decision, to the scope and c ontent of an audit as  well as the group 
members to be audited. The PTA shall be compiling the results of all audits carried out locally ahead of issuing an amended assessment; 
(v) In terms of dispute settlement,  disputes between MS  shall be referred to 
Arbitration  whilst those between taxpayers and MS  shall be dealt with by an 
Administrative Appeals Body at a first instance and, at  a second instance, shall 
have to be brought before the national courts of the principal taxpayer . 
 
EN 100   EN Annex 6. The European Tax Analyzer   
The European Tax Analyzer is a model for calculation, analysis and comparison of tax bases 
size / effective company tax burden of differe nt tax systems for a representative ‘model’ 
company. It follows the so-called model-firm a pproach which means that it uses real company 
data as a basis for the calculation (i.e. in the current version, data derived from balance sheets 
and profit and losses accounts is taken from the Amadeus  database). With the help of a 
computer-based model, the development of this ‘model’ company is simulated over a period of ten years. Besides other business and econo mic variables –such as  corporate planning, 
interest rates, etc- the relevant 
corporate tax provisions are ta ken into account for simulating 
the development of the ‘model’ compa ny over the ten years period. The following major tax 
base provisions  have been taken into account for impl ementing different tax systems in these 
simulations: depreciation allowances, valuatio n of inventories, production costs, costs for 
R&D as part of production costs, provisions for future pension payments, provisions for legal 
obligations (e.g. warranty claims), systems fo r the relief of divi dends’ double taxation and 
domestic loss relief. For the sake of cross-country and cross-tax system comparability, it is assumed that companies in each country or system show identical business data before any taxation. Due to this necessary assumption, any differences betw een pre and post-tax data in 
the model can be solely attributed to the di fferent tax systems included for comparison (eg. 
different provisions de fining the tax base). 
In the version used for this study, the following major tax base provisions  (unrelated to 
consolidation) have been taken into accoun t for implementing different tax systems: 
depreciation allowances, valuati on of inventories, production cost s, costs for R&D as part of 
production costs, provisions for future pension pa yments, provisions for legal obligations (e.g. 
warranty claims), systems for th e relief of dividends’ double taxa tion and domestic loss relief. 
The tax bases of these model companies have  been measured, under the different tax 
scenarios, by the ‘ Future Value of the Tax Base ’ concept: that is, the sum of all yearly tax 
bases as evaluated at the end of the simulati on period of 10 years. Th e benchmark case has 
taken into account the EU Memb er States’ tax provisions as th e law stood for the fiscal year 
2006. Table A.1 reports the values of such ta x bases, alongside the % change when all 
provisions of the common tax base (CCTB) are implemented simultaneously, under two 
different rates applicable for pool depreciation on machinery and equipment, namely 20% and 
25%
111.  
                                                 
111 These results have been subject to a sensitivity analysis.  It consisted in changing the economic model 
assumptions that serve to define the structure of the “model” company (for in stance the capital, labour, 
inventory intensities or the profitability ratios) so as to characterise “model” companies for different 
sectors or subgroup of countries. The results show that in sectors such as energy, manufacturing, service/trade and transport the tax base would tend to  increase even more in the event of a common tax 
base, while in sectors such as commerce and construction the new common tax base would not increase 
as much as for the average EU-27 “model” company (but still it would be broader than under most current national rules). Also, “model” companies ha ve been characterised for the EU-15 (average 
company of the old Member States) and the EU-12 (a verage company of the new Member States). The 
results show that, on average, the broadening of th e future value of the tax base in the EU-12 exceeds 
the EU-27 average broadening, while the opposite holds true for the EU-15 (where the broadening 
ranges, on average, below the EU-27 average). Finally, instead of taking the fiscal rules of 2006 as benchmark, the major tax reforms in five countries (France, Germany, Italy, Netherlands and Spain) 
which became effective in 2007 and 2008 have been implemented as “current national rules”: as these 
reforms already resulted in a broadening of the tax base, the average increase of the tax base in the 
 
EN 101   EN Table A.12 Future Value of Tax Base in Ca se of National Tax Base Rules versus a 
Common Corporate Tax Base (Large and SME Companies) 
Large model company  SMEs model company  
Member 
State (*)  Future Value Tax Base  Member 
State (*)  Future Value Tax Base 
National 
rules    
 (2006) 
(Mio €)  % 
Change 
CCTB-
20% % 
Change 
CCTB-
25%   National 
rules 
(2006)  
(Mio €)  % 
Change 
CCTB-
20% % 
Change 
CCTB-
25% 
HU 41.7 12.3 0.72 HU 1.08 15.4 2.85 
FR 55.43 9.8 1.98 FR 2.36 5.3 1.4 
DE 74.05 4.8 1.85 DE 2.68 2.9 1.54 
BE 78.55 3 0.34 AT 2.87 4.3 2.11 
AT 81.19 5.9 2.45 BE 2.94 1.5 0.13 
ES 85.05 4.6 1.89 ES 3.07 2.6 1.42 
SL 89.26 8.6 2.95 SL 3.17 8.3 4.04 
DK 91.36 3.8 1.31 DK 3.29 2.4 1.1 
LU 93.42 3.7 1.52 LU 3.35 2.3 1.16 
UK  93.45 0.2 -2.2 UK 3.36 0.7 -0.59 
SE 93.6 4.4 2.19 SE 3.36 2.7 1.62 
LT 93.7 11.1 3.58 LT 3.38 10.5 4.93 
LV  93.84 11.3 3.75 IT 3.39 8.8 3.51 
BG 94.64 13.1 5.58 LV 3.4 10.4 4.83 
PT 94.67 10.6 3.28 GR 3.41 10.3 4.94 
IT 94.72 8.8 1.63 NL 3.41 1.3 0.29 
FI 95.06 9.4 2.16 PT 3.41 9.9 4.53 
RO 95.16 4.9 2.4 FI 3.42 9.2 3.8 
NL 95.66 2.2 0.14 BG 3.43 11.8 6.26 
GR 95.9 9.1 1.96 RO 3.44 2.5 1.64 
CZ 95.97 9.9 2.7 CZ 3.45 9.5 4.13 
SK 96.26 9.8 2.5 PL 3.46 8.8 3.42 
PL 97.46 7.7 0.48 MT 3.46 5.4 1.64 
MT 98.18 3.8 -1.11 SK 3.46 9.5 4.03 
IE 101.06 -1.5 -3.64 IE 3.54 -0.8 -1.82 
EE 103.22 2.6 0.7 EE 3.6 1.8 0.57 
CY 104.98 -6.7 -11.68 CY 3.74 -6.9 -10.68 
EU-Ø 89.91 6.2 1.09 EU-Ø 3.22 5.57 1.96                                                                                                                                                          
event of a CCTB is smaller, comp ared to this new “current” situation, for both the EU-27 large and 
SME company. 
 
EN 102   EN (*) Ranked from the narrowest to the broadest tax base in 'as-is' case.
Source: simulations based on the European Tax Analyzer model.  
 
EN 103   EN Annex 7. The impact of corporate income t ax reforms at the EU level on European 
business taxpayers: case studies from a sample of multinational groups 
operating in the EU 
At the request of the European Comm ission TAXUD, Pricewaterhouse Coopers has 
completed a study on the impact of income tax reforms at the EU leve l on European business 
taxpayers. The study had two tasks: i) to quantif y the impact of alternative tax scenarios on 
the size of multinationals' taxable profits and on th eir effective tax rates and ii) to quantify the 
impact of the alternative tax scenarios on the size of multinationals' tax related compliance costs.  
The required analysis has been addressed thro ugh the collection of relevant data from a 
sample of multinational groups op erating in the EU. In order to source the necessary inputs 
from groups and perform each part of the st udy a questionnaire was designed, which were 
completed by the participa ting multinational groups.  
The sample : In carrying out this exercise, the contractor first sourced multinationals willing 
to participate in the exercise. Data has been  collected from 21 multinational groups operating 
in the EU. Of the 21 multinational groups pa rticipating in the study, 13 multinationals 
participated in the taxable profits and ef fective tax rate study and 17 multinationals 
participated in the impact on corporate inco me tax compliance cost study. 9 multinationals 
participated in both parts of the study. 
The participating multinational groups have operations across the 27 Member States and 
represent a number of economic sectors (banks, electricity, f ood retail, insurance, leisure 
goods, media & entertainment, oil & gas,  pharmaceuticals, technology & hardware, 
telecommunications). All multinational groups, except one, requested complete anonymity 
regarding their part icipation and data. 
The following describes in more detail the methodology followed for each of the two tasks of 
the study.  
Simulation of effective taxable prof its under different tax scenarios 
One questionnaire  was created to gather the relevant input data for the simulation of the 
taxable profits under diff erent tax scenarios: 
- the current national tax system - a common corporate tax base (CCTB) and - a common consolidated co rporate tax base (CCCTB). 
For this part of the study data was requested for two years, to reduc e the impact of unusual 
circumstances in any given year. The two year  base period was ca lendar 2005/2006 for all 
companies in the sample with the exception of  one for which the base period was calendar 
2006/2007. Electronic templates were sent to the H eads of Tax (Global or European) and data 
was gathered in the period from 9 April to 20 June 2008. Discussions were held with participating MNCs in conference calls and on a one-to-one basis to de al with any issues 
arising in connection with the completion of the templates. Help-lines were also available throughout the period and were well used. The data provided by MNCs has been sense 
 
EN 104   EN checked by PwC and queried where relevant to eliminate inconsistencies and amended where 
there were errors. However, PwC has not verifi ed or validated the da ta provided and does not 
give any representations or warranties as to the accuracy  of the results of the study. 
For the base case (current system) companies we re requested to provide data on their national 
GAAP (or IFRS where permissible) profits be fore tax (PBT or EBT), their national tax 
regime cash tax charges, and therefore thei r national GAAP/tax effective cash tax rate 
(ETRs). Companies were also requested to provide national taxable profits by country.  
Companies were also requested to provide details of brought fo rward local tax losses and any 
national tax rules limiting the utilisation ther eof e.g. where only a certain level (EUR 1 
million) of losses can be fully used in the succeeding year (Germany) with only partial 
utilisation above EUR 1 million, or where there is a time bar on loss carry forward (e.g. Italy 
5 years, The Netherlands 9 years,  etc) limiting the use of their carry forward tax losses in the 
review period. 
For the CCTB and CCCTB scenarios, compan ies were provided with a summary of 
CCCTB/WP57 (CCCTB: Possible Elements of  a Technical Outline), CCCTB/WP60 (CCCT: 
Possible Elements of the Sharing Mechan ism) and CCCTB/WP61 (CCCTB: Possible 
Elements of the Admi nistrative Framework). 
Companies were also provided with a template for each of the 27 EU countries, and requested 
to populate the template with th e EBT of their companies/permanent establishments in each 
Member State (in aggregate for each Member St ate) and to enter the principal adjustments 
envisaged under WP57 to arrive at that count ry's element of that group's CCCTB base, prior 
to aggregation to effect cr oss-border consolid ation and formulary apportionment of the 
resulting CCCTB taxable profit back to pa rticipating Member State companies. 
Companies were also requested to provide da ta on employees (headcount and Euro amount of 
payroll), property (tangible assets: tax residue  brought forward from national tax systems, and 
including loan book receivables fo r banks) and sales by destination. 
In collating the results of the participating MNCs, two main methods have been used for this 
part of the analysis. The first, the 'non-aggregated' a pproach, weights al l MNCs equally 
regardless of size. The second, the 'aggregated' a pproach, sums together the results of MNCs, 
thus giving greater weig hting to larger MNCs.  
The size effects on the average  (where all MNCs are equa lly weighted) and in the  aggregate 
tax bases under the CCTB and CCCTB options are reported in table A.3. Table A.4 shows the 
results on the distribution of the tax bases under the CCCTB with different apportionment 
factors.  
 
EN 105   EN Table A.13 Change (% points) in average  and aggregate  tax bases of sampled MNEs by 
MS under CCTB and CCCTB, co mpared to status-quo. 
 CCTB  CCCTB 
MS Change in average  tax 
base  Change in aggregate  tax 
base  Change in average  tax 
base  Change in aggregate  tax 
base  
Belgium 3% 3% 1% 1%
Denmark (0%) (0%) 0% 0%
France (1%) (2%) (5%) (4%)
Germany 3% 4% 0% (1%)
Greece (0%) (0%) (0%) (0%)
Ireland 1% 1% (2%) (4%)
Italy 1% 2% (2%) 0%
Luxembourg 5% 1% 4% 1%
Netherlands 0% (1%) 0% (0%)
Poland (1%) (0%) (1%) (1%)
Portugal 0% (0%) 0% 0%
Spain (3%) 1% 2% 1%
Sweden 1% (9%) (0%) (3%)
UK 2% 1% 8% 11%
Other MS (0%) (0%) (0%) (0%)
Total EU 
sample 11% 3%  
5% (2%) 
Source: PWC survey 
 
EN 106   EN Table A.14 Changes in average tax base (with respect to as-is) by country under 
different weighting of CCC TB apportionment factors (average over 2 years) 
 BE DK FR DE GR IR IT LU NL PL PT ES SE UK Other 
CCTB 1% 0% -2% 4% 0% 0% 2% 0% -2% 0% 0% -3% 0% 0% 0% 
CCCTB SM1 1% 0% -5% 0% 0% -3% -2% 3% 0% -1% 0% 1% 0% 6% 0% 
CCCTB SM2 2% 0% -6% 0% 0% -2% -3% 3% 1% -1% 0% -1% 0% 6% 0% 
CCCTB SM3 3% 0% -6% 1% 0% -3% -2% 4% 0% -1% 0% 1% -1% 6% 0% 
CCCTB SM4 1% 0% -5% 0% 0% -3% -2% 3% 0% -2% 0% 1% -1% 7% 0% 
CCCTB SM5 2% 0% -6% 0% 0% -2% -3% 4% 2% -2% 0% -1% 0% 7% 0% 
Average percentage distribution of apportionment factors within the EU 
 BE DK FR DE GR IR IT LU NL PL PT ES SE UK Other co 
Number of 
employees 8% 1% 14% 8% 1% 0% 6% 6% 7% 3% 1% 4% 4% 37% 0% 
Payroll 8% 1% 13% 9% 0% 0% 5% 6% 8% 1% 0% 4% 4% 41% 0% 
Fixed Assets 1% 1% 11% 16% 0% 4% 3% 6% 10% 1% 0% 3% 6% 38% 0% 
Sales 3% 0% 12% 10% 0% 2% 6% 6% 6% 1% 0% 10% 5% 30% 0% 
 
Sharing mechanisms (SM) are as follows:  
• SM1: Number of employees (1/6), Cost of employees (1/6), Assets (1/3), Sales by Destination (1/3); 
• SM2: Number of employees (1/4), Cost of employees (1/4), Assets (1/2);  
• SM3: Number of employees (1/6), Cost of employees (1/6), Assets (1/3), Sales by Origin (1/3);  
• SM4: Cost of employees (1/3), Assets (1/3), Sales by Destination (1/3);  
• SM5: Cost of employees (1/2), Assets (1/2). 
Source: PWC survey 
 
EN 107   EN Examination of compliance costs under different tax scenarios 
Another questionnaire  was created to estimate the cor poration tax compliance costs of 
companies under different tax scenarios:  
- the current national tax system - a common corporate tax base (CCTB) and - a common consolidated co rporate tax base (CCCTB). 
Quantitative survey 
The questionnaire assisted MNCs to establish th eir cost of corporate income tax compliance, 
within the EU, under current national tax system s. MNCs were provided with a definition of 
compliance and a list of corporate income ta x compliance activities. Th e questionnaire asks 
for data country by country within the EU, for each MNC, covering both internal time spent 
on tax compliance activities and feed paid to  external providers for compliance services. 
Internal time includes dedicate d tax resource plus resource in the shadow tax department 
(those in business functions such as accounting, finance, shared se rvices and transfer pricing) 
who also undertake corporate inco me tax compliance activities. 
The questionnaire provides MNCs with info rmation showing how the list of compliance 
activities will change in each alternative scenar io (CCTB or CCCTB). It  then asked MNCs to 
provide data on how they expect the time spent and the cost of external advisors fees in 
relation to these activities to change under two further scenario s, a switch over  to a fully 
consolidated CCCTB and alternatively to the more  limited case, the CCTB, where there is no 
consolidation but an implemen tation of a common tax base cal culation in each country. The 
study assumes full implementation of these scenar ios across the 27 countri es within the EU. A 
copy of the schedule defining a nd listing corporate income tax compliance activities and how 
they would change across the di fferent scenarios is provided at the end of this Appendix .  
The questionnaire also asked MNCs  whether they expect to in cur one off costs on the switch 
over to each alternative scenario.  
The compliance cost time measures were later e xpressed in monetary terms. The method used 
for this analysis is a form of standard cost ap proach where a standard salary cost by grade of 
staff, and by country was applied. Most of the data were provided by Monks (a specialist unit 
within PwC which deals with employee reward s) and partly came from publicly available 
survey databases. The methodology used is cons idered to underestimate the costs involved, 
rather than to overestimate. 
Electronic questionnaires were pr ovided to MNCs, and data has been gathered in the period 
from 9 April to 3 July 2008. A total of 17 MNCs participated in the study,  with subsidiaries in 
26 out of the 27 Member States. They are consid ered to represent a reasonable cross section 
of business tax payers, in terms of size of busin ess, industry sector a nd spread of activities 
across the EU. Among the 17 partic ipants, 16 MNCs provided qua ntitative data on the base 
case scenario, 9 on the CCCTB and the CCTB scen ario and 14 provided qualitative data.  
 
EN 108   EN Data was requested for one year, and participan ts were asked to assu me a normal year of 
operation in the alternative scenarios, say year 3 of the new regime, rather than a start up year 
for CCTB or CCCTB in the alternative scenarios.  
Three areas of activities (keeping the additiona l records required for tax purposes, transfer 
pricing documentation and preparing tax computa tions) are viewed by participants on average 
as the most time consuming activities with re gard to the base case national tax systems. 
On average for participants more than 30% of  these external costs relate to each of the 
preparation of tax returns and transfer pricing documentation. Just over 15% relates to other 
international aspects of the tax regime. 
The key findings from the response to the qualita tive questions were that the majority of 
companies find the current regimes difficult. The areas which the greatest number of participants found difficult were transfer pricing (creating and maintaining transfer pricing 
documentation and facing several different audits  on transfer pricing in member states), 
gathering data and calculating taxable profits under the tax rules in the different member 
states, contacting several differe nt tax administrations and faci ng several different audits and 
litigation processes, and keeping up to date with the different tax laws and regulations. 
The results for scenario 2 show  an important difference between  the predicted impact of time 
spent in the country where the principal taxpaye r (PTP) and the principa l tax authority (PTA) 
are located and in other countries. It is anticip ated that the time in the PTP will increase by 
15% and time spent in other countries will re duce by 23%. Overall, a reduction by 8% of time 
spent on tax compliance activities is anticipated. 
Participants predicted a 6% reduction on average in fees paid to external providers for tax 
compliance services. The main reduc tions were expected to arise on tax return se rvices and on 
international aspects of the tax regime (o ther than transfer pricing documentation). 
Participants also predicted an increase in licence fees for compliance software. 
The qualitative results on the CCCTB show a mixed response from the participants. Seven see 
a CCCTB as less burdensome overall, five as more burdensome and one as equally 
burdensome. The areas which the greatest number  of participants th ought would be more 
burdensome are keeping records for and deal ing with the formulary apportionment and 
gathering data and calculating taxable profits. Th e majority felt that keeping up to date with 
the rules and regulations, single f iling of the tax return and dea ling with a single tax authority, 
and applying for clearances and ru lings would be less burdensome. 
Qualitative survey 
In addition to providing 'quantitative data', participants were asked a series of questions in 
relation to each of the base cas e and the two alternative scenar ios to establish their views on 
the current system and the alternative pr oposals (ie 'qualitative data'). Electronic 
questionnaires were provided to MNCs, and data  has been gathered in  the period from 9 April 
to 3 July 2008. Participants were  asked to identify the followi ng tax compliance activities as 
'An important difficulty', 'A moderate difficulty' or 'Not a difficulty' under the existing system: 
• Creating and maintaining the additional r ecords required for tax purposes in the 
several different EU Member States 
 
EN 109   EN • Creating and maintaining the documentation required for compliance with transfer 
pricing rules in the several different EU Member States 
• Gathering data and calculating taxable profits under the tax rules in the several 
different EU Member States 
• Multiple filing of the tax returns for the several different EU Member States 
• Contacting several different tax administra tions or tax officials from the several 
different EU Member States 
• Facing several different audits  and litigation processes of  the several different EU 
Member states 
• Facing several different audits relating to  transfer pricing in the different EU 
Member States  
• Dealing with intra-EU procedures for re solution of transfer  pricing disputes 
• Applying for clearances and rulings from the several different EU Member States 
is: 
• Keeping up to date with the different tax laws and regulation in the several 
different EU Member States 
• Calculating the tax numbers required for fi nancial reporting using the tax rules of 
the several different EU Member States  
• Implementing our transfer pricing policy to ensure that transactions with relevant 
policies in the different EU Member St ates are carried out at arm’s length 
• Overall, the costs of dealing with several different national corporation tax 
systems within the EU 
Afterwards, participants specified whet her the following activities would be ' more 
burdensome', 'less burdensome' or 'equally burdensome'  in a CCCTB or CCTB scenario 
as in the current system.  
• Creating and maintaining the additional records required for tax purposes for a 
common consolidated tax base across the EU  
• Creating and maintaining the documen tation required for the formulary 
apportionment  
• Gathering data and calculating taxable profits under a CCCTB (or CCTB) system  
• Single filing of the tax re turn for all EU income  
• Contacting a single ‘princ ipal tax administration for all EU activities  
 
EN 110   EN • Audits and the procedures for resolvin g disputes with tax administrations 
concerning all EU income 
• Dealing with the formulary apportio nment of profits across the EU  
• Dealing with common procedures for the re solution of profits’ al location disputes  
• Applying for clearances and rulings  
• Keeping up to date with a single set of tax laws and regulations across the EU  
• Calculating the tax numbers required for fi nancial reporting using the tax rules for 
a CCCTB (or CCTB) 
• Overall, the requirements of a CCCTB (or CCTB) system  
For both parts of the survey briefings were held  with participating MNCs in conference calls, 
and on a one to one basis, to deal with any issu es arising in connection with the completion of 
the questionnaires. Help-lines were also available throughout the period and have been well 
used. Findings from the study are factual, and represent the views of business based on the 
assumptions given to them in the questionnai re and in supplementary relevant documents. 
The data provided by MNCs has been sense check ed and queried where relevant to eliminate 
inconsistencies and amended where there are errors, for example where data has been 
incorrectly entered in the wrong data box. Howeve r, PwC has not verified or validated the 
data provided and does not give any representati ons or warranties as to the accuracy of the 
results of the study.  
 
EN 111   EN Impact of corporate income tax reforms at EU level on compliance costs of European 
business taxpayers 
Corporate income tax compliance activiti es and what is expected to change  
Compliance activities include all activities relating to complying with tax rules and 
obligations of EU member states. Compliance activities do not include (i) keeping tax books 
or records which are required for financial acco unting or reporting purposes or preparing the 
tax entries for the accounts; (ii) tax planning or mitigation; (iii) tax advi ce (for example to the 
business or on transactions) or (i v) management of the tax team. 
A list of corporate income tax compliance activities under scenar io 1, the base case, is given 
below, together with how these would change in  the alternative scenarios. Participants are 
asked to provide data for each of the 9 areas of activity. 
Scenario 1: Base case - 
current national tax systems What will change - Alternative 
scenario 2 - CCCTB What will change - 
Alternative scenario 3 - 
CCTB 
1) Record Keeping    
 
• Creating and maintaining 
any additional records 
required for tax purposes only. (Does not include records which are created and maintained primarily for accounting purposes) 
• Creating and maintaining 
records for tax 
depreciation 
  
• Records must be kept in 
Euros, requiring translation 
for non Euro countries in the EU. 
  
• Records required for tax 
depreciation for a single 
pool of assets within the EU (if no long term assets with a life of 15 years or more). 
  
• Records must be kept in 
Euros, requiring 
translation for non Euro countries in the EU. 
  
• Records required for a 
single pool of assets per 
country (if no long term assets with a life of 15 years or more). 
2) Transfer pricing documentation   
 
• Creating and maintaining 
documentation required 
for compliance with transfer pricing, including transfer pricing policy,  
• No transfer pricing 
documentation will be 
required for transactions with consolidated companies within the EU.  
• No change to scenario 1, 
base case. 
 
EN 112   EN economic analysis and 
legal agreements. 
 • However there will be 
additional record keeping 
requirements for the formulary apportionment 
1) Head count and payroll by 
country 
2) Tax net book value of 
tangible property 
3) Third party sales by 
destination country within the EU 
3) Preparation of tax computations   
(Different rules in 27 
Member States) 
• Gathering data for tax 
purposes from existing 
records 
  
• Calculating taxable profit  
• Calculating tax 
depreciation 
     
• Application of controlled 
foreign company rules 
   
• Gathering data for the 
CCCTB system 
   
• Single calculation of EU 
taxable profits including 
tax depreciation and consolidating country profits and losses 
• Calculations of the 
apportionment of the 
taxable profits between taxable entities and member states. 
 
• Elimination of controlled 
foreign company rules within the EU. Single set of rules for outbound from the EU 
  
• Gathering data for the 
CCTB system 
    
• Country by country 
calculation of taxable 
profits and of tax depreciation but using EU wide set of rules. No cross country consolidation except where available under current rules in scenario 1. 
 
• Elimination of controlled 
foreign company rules 
within the EU. Single set of rules for outbound from the EU. 
 
 
EN 113   EN  
• Application of thin cap 
rules 
   
• Application of transfer 
pricing rules 
   
• Application of the rules 
relating to the taxation of foreign profits 
      
 
  
• Making tax claims and 
elections 
    • Common thin cap rules 
within the EU. Single set of 
rules for inbound from outside the EU. 
 
• Elimination of transfer 
pricing rules for 
consolidated companies within the EU. Country by country rules for transactions with related parties outside the EU. 
 
• Elimination of taxation of 
foreign profits within the EU. Exemption for foreign profits outside the EU for shareholdings of 10% or more (or credit if low tax). 
• Credit system within or 
outside of the EU for 
shareholdings of less than 10%. Credits are apportioned through the formulary apportionment. Country by country streaming for credits in respect of countries outside the EU. 
 
• Self assessment under 
single set of rules, no tax 
claims and elections required.  
   
• Calculations required 
relating to the set off of pre 
CCCTB losses continue to • Common thin cap rules 
within the EU. Single set 
of rules for inbound from outside the EU. 
 
• Country by country rules 
for all transactions with 
related parties, inside and outside the EU. 
  
• Elimination of taxation of 
foreign profits within the EU. Exemption for foreign profits outside the EU for shareholdings for 10% or more (or credit if low tax). 
• Credit system within or 
outside of the EU for 
shareholdings of less than 10%. Country by country streaming for credits in respect of countries outside the EU. 
   
• Self assessment country 
by country under single 
set of rules, no tax claims and elections required.  
  
• Calculations required 
relating to the set off of 
pre CCTB losses continue to be required under 
 
EN 114   EN • Calculations relating to 
set off of losses 
     
• Calculations relating to 
national group 
consolidation 
 be required under national 
tax rules. 
   
• No calculations for national 
group consolidation 
required. 
• Apportionment calculations 
required for companies 
joining and leaving the CCCTB group. 
 national tax rules. 
    
• No change to scenario 1, 
base case. 
 
4) Tax returns and 
payments    
(Different deadlines in 
different Member States) 
• Completing the tax return 
(multiple filing) 
• Submitting the return 
form (for each group 
member) 
 
• Making corporate income 
tax payments including payments on account 
 
• Withholding tax at source 
on payments made. 
  
• Single consolidated tax 
return filed with Principal 
Tax Authority for the entire CCCTB group ('one stop-shop') 
 
• Payment of corporate 
income tax by country. 
  
• No requirement to withhold 
tax on payments within the EU. No change to current requirements to withhold tax on payments outside the EU. 
  
• Single tax return filed by 
country 
   
• Payment of corporate 
income tax by country 
  
• No requirement to 
withhold tax on payments within the EU. No change to current requirements to withhold tax on payments outside the EU. 
 
5) Dealing with the tax   
 
EN 115   EN authorities 
(Different processes in the 
27 MS) 
• Dealing with queries 
raised by tax authorities  
• Dealing with tax audits 
and investigations 
    
• Resolution of tax disputes 
including appeals and tax 
litigation.  
• Verification of the 
consolidated tax return by a 
Principal Tax Authority 
• Central EU ruling body 
gives decisions on application of the new rules. 
  
• New administrative appeal 
process with clear and 
common deadlines against decisions of the Principal Tax Authority 
• Judicial appeals governed 
by the rules of the member 
state of the principal tax authority. 
  
• Central EU ruling body 
gives decisions on 
application of the new rules for calculations of taxable profits. 
• Otherwise no change to 
Scenario 1, base case. 
 
• No change to scenario 1, 
base case. 
6) Mutual agreement 
procedures on transfer pricing   
 
• Competent authority and / 
or arbitration on transfer 
pricing 
 
  
• Competent authority and 
arbitration procedures 
eliminated within the EU. Outside the EU they remain as Scenario 1, base case.  
• No change to Scenario 1, 
base case. 
7) Clearances and rulings    
 
• Application for advance 
clearances and rulings on 
the tax treatment of  
• Advance clearances and 
rulings, just once for the 
whole group of consolidated companies not  
• Advance clearances and 
rulings, just once for all 
the CCTB companies 
 
EN 116   EN specific items 
 
• Advance pricing 
agreements 
  applicable within the EU. 
 
• APAs not applicable within 
the EU. APAs for 
transactions with outside the EU will involve the Principal Tax Authority. 
 within the EU. 
 
• No change to procedures 
for Advance Pricing 
agreements. 
 
8) Learning and education   
(Up to 27 different tax 
systems) 
 
• Keeping up to date with 
changes to tax rules and 
regulations  
• Training staff on tax rules 
and obligations 
  
• EU wide common tax 
system with less frequent 
changes than with 27 National Tax Systems.  
• EU wide common rules 
for calculating taxable 
profits with less frequent changes than with 27 National Tax Systems. 
9) Any other compliance 
activities (please specify)   
   
 
 
EN 117   EN Annex 8. The tax experts' study on tax compliance costs for businesses going cross-
border – comparison of cu rrent situation and a situation after reform at EU 
level of corporate income tax systems  
8.1 Objective and scope of the study 
The study has provided empirical evidence on th e possible impact on the corporate income 
tax compliance costs of a reform at EU level of the corporate income tax system. It has 
identified and estimated the corporate tax co mpliance costs for a representative large and 
medium standard company located in the EU  that enters a market by making a new 
investment through the set-up of a representative  medium subsidiary in  another Member State 
under the following three different scenarios: 
– The current situation with 27 different na tional tax codes, current administrative 
framework and practices  
– The scenario where a common cor porate tax base is in place in all the 27 Member States 
(CCTB)  
– The scenario where a common consolidated cor porate tax base is in place in all the 27 
Member States (CCCTB)  
The study has focused on the following corpor ate tax compliance costs for entering the 
territory of another Member State through the establishment of a new medium sized 
production entity.  
– One-off costs related to learning the new corp orate tax code or sear ch costs for hiring a 
new tax adviser (only relevant in the current situation scenario); 
– The re-occurring costs to comply with the annual corporate tax filing requirements: 
1. record keeping for corporate tax purposes only 2. transfer pricing documentation 3. preparation of corporate tax computations 4. filing of tax returns and making cor porate tax payments and prepayments 
5. dealing with the tax authori ties during corporate tax audits 
6. mutual agreement proce dures on transfer pricing 
7. advanced clearances and rulings 8. learning and education of tax code changes 9. any other cross-border corporate tax compliance formality 
These one off and the re-occurring costs have  been estimated under the three different 
scenarios featuring the current so-called ACT,  the CCTB and the CCCTB regime at the level 
of the representative parent and subsidiary. It has been assumed that the parent company is 
 
EN 118   EN already working for some years under the respec tive tax codes. This means that no one-off 
costs for the switch to the CCTB or CCCTB should be taken into account, when the tax 
experts estimate the related compliance time and costs.  
8.2 Methodology The study has been based on the assessments of tax experts who are part of the European 
network of Deloitte. From their contacts with the tax business Deloitte tax experts are aware 
of the internal costs of an enterprise when fulfilling corporate tax compliance. Moreover, 
Deloitte, as one of the major service provid ers in corporate tax, including corporate tax 
compliance, was able to provide a fair estimat e of corporate tax compliance costs that are 
outsourced under the three different scenarios. 
The defining  of a large and a medium sized represen tative standard parent company and one 
medium representative subsidiary  with their relevant character istics has been done by Deloitte 
Belgium for the entire territory  of the European Union. They involved experts from Corporate 
Finance and Transfer Pricing teams of Deloitte.  
The definition of the representative large and medium parent company and the representative 
medium subsidiary included a simplified prof it and loss account and a balance sheet. Both 
have been computed on the basis of the Amadeu s database. The individual company datasets 
have been grouped applying the criteria of the European Commission recommendation for the 
delineation of small-, medium- and large-sized companies conc erning turnover, number of 
employees and balance sheet total. For these da ta subsets the median is calculated for each 
item in the profit and loss account and the balan ce sheet. Additionally the definition of the 
representative investment in a new subsidiary included a descri ption of the relations between 
the parent and the subsidiary that trigger tax complia nce obligations.  
In order to avoid asking tax experts in all 27 Me mber States and with respect to the principle 
of proportionality and the limited financial resources that could be used within the EU budget 
for this study, only 6 Member States were selected  to be investigated. As wage levels for the 
taxation clerks and experts fulfilling the complia nce obligations are an important determinant 
of compliance costs, it was assumed that the main  criterion to select the relevant countries for 
the study would be to cover countries with differe nt wage levels of intergroup and external tax 
advisers. In addition, the size of inbound and outbound FDI was another important factor to 
select the relevant countries for the study.  
Thus, the large and medium parent company were assumed to be located in  
– high wage country: FR; 
– medium wage country: ES; 
– low wage country: HU; 
The medium sized subsidiary we re assumed to be located in 
– high wage country: DE; 
– medium wage country: EL; 
 
EN 119   EN – low wage country: PL 
The estimation of corporate tax compliance costs  in the three tax scenarios has been split 
into two steps: the measurement of corporat e tax compliance time and the monetarisation of 
total compliance time into compliance costs.  
I) The measurement  of compliance time  for the different corporate tax compliance activities 
has been done for a large/medium representative parent company located in France, Spain or Hungary making an investment in a medium subsidiary respectivel y located in Germany, 
Greece or Poland. The measurement was performed in these 6 Member States on the basis of 
expert assessment. Deloitte Belgium prepared a questionnaire and an  additional learning 
document that explains the proposed single set of tax base rules in the CCTB and CCCTB tax 
scenarios mainly based on the elements  described in CCCTB WP57, CCCTB WP60 and 
CCCTB WP61 issued by the Commission services. 
In addition to the compliance time the experts estimated to which share the different 
compliance activities would be done  by external companies (outs ourced) or intern ally. For the 
internal activities they estim ated in addition which of the activities were performed across 
low/medium/high skill workers. 
The measurement has been done at the level of the parent  for the following investment 
flows. 
- Baseline investment : 
The corporate tax compliance time was measured  at the level of a parent located in 
France (FR), Spain (ES) or Hungary ( HU), which makes an investment in a 
subsidiary located in Greece (EL).  
- Alternative investment: 
In a second step, the compliance time of the parent was measured for sensitivity 
analysis under an alternative investment scenario. The purpose of this sensitivity 
analysis was to assess whether the locati on of the investment has any bearing on 
corporate tax compliance time, that is, it should answer the question: does the time needed for corporate tax compliance cha nge depending on where the parent company 
invests? In this alternative scenario the parent, located in FR, ES and HU was 
assumed to make an investment in subs idiaries located in Germany and Poland, 
instead of Greece.  
Furthermore, the measurement has been done at the level of the subsidiary  for the following 
investment flows. 
- Baseline investment: 
In the subsidiary baseline investment scenario the corporate tax compliance time was 
measured for a multinational group with a medium-sized subsidiary located in Germany (DE), Greece (EL) and Poland (PL) taking in consideration that the parent entity, large or medium sized, is located in Spain (ES).  
- Alternative investment: 
 
EN 120   EN Similar to the case above, the purpose of th is sensitivity analysis was to assess 
whether the location of the parent has a ny bearing on the corporate tax compliance 
time of the whole group, that is, it should an swer the question: does the time needed 
for corporate tax compliance for the whol e group change depending on where the 
parent company is located? Thus, in this alternative scenario, the subsidiaries located in DE, EL and PL will be held by a parent, large or medium size, located in FR and HU, instead of ES.  
Additionally, the measurement provided furthe r sensitivity analysis based on additional 
questions: 
• What would be the changes if  the parent and the subsid iary belonged to different 
industrial sectors and  
• What would be the changes in compliance time if the investing company was just 
a single company. 
II) The monetarisation  of the total compliance time in th e baseline and alternative investment 
flows was done by multiplying it with the approp riate wage level. It considered which share 
of the total compliance time would be outsourced and which share would be dealt internally in 
the group. The country experts determined the av erage wage level for the external advisors 
per hour. For the in-house part th e experts determined how the compliance tasks are allocated 
to low-medium-high skill employees in the parent  or subsidiary in order to apply appropriate 
wage levels based on statisti cal evidence (which one?) .  
The measurement data of time and cost for the 10  corporate tax compliance task at the level of 
the parent and the subsidiary  was consolidated by summing up the compliance time of the 
parent and the subsidiary to obt ain the result on a gr oup level for all three scenarios. For the 
analysis of the CCCTB it was assumed that the parent entity would file the consolidated 
return and has the contacts with Principa l Tax Authority. Under this assumption the 
subsidiary would only perform residual co rporate compliance tasks. For sensitivity 
measurement purposes also data from the respec tive country teams were requested in case the 
aforementioned functions would be switched between the parent and the subsidiary. 
 
EN 121   EN Annex 9. The assessment of the possible ad ministrative costs for national tax 
administrations in the EU linked to the implementation of reforms at the EU-
level of corporate taxation systems  
Member States – through the CCCTB Working Group- were asked to answer to this " ad hoc  
questionnaire " prepared by the Commission Services. Th is questionnaire i nvited national tax 
administrations to provide information on the pr esent size of tax-related administrative costs 
as well as the variation of diffe rent types of administrative costs following the implementation 
of the different policy options. The methodology us ed is in line with th e model of 'assessment 
of administrative costs of legislation', in this ca se for public authorities,  as described in Annex 
10 of the Impact Assessment Guidelines. 
 
 EUROPEAN COMMISSION 
DIRECTORATE-GENERAL  
TAXATION AND CUSTOMS UNION Analyses and tax policies 
Analysis and coordination of tax policies  
 
Brussels, 11 September 2007 
TAXUD E1, AAG/AB 
Annex to CCCTB\WP\058\doc\en 
Orig. EN DRAFT  
 
THE ASSESSMENT OF THE POSSIBLE ADMINISTRATIVE COSTS  
FOR NATIONAL TAX ADMINISTRATIONS IN THE EU  
LINKED TO THE IMPLEMENTATION OF REFORMS AT THE EU-LEVEL OF 
CORPORATE TAXATION SYSTEMS   
Explanatory note 
The European Commission intends to tackle mo st of the existing cross-border tax obstacles 
within the single market by pr oposing a new system of corporate taxation in the EU, 
according to which a new set of ru les will govern the calculation of  firms’ corporate tax bases. 
In accordance with current practice, such a Commission legislative proposal has to be accompanied by an Impact Assessment
 (IA)112, which should provide a description of the 
existing company tax obstacles, define a number of objectives to be achieved by the tax 
reforms, subject to analysis several alternative policy options  that could address the existing 
problems and assess their respective econom ic, environmental and social impacts . In that 
regard, the possible impact on th e tax administrations’ costs of each of the alternative policy 
options  for reform (compared to the current situa tion) is an important effect that the IA 
exercise should try to evaluate. 
                                                 
112 SEC(2005) 791, 15.06.2005, with March 2006 update. 
 
EN 122   EN The following scenarios are proposed as possible alternative tax policy op tions that could be 
subject to analysis in the IA: (i) an optiona l Common Corporate Tax Base (CCTB) for which 
only (but all) 'EU multinational groups' are a ssumed to opt, (ii) a CCTB that all EU-based 
companies subject to corporate taxation are assumed to adopt, (iii ) an optional Common 
Consolidated Corporate Tax Base (CCCTB) fo r which only (but all) groups qualifying for 
consolidation are assumed to opt, and (iv) a CCCTB that all EU-based companies subject to 
corporate taxation are assumed to adopt113. 
In order to assess the impacts of  each of these policy options on tax administrations’ costs, 
compared to the current situation or ‘no ch ange’ scenario, the following draft questionnaire  
has been designed. It is intended to collect from tax administrations information on the administrative costs that the 27 Member Stat es' (MS) national tax administrations may 
incur/save following the implementation of a ne w system of calculating the corporate tax 
bases, as defined by the previous alternative policy options. 
We should be grateful if you would answer as many of the questions as possible. No 
individual replies will be published or made  available to the public. Costs should be 
representative for the whole of  your administration and the currency used should be indicated
. 
Please use separate sheets of paper if  you wish to make further comments. 
You are invited to submit your comments to the European Commission no later than 
(date)…….., preferably by e-mail to:  
European Commission DG Taxation and Customs Union Contact person: Mr./Ms. XXX E-mail: XX Phone: XX 
                                                
 
113 The definitions of 'EU multinational groups' and 'groups qualifying for consolidation' can be found in 
CCCTB/WP057 and CCCTB/WP058. 
 
EN 123   EN DRAFT QUESTIONNAIRE ON THE POSSIBLE ADMINISTRATIVE COSTS  
FOR NATIONAL TAX ADMINISTRATIONS IN THE EU  
LINKED TO THE IMPLEMENTATION OF REFORMS AT THE EU-LEVEL OF 
CORPORATE TAXATION SYSTEMS  
Contact information: 
Country:…................................................................................………….................... 
Name of national tax administration:…............................…………........................... Contact person (in case of technical questions):….....................…….....................… 
Tel. (incl. country code):…...................................................... ................................... E-mail:…...................................................... ............................................................... 
Q.1. Which is the currency that you w ill use when giving cost estimates?............ 
* GENERAL ASSESSMENT OF TAX ADMIN ISTRATION COSTS LINKED TO THE 
CURRENT SYSTEM OF CORPORATE TAXATION 
Q.2. Can you estimate in monetary terms the average annual
 costs of running the 
current national system of corporate taxat ion in your country (during the period 2002-
2006)? 
ANNUAL LABOUR COSTS 
N° of 
employees (*) Average annual 
salary TOTAL  
LABOUR 
COSTS ANNUAL 
OVERHEAD 
COSTS 
(equipments, 
supplies, etc) TOTAL 
ANNUAL 
COSTS 
(*) Number of employees (in full-time equivalent s) who work directly and indirectly in the 
corporate taxation section currently (both federal a nd subcentral levels). 
* ASSESSMENT OF TAX ADMINIST RATION COSTS LINKED TO THE 
ALTERNATIVE POLICY OPTIONS FOR TAX REFORM 
Q.3. One off-costs  (i.e. costs that occur only once, at the implementation stage when 
switching to the relevant alte rnative policy option): Choose th e one-off actions from the list 
below that you think would occur with the co rresponding tax reform and give a cost estimate 
for each of the alternative policy options (if po ssible, with a breakdown between labour costs 
and other costs). For those actions that you do not expect  to occur mark "N.A." 
One-off actions  LABOUR COSTS OTHER COSTS TOTAL COSTS 
 
EN 124   EN A) Familiarising/training 
employees and companies with the new tax system 
1) CCTB: only (but all) EU 
multinational groups opt in 
2) CCTB: all EU-based 
companies adopt it 
3) CCCTB: only (but all) EU 
groups qualifying for consolidation opt in 
4) CCCTB: all EU-based 
companies adopt it
    
B) Adaptation/construction 
of informatics systems  
1) CCTB: only (but all) EU 
multinational groups opt in 
2) CCTB: all EU-based 
companies adopt it 
3) CCCTB: only (but all) EU 
groups qualifying for 
consolidation opt in 
4) CCCTB: all EU-based 
companies adopt it 
    
C) Other significant one-off 
costs: 
* ……………………. 
1) CCTB: only (but all) EU 
multinational groups opt in 
2) CCTB: all EU-based 
companies adopt it 
3) CCCTB: only (but all) EU 
groups qualifying for 
consolidation opt in 
4) CCCTB: all EU-based 
companies adopt it 
* …………………… 
1) CCTB: only (but all) EU    
 
EN 125   EN multinational groups opt in 
2) CCTB: all EU-based 
companies adopt it 
3) CCCTB: only (but all) EU 
groups qualifying for 
consolidation opt in 
4) CCCTB: all EU-based 
companies adopt it  
 
If you have additional comments on the above, please elaborate here: 
…………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………………………………………… 
Q.4. Do you think that the one-off costs asso ciated with the alternative policy options 
would depend on the number of co mpanies opting for the reform?  
NO YES, to a small extent YES, to certain extent YES, to a large extent 
    
Further comments on the above: 
…………………………………………………………………………………………………
…………………………………………………………………………… 
Q.5. Recurring -costs  (i.e. costs that are repeated in subsequent years).  The following tries 
to assess just those  categories of recurring costs that would be affected  by a switch to any 
of the alternative policy options (either b ecause they would increase or decrease with 
respect to the current situation). The average114/expected115 annual  amount of each of 
these categories of recurring costs should be reported for each of the policy options , 
including the ‘no change scenario’ (if possible, with a breakdown between labour costs and 
other costs). This will enable to calculate the additional costs or savings of each alternative 
option compared to the current system. 
                                                 
114 In the ‘no change’ scenario for the period 2002-2006. 
115 In the alternative policy options. 
 
EN 126   EN Categories of recurring-costs that could be 
affected by a tax reform:  LABOUR 
COSTS OTHER 
COSTS TOTAL 
COSTS 
A) General management of the system116  
1) No change 
2) CCTB: only (but all) EU multinational groups opt in 
3) CCTB: all EU-based companies adopt it 
4) CCCTB: only (but all) EU groups qualifying for 
consolidation opt in 
5) CCCTB: all EU-based companies adopt it     
B) Coordination with othe r tax administrations  
1) No change 
2) CCTB: only (but all) EU multinational groups opt in 3) CCTB: all EU-based companies adopt it 
4) CCCTB: only (but all) EU groups qualifying for 
consolidation opt in 
5) CCCTB: all EU-based companies adopt it
    
 
C) Costs related to intra-EU transfer pricing 
(monitoring, resolving disputes, etc)  
1) No change 
2) CCTB: only (but all) EU multinational groups opt in 3) CCTB: all EU-based companies adopt it 
4) CCCTB: only (but all) EU groups qualifying for 
consolidation opt in 
5) CCCTB: all EU-based companies adopt it LABOUR  
COSTS OTHER 
COSTS TOTAL  
COSTS 
                                                 
116 In particular, take into account in the assessment of these costs that the policy options 1), 3) and 5)  
require the management of just one system of corporate taxation  (either the national one under 1) or the 
EU common one under 3) and 5)) while options 2) and 4) require the management of two different 
systems of corporate taxation  (the national one together with the EU common one). 
 
EN 127   EN Significant recurring costs that may be affected 
(saved/increased) by a switch to any of the alternative policy options: 
*………………… 
1) No change 
2) CCTB: only (but all) EU multinational groups opt in 
3) CCTB: all EU-based companies adopt it 4) CCCTB: only (but all) EU groups qualifying for 
consolidation opt in 
5) CCCTB: all EU-based companies adopt it 
*………………… 
1) No change 
2) CCTB: only (but all) EU multinational groups opt in 
3) CCTB: all EU-based companies adopt it 4) CCCTB: only (but all) EU groups qualifying for 
consolidation opt in 
5) CCCTB: all EU-based companies adopt it
    
 
If you have additional comments on the above, please elaborate here: 
…………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………………………………………… 
Q.6. Do you expect the recurring costs that wo uld be affected by any of the alternative 
policy options to increase/decrease in the fu ture (beyond inflation), for instance because 
of organisational or technological adaptati ons? In case, please express changes in 
percentage 
 
 YES 
Decline Increase NODO NOT 
KNOW 
 
EN 128   EN  
 
1) No change 2) CCTB: only/all EU 
multinational groups opt in 
3) CCTB: all EU-based 
companies adopt it 
4) CCCTB: only/all EU 
groups qualifying for consolidation opt in 
5) CCCTB: all EU-based 
companies adopt it
     
 
Q.7. Do you think that the recurring costs asso ciated with the alternative policy options 
would depend on the number of co mpanies opting for the reform?  
NO YES, to a small extent YES, to certain extent YES, to a large extent 
    
 
* GENERAL QUESTIONS 
Q.8. Please describe how (if applicable ) you assess the administration costs’ 
increments/savings of domestic  tax reforms. 
…………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………… 
Q.9. Please comment on any other issu es that you consider relevant to the 
administration costs that would be incurred /saved as a result of the tax changes. Give 
specific examples and explain the associated costs.  
…………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………… 
 
EN 129   EN Annex 10. The CORTAX model   
The CORTAX model is a computable general e quilibrium model for the EU, describing the 
macro-economic implications of tax reforms.  The calibration of CORTAX is based on the 
ORBIS database, which contains micro inform ation from European firms. This Annex 
discusses the features of CORTAX and demonstr ates how ORBIS is used in its calibration. 
Structure of CORTAX 
CORTAX is an applied general equilibrium m odel that describes the 27 countries of the 
European Union, plus the US and Japan. It is designed to simulate th e economic implications 
of unilateral and multilateral corporate tax policies as well as the harmonisation of these policies. The model is heavily  inspired by the OECDTAX-mode l of Sørensen (2001; 2004ab; 
2007). An earlier version of CORTAX was used  for European tax policy analysis in 
Bettendorf et al. (2006, 2007) and Va n der Horst et al. (2007). A detailed description of the 
structure and parameterisation of the model can be found in Bettendorf and van der Horst 
(2008).  
The structure of each country is the same. Count ries are linked to each other via trade in 
goods markets, international capital markets and multinational firms. Below, the model 
structure of each country is discussed in more detail as well as the international linkages. 
Households 
Following the overlapping generations model of Diamond, households are assumed to live for 
two periods. One may interpret one period to co ver 40 years. Behaviour within each 40-year 
period is assumed to be constant.  
Households make their decisions regarding work, consumption and saving by maximizing a 
life-time utility function subject to an inte rtemporal budget constraint. When young (i.e. the 
first period), households choose to allocate their time between leisur e and work. When old 
(i.e. the second period) household do not work  but only consume. Y oung households receive 
after-tax wage income and lump-sum transfers.  This income at a young age is allocated over 
consumption and savings. Savings are invest ed in a mix of bonds and stocks, which are 
assumed to be imperfect substitutes and which yield different rates of return. In the second 
period, households are retired. Consumption at ol d age is financed by the assets saved from 
the first period plus an after-tax rate of return  and by lump-sum transfer s. Moreover, the older 
generation is assumed to own the fixed factor used by firms. Therefore, the old receive the 
economic rents.  
Household optimization yields expressions for labour supply, savings and the optimal asset 
portfolio. Asset returns are determined on world markets and residence-based taxes on capital 
are not explored in this  study. Therefore, saving  distortions are not a ffected by the policies 
explored here. The most important distortions  in household behaviour are related to the 
consumption/leisure choice. Labour supply beha viour in CORTAX is governed by the usual 
income and substitution effects. In particular, a higher income tends to raise the demand for 
leisure and thus reduces labour supply. A higher wage rate for a given level of income raises 
the price of leisure and thus te nds to cause substitution from leisure into consumption. This 
increases labour supply. Most empirical studies  suggest that substitution effects dominate 
income effects so that the uncompensated elasticity of labour supply is positive.  
 
EN 130   EN Firms 
CORTAX distinguishes between two types of fi rms: domestic firms and multinationals. One 
representative domestic firm and one representative multinational headquarter is located in each country. The multinational owns a subsidiary  in each foreign country. With 29 countries 
in CORTAX, there are thus 30 different firms operating in each country, namely the representative domestic firm, the representative headquarter and 28 subsidiaries that are 
owned by the headquarters in the other countries.  
Each firm is assumed to maximise its value subject to the accumulation constraints and a 
production function. Thereby, the multinational co nsiders the sum of the values of its 
headquarter and all subsidiaries. The producti on function features th ree primary factors: 
labour, capital and a location-specific fixed factor (e.g. land). Labour is immobile across 
borders and wages are determined on national labour markets. Capital is assumed to be 
perfectly mobile internationally so that the return to capital (after source taxes) is given for each country on the world capital market. The location-specific fixed factor is supplied 
inelastically. Its income reflects an economic re nt. Rents earned by subsidiaries accrue to the 
headquarter in the parent country, which is assumed to wholly own the subsidiary. The multinational enterprises are assumed to be whol ly owned by households in the origin county. 
It implies that countries can partly export the tax burden to households abroad by taxing 
subsidiaries.  
In calibrating the model of th e firm, capital and labour parameters are determined by national 
accounts data on labour and capital income shares. The fixed factor is – somewhat arbitrarily 
– set at 2.5% of value-added in each country. This value ensures that CORTAX yields a 
reasonable value for the corporate tax-to-GDP ratio. A sensitivity analysis with respect to the size of the fixed factor is performed. 
The initial size of subsidiaries in CORTAX is determined by data on bilateral foreign direct 
investment (FDI) stocks. In particular, these st ocks determine the size of the fixed factor in 
each subsidiary. Given the fixed factor, multina tionals decide on how much capital and labour 
to employ in each of their foreign subsidiaries . For domestic firms and multinational parents, 
the size of the fixed factor is calibrated at a fixed proportion of output so that reasonable 
figures for aggregate corporat e tax revenues are obtained. 
Firms finance their investment by issuing bonds and by retaining earnings (issuing new shares 
is excluded in CORTAX). The optimal financia l structure depends on the difference between 
the after-tax cost of debt and equity. A corn er solution is ruled out  by including a financial 
distress cost associated with high debt positions . The marginal cost of debt finance increases 
in the debt share. 
One important difference between production in a domestic firm and production in a 
multinational firm is that foreign subsidiaries  need intermediate inputs in producing output. 
These intermediate inputs are supplied by the parent company. As there is only one 
homogeneous good in the model, the arms-length pr ice for this intermedia te input is equal to 
the market price of the numeraire good, i.e. e qual to one. However, the parent company can 
charge a transfer price for intra-company deliverie s that deviates from this arms-length price. 
In particular, a headquarter comp any has an incentive to  set an artificially low (high) transfer 
price for supplies to subsidiaries  in countries that feature a lo wer (higher) statutory corporate 
tax rate. In this way, the multinational is able to shift profits from hi gh to low-tax countries, 
thereby reducing its overall tax liab ility. To ensure an interior solution, a convex cost function 
 
EN 131   EN is specified to capture the costs associated w ith manipulated transfer  pricing. Hence, profit 
shifting to countries with very  low corporate tax rates become s increasingly costly at the 
margin. 
CORTAX captures the costs that firms incur to comply with the corporate tax system. These 
costs are modelled as a share of the labour fo rce in companies that are required for tax 
administration efforts. This overhead labour is sp ecified as a fixed frac tion of the number of 
workers in the production process. Therefore,  compliance costs increase proportionally in the 
payroll of the firm. 
Losses and loss carry forward 
In CORTAX, representative firms are equal ex-a nte. Ex-post, however, firms differ due to 
random shocks. Random shocks are assumed to o ccur in output or, equivalently, in the value 
of sales. In the good outcome, the revenue from sa les is larger than in the bad outcome. In the 
latter case, profits become negative. Hence,  ex-post there are both profit making firms and 
loss making firms. Still, as firms are equal ex -ante, the possibility of different ex-post 
outcomes introduces ex-ante uncertainty. It is as sumed that firms are risk neutral and decide 
on their optimal levels of investment, employme nt, debt shares, and transfer prices before 
knowing whether they are subject to a negative shock. Hence, they base  their input decisions 
on expected output values and expected marginal  productivities. The proba bilities of profit 
and loss are assumed to be independent so that  shocks for a firm are not correlated between 
years. 
In today’s corporate tax regimes in Europe, losses can  be carried forward and offset against 
future profits within the same country. It imp lies that losses are treated asymmetric from 
profits for two reasons. First, the year at which losses can be offset is usually bounded so that 
some losses cannot be offset against future profits. Second, firms can only carry forward 
nominal losses, i.e. without indexation. Due to discounting, the value of these losses declines 
over time. In CORTAX, it is assumed that losse s can be carried forward one year. If the 
company makes a loss in two c onsecutive years, the first-year loss dries up and cannot be 
offset against profits in the future. Although this may underestimate the current opportunities 
for loss compensation (losses can usually be carried forward more than one year), the 
assumption of uncorrelated shocks tends to ove restimate the amount of losses that can be 
offset. 
Government 
Government behaviour in CORTAX is exogeno us, hence, the government does not optimize 
its policies and exogenous tax a nd expenditure parameters are si mply modified. In performing 
simulations with CORTAX, the government budget is balanced, i.e. the government does not 
run a surplus or deficit after a reform. On the revenue-side of the government budget 
constraint, tax revenues consist of indirect taxes on consumpti on and direct taxes on various 
sources of income: corporate income, labour inco me, dividends, capital gains and interest. On 
the expenditure side of the constraint, there is  government consumption, interest payments on 
public debt and lump-sum transfers. Govern ment consumption and public debt are kept 
constant as a fraction of GDP. The initial labou r and consumption tax rates are calibrated by 
using effective taxes computed from Eurostat (2007). The initial rates determine the distortions induced by changes in  labour and consumption taxes. 
Equilibrium 
 
EN 132   EN Equilibrium must hold on each market. On the goods market, a homogenous good that is 
traded on a perfectly competitive world market  is assumed. Thereby, countries cannot exert 
market power so that the terms of trade is fi xed. The goods price acts as a numeraire in the 
model. On asset markets, bonds of different orig ins are perfect substitutes and can be freely 
traded on world markets. Accordingly, the return to these assets is fixed for an individual country. The same holds for equity. Debt and equ ity are, however, imperfect substitutes. The 
current account equals the change in the net foreign asset position for each country (including rest of the world), due to Walras law.  
As labour is immobile internationally, wages are determined nationally. In the version of 
CORTAX used in this study, th e national labour markets are competitive so that wage 
adjustments ensure equality be tween labour supply and demand. 
Welfare 
Compensating variation is computed to measur e the welfare effects of policy changes. The 
compensating variation is equal to the transfer  that should be provi ded to households to 
maintain their utility at the pre-reform le vel. A positive compensating variation implies a 
welfare loss, i.e. an excess burden from taxation.  In presenting the welfare effects of reforms, 
a minus has been put for the compensating vari ation so that a posi tive value denotes an 
increase in welfare. This is denoted by the we lfare effect and expressed in terms of GDP. 
The welfare effects of a tax reform differ from  the impact on economic aggregates such as 
private consumption or gross domestic product. This is because utility depends also on 
leisure. More employment may raise income, consumption and gross domestic product, but 
the decline in leisure reduces these benefits in  terms of welfare. Moreover, an increase in 
gross domestic product may be accompanied by an inflow of foreign cap ital, the return of 
which flows to foreign owners, rather than domestic residents.  It is also why GDP differs 
from gross national income, which is generall y perceived to be a be tter proxy for national 
welfare. Welfare may also be affected by multinational profit shifting which raises income but leaves the gross domestic product unchanged. 
Extensions: tax havens and discrete location 
An important element in corporate tax analysis is the distortionary impact of high statutory 
corporate tax rates. The basic CORTAX model cap tures the impact of high corporate tax rates 
on transfer price manipulation of multinati onals among the 29 countries. Yet, this may 
underestimate the extent to which high corporat e tax rates erode corp orate tax bases. The 
reason is twofold. First, high tax rates may affect  the discrete location of  profitable investment 
by multinationals. Recent literature stresses that this decision margin is relevant (see e.g. Devereux and Griffith, 2003; Devereux and Lockwood, 2006; De Mooij and Ederveen, 2008). 
Second, CORTAX ignores profit shifting vis a vis countries outside the group of 29, most 
notably outside tax havens. To capture thes e two mechanisms, CORTAX has been extended 
by modelling outside tax havens and discrete loca tion choices. This section discusses the main 
features of these two extensions.  
Outside tax havens 
Profit shifting in the basic ve rsion of CORTAX occurs vi a transfer pricing within 
multinational groups in the 29 count ries in the model. This prof it shifting is proportional to 
initial FDI stocks. Yet, not all forms of profit shifting are linke d to FDI. Indeed, 
 
EN 133   EN multinationals have a variety of other ways to shift profits to low-tax locations, such as via 
royalty payments, cost and income allocations or debt shifting. Moreov er, profit shifting will 
not be restricted to the 29 countries modelled in CORTAX. Especially shifting to outside tax 
havens might be relevant in practice.  
To remedy these shortcomings  of CORTAX, a simple but straightforward extension by 
modelling an outside tax haven has been introd uced. The idea is that multinationals face an 
extra decision margin, namely how much effort to  put in shifting profit s to the tax haven. On 
the one hand, these efforts create a cost fo r the multinational, e.g. to set up a tax haven 
subsidiary, deal with tax haven authorities and settle  possible disputes w ith the home fiscal 
authority. These costs are assumed to increase in  a convex way with the amount of effort. On 
the other hand, profit shifting yields  a benefit to the firm that is proportional to the difference 
between the statutory corporate ta x rate in the country where it  operates and the corporate tax 
rate in the outside tax haven. This benefit is a proportional re duction in the tax base in the 
home country of the company. In the optimum, multinationals set the ma rginal benefit from 
profit shifting equal to its marginal cost. The inclusion of a tax haven implies that a higher 
corporate tax rate in a country induces a larger  erosion of its corporate tax base via more 
substantial profit shifting. 
Discrete location 
In the basic version of CORT AX, rents are due to a locatio n-specific fixed factor in 
production. Yet, many rents are not location-speci fic but firms-specific, e.g. due to brand 
names, patents or market power in the entir e single market. Firm-spe cific rents may well 
move across internatio nal borders. A tax on rents may therefore change the location of 
production (Devereux and Gri ffith, 2003). To capture mobile rents in CORTAX, a 
straightforward extension has been provided by making the size of the fixed factor owned by 
multinationals dependent on the statutory tax rate . In this way, CORTAX captures the impact 
of the corporate tax system on the discrete  location choice of profitable investment.117  
In modelling the impact of tax rates on the location choice of multinationals, two cases have 
been considered. First, non-European multina tionals are assumed to invest in Europe, 
irrespective of the tax on rents,  but the precise location within Europe is responsive to tax. In 
terms of the model, it is assumed that the firm-specific fixed factor of multinationals is fixed within the European Union, but it is not fixe d for an individual country. The firm-specific 
rents are thus mobile within the EU, but not be tween Europe and other parts of the world. One 
motivation for this assumption is that Europe is a relatively closed market where multinationals need to be present, irrespective of tax.
118 Second, the case where the firm-
specific fixed factor is mobile also between Europe and the rest of the world has been 
considered. In that case, also  investment from Japan and th e US can respond to the mean 
corporate tax rate adopted in European countries.  
                                                 
117 The average effective tax rate (EATR) can be comput ed as a weighted average of the effective marginal 
tax and the statutory tax (Devereux and Griffith, 2003). By including an endogenous impact of statutory 
tax rates on mobile economic rents, CORTAX captures both components of the EATR separately. 
Together, the model thus contains the impact of the EATR on investment. 
118 Another motivation is that Japan and the US adopt tax credit systems which render the tax rate in 
Europe less important as investors are ultimately taxed at the rate in their home country. It implies that multinational firms who decide about location choice consider the statutory tax in a country relative to 
the European average. Only if a country reduces its  tax rate below the European average will it become 
more attractive as a location for profitable investment projects. 
 
EN 134   EN Calibration of CORTAX 
CORTAX is calibrated for the 27 Member States  of the European Union plus the US and 
Japan. Data for 2005 is used to replicate aggr egates from national accounts data, such as 
consumption shares, labour-income shares, th e average number of hours worked and foreign 
direct investment. Moreover, extensive use of information from the ORBIS database (see Annex 3) has been made. A full description of the calibration process is given in Bettendorf 
and Van der Horst (2006).  
As a first exercise, calibration allows one to ca lculate the welfare effect s of loss consolidation 
relative to loss carry forward (s ee section 5.1.2). To this purpos e, the average loss probability 
has been calculated from the ORBIS database  as equal to around 0.2. Hence, the aggregate 
ratio of loss/profit equals ¼. As the ratio of loss/profit probabilities matches the aggregate loss/profit ratio, the average loss in a loss-making firm is assumed to be equal to the average 
profit in a profit making firm. These values and assumptions are adopted in the calibration of 
CORTAX. The simulations show that, given the share of multinationals in the EU and the 
level of rates, consolidation alone w ould reduce the corporate tax burden by 15%
119. In the 
steady state equilibrium of CORT AX, the reduction in the tax base  is smaller because losses 
can be carried forward from the past. All in all,  the decline in the aggregate total economy tax 
base in the steady state would be 4.5%120.  
Secondly, it has been possible to calculate the welfare eff ects of alternative sharing 
mechanisms under the CCCTB taking into account firms' behavioural reactions. Table A.15 
reports the impacts on the distribution of ta x revenues, whereas the welfare effects are 
depicted in Figure A.3. Finally, panels a-d in Table A.16 show the effects of the alternative 
policy options on welfare, GDP, invest ment and employment, respectively.  
                                                 
119 To illustrate how much the co rporate tax burden will fall under loss consolidatio n, the following 
example is considered in the CGE model. Suppose there are 100 firms. Among them, 80 make a profit of 1000 and 20 make a loss of 1000 (this corresponds to the loss probabilities and the loss size 
estimated from the ORBIS database and used for ca libration in CORTAX). The total taxable base of 
profit making firms is therefore 80 000 if the losses cannot be offset and 60 000 if losses are offset immediately. Under loss consolidation, the tax base is thus 25% smaller. As the tax reduction applies 
only to multinational firms, this is applied to the shar e of multinationals in the economy, which is 
approximately 60% in Europe. Hence, the final value of 15% is obtained.  
120 In CORTAX, 80% of the previous-yea r losses (i.e. the probability of profit) can be offset against profits 
in the next year (the other 20% dry up because no profits are made or the period for loss compensation 
expires). In the example, this equals a loss comp ensation of 16 000. Yet, these profits need to be 
discounted at, say 5% interest, which reduces its current value to 15 200. Compared to immediate loss 
offset under consolidation of 20 000, the value of losses drops by 4 800. It implies a reduction of the corporate tax base by 4 800 / 64 800 = 7.5% when moving from loss carry forward to loss 
consolidation. Using the share of multinationals (60% of all companies), the decline in the aggregate tax 
base of 4.5% is found. 
 
EN 135   EN Figure A.3: Welfare effects of al ternative apportionment formulae 
 
Notes: the graph uses the CCCTB-WG20 definition of the tax base, assumes that the CCCTB system is 
compulsory for all firms and is based on the basic versi on of CORTAX, which does not include tax havens and 
discrete location choices.  
Source: simulation based on CORTAX. Welfare effects of alternative apportionment formulae
-1 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 Austria Belgium  Denmark  Finland  France  Germany  Greece  Ireland  Italy Luxembourg  Netherlands  Portugal  Spain  Sweden  UK Cyprus  Czech Republic  Estonia  Hungary  Latvia  Lithuania  Malta Poland  Slovakia  Slovenia  Bulgaria  Romania  EU 
Sharing mechanism 5: payroll (1/2) and capital (1/2)
Sharing mechanism 4: payroll (1/3), capital (1/3) and sales (1/3)
Sharing mechanism 3: employment (1/4), payroll (1/4) and capital (1/2)
Sharing mechanism 2: employment (1/6), pa yroll (1/6), capital (1/3) and sales (1/3)  
Sharing mechanism 1: employment (1/3), capital (1/3) and sales (1/3)
 
EN 136   EN Tables A.15 a-d: Changes in welfare, empl oyment, investment and GDP from optional 
and compulsory CCTB a nd CCCTB, WG 20 and 25 
16.a – welfare (expressed as %GDP) 
Optional Compulsory Optional Compulsory 
 CCTB  CCTB CCCTB CCCTB   
WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 
AT -0.04 -0.03 -0.04 -0.01 -0.19 -0.17 -0.15 -0.11
BE 0.47 0.42 0.89 0.86 1.18 1.21 1.08 1.11
BG -0.02 -0.01 -0.05 -0.02 0.09 0.10 0.05 0.07
CY -0.02 -0.02 -0.01 -0.01 0.02 0.01 0.11 0.10
CZ -0.02 -0.01 -0.02 0.01 -0.01 0.01 -0.03 0.01
DE 0.01 0.01 -0.07 -0.05 0.08 0.08 0.03 0.06
DK 0.04 0.04 -0.09 -0.07 -0.01 0.00 -0.11 -0.09
EE 0.01 0.02 -0.47 -0.45 0.13 0.15 -0.35 -0.32
ES -0.04 -0.04 -0.05 -0.03 -0.10 -0.11 -0.12 -0.11
FI -0.01 -0.01 -0.08 -0.06 -0.10 -0.09 -0.15 -0.12
FR 0.06 0.06 -0.01 0.00 -0.07 -0.09 -0.13 -0.14
GR -0.04 -0.03 -0.16 -0.11 -0.08 -0.06 -0.19 -0.15
HU -0.05 -0.03 -0.04 0.00 -0.02 0.00 -0.02 0.02
IE -0.16 -0.14 -0.09 -0.06 -0.74 -0.73 -0.67 -0.65
IT 0.02 0.02 -0.06 -0.04 0.05 0.06 -0.01 0.01
LT -0.07 -0.06 -0.26 -0.23 -0.04 -0.03 -0.23 -0.20
LU 0.31 0.21 0.86 0.62 -1.60 -1.71 0.17 -0.07
LV -0.05 -0.04 -0.18 -0.16 -0.03 -0.01 -0.16 -0.13
MT 0.01 0.00 -0.04 -0.03 0.46 0.42 0.49 0.45
NL -0.12 -0.11 0.01 0.00 -0.82 -0.82 -0.60 -0.63
PL -0.01 0.00 0.02 0.06 0.04 0.06 0.06 0.11
PT 0.01 0.01 -0.05 -0.04 0.40 0.41 0.35 0.37
RO -0.04 -0.03 -0.13 -0.11 0.08 0.10 -0.02 0.01
SE 0.04 0.04 -0.02 -0.01 0.06 0.06 0.07 0.08
SI -0.02 -0.01 -0.06 -0.03 0.02 0.04 -0.01 0.03
SK -0.03 -0.02 -0.14 -0.10 -0.02 0.00 -0.13 -0.08
UK -0.02 -0.02 -0.01 -0.01 0.18 0.18 0.22 0.22
EU total 0.01 0.01 -0.01 0.00 0.02 0.02 0.00 0.02
Source: simulation based on CORTAX. 
 
EN 137   EN 15.b – Employment (%) 
Optional Compulsory Optional Compulsory 
 CCTB  CCTB CCCTB CCCTB   
WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 
AT 0.00 0.01 -0.03 0.00 0.00 0.01 -0.05 -0.01
BE -0.91 -0.90 -1.12 -1.11 -0.15 -0.16 -0.51 -0.50
BG -0.02 -0.01 -0.03 -0.02 -0.01 0.00 -0.03 -0.02
CY -0.02 -0.02 -0.06 -0.04 -0.21 -0.20 -0.30 -0.29
CZ -0.01 0.00 -0.03 -0.01 0.01 0.03 0.04 0.07
DE -0.06 -0.04 -0.15 -0.11 0.02 0.04 -0.06 -0.02
DK -0.07 -0.07 -0.13 -0.12 -0.09 -0.08 -0.15 -0.13
EE -0.03 -0.03 -0.05 -0.05 -0.02 -0.02 -0.08 -0.07
ES -0.01 0.01 -0.03 0.00 0.06 0.09 0.10 0.14
FI -0.06 -0.04 -0.12 -0.09 -0.05 -0.04 -0.09 -0.06
FR -0.07 -0.07 -0.18 -0.16 -0.04 -0.03 -0.09 -0.06
GR -0.03 -0.03 -0.12 -0.10 -0.01 0.00 -0.08 -0.05
HU 0.01 0.02 0.02 0.03 -0.01 0.00 0.00 0.02
IE 0.06 0.06 -0.05 -0.04 -0.15 -0.14 -0.30 -0.28
IT -0.06 -0.05 -0.18 -0.15 -0.02 -0.01 -0.12 -0.09
LT -0.04 -0.03 -0.12 -0.11 -0.04 -0.04 -0.13 -0.11
LU -0.56 -0.41 -1.21 -0.90 2.20 2.55 1.11 1.60
LV -0.03 -0.02 -0.09 -0.08 -0.05 -0.05 -0.12 -0.10
MT -0.06 -0.04 -0.08 -0.06 0.14 0.18 0.10 0.15
NL 0.02 0.03 -0.21 -0.15 0.05 0.08 -0.30 -0.22
PL 0.00 0.01 0.01 0.04 0.01 0.03 0.04 0.07
PT -0.03 -0.02 -0.06 -0.05 -0.08 -0.08 -0.15 -0.14
RO -0.02 -0.02 -0.06 -0.05 -0.03 -0.02 -0.07 -0.06
SE -0.06 -0.06 -0.13 -0.11 -0.06 -0.05 -0.15 -0.13
SI -0.02 -0.01 -0.05 -0.03 -0.03 -0.01 -0.06 -0.03
SK -0.04 -0.03 -0.08 -0.06 -0.05 -0.03 -0.07 -0.04
UK -0.01 -0.01 -0.08 -0.06 -0.04 -0.03 -0.12 -0.10
EU total -0.05 -0.04 -0.13 -0.10 -0.01 0.00 -0.08 -0.05
Source: simulation based on CORTAX.  
 
EN 138   EN 15.c – investment (%) 
Optional Compulsory Optional Compulsory 
 CCTB  CCTB CCCTB CCCTB   
WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 
AT -0.11 0.02 -0.31 0.04 -0.69 -0.53 -1.05 -0.65
BE -4.61 -4.58 -5.92 -5.84 -3.05 -2.89 -5.05 -4.82
BG -0.16 -0.10 -0.33 -0.20 -0.53 -0.44 -0.66 -0.50
CY -0.16 -0.11 -0.31 -0.22 -1.45 -1.41 -1.76 -1.67
CZ -0.13 0.00 -0.24 0.07 -0.65 -0.46 -0.62 -0.25
DE -0.52 -0.39 -1.42 -1.06 -0.54 -0.38 -1.29 -0.91
DK -0.84 -0.75 -1.74 -1.55 -1.78 -1.66 -2.62 -2.39
EE -0.88 -0.84 -2.62 -2.52 -1.80 -1.66 -3.55 -3.35
ES -0.16 -0.03 -0.36 -0.06 -0.40 -0.25 -0.50 -0.20
FI -0.52 -0.40 -1.13 -0.88 -1.31 -1.17 -1.79 -1.50
FR -0.79 -0.72 -1.84 -1.66 -1.40 -1.34 -2.40 -2.24
GR -0.36 -0.28 -1.23 -0.95 -0.66 -0.58 -1.52 -1.21
HU 0.00 0.10 0.07 0.31 -0.68 -0.52 -0.57 -0.27
IE -0.14 -0.06 -0.39 -0.24 -1.87 -1.78 -3.03 -2.81
IT -0.59 -0.48 -1.73 -1.40 -0.78 -0.65 -1.86 -1.51
LT -0.57 -0.52 -1.82 -1.66 -0.87 -0.79 -2.12 -1.93
LU -2.26 -1.82 -3.20 -2.54 -0.07 0.94 0.77 1.85
LV -0.40 -0.35 -1.25 -1.09 -0.72 -0.65 -1.58 -1.40
MT -0.56 -0.41 -0.91 -0.64 1.58 1.70 1.59 1.83
NL -0.47 -0.33 -1.08 -0.77 -1.97 -1.84 -3.33 -2.99
PL 0.05 0.16 0.22 0.52 -0.33 -0.17 -0.09 0.25
PT -0.59 -0.47 -1.35 -1.07 -1.13 -0.93 -1.62 -1.28
RO -0.36 -0.29 -1.03 -0.84 -0.69 -0.57 -1.29 -1.05
SE -0.77 -0.66 -1.55 -1.31 -1.33 -1.18 -2.08 -1.81
SI -0.22 -0.11 -0.56 -0.26 -0.44 -0.28 -0.74 -0.39
SK -0.43 -0.33 -0.97 -0.73 -0.97 -0.80 -1.43 -1.12
UK -0.61 -0.48 -1.49 -1.17 -0.93 -0.77 -1.73 -1.39
EU total -0.54 -0.44 -1.25 - 0.97 -0.88 -0.74 -1.55 -1.25
Source: simulation based on CORTAX.  
 
EN 139   EN 15.d – GDP (%) 
Optional Compulsory Optional Compulsory 
 CCTB  CCTB CCCTB CCCTB   
WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 WG-20 WG-25 
AT -0.11 -0.09 -0.21 -0.11 -0.60 -0.55 -0.64 -0.52
BE 0.17 0.04 1.08 1.04 2.12 2.10 0.91 0.92
BG -0.11 -0.08 -0.18 -0.12 -0.76 -0.75 -0.76 -0.71
CY -0.20 -0.15 -0.28 -0.22 -1.38 -1.38 -1.51 -1.49
CZ -0.13 -0.09 -0.20 -0.08 -0.48 -0.42 -0.44 -0.31
DE -0.03 -0.04 -0.37 -0.29 0.26 0.29 0.08 0.17
DK 0.05 0.06 -0.30 -0.25 -0.73 -0.72 -1.02 -0.97
EE 0.44 0.45 -0.23 -0.19 -1.08 -1.06 -1.84 -1.78
ES -0.12 -0.10 -0.22 -0.14 -0.03 0.00 0.09 0.17
FI -0.17 -0.14 -0.43 -0.34 -0.53 -0.49 -0.72 -0.63
FR 0.10 0.10 -0.29 -0.25 -0.15 -0.15 -0.31 -0.28
GR -0.14 -0.11 -0.50 -0.39 -0.27 -0.24 -0.63 -0.50
HU -0.18 -0.14 -0.18 -0.10 -0.92 -0.89 -0.85 -0.78
IE -0.34 -0.28 -0.54 -0.46 -3.19 -3.16 -3.35 -3.28
IT -0.03 -0.03 -0.43 -0.35 0.06 0.08 -0.24 -0.15
LT -0.15 -0.13 -0.58 -0.52 -0.45 -0.43 -0.90 -0.83
LU -1.17 -0.93 -2.08 -1.65 0.69 1.17 0.13 0.73
LV -0.13 -0.11 -0.44 -0.38 -0.46 -0.44 -0.78 -0.72
MT -0.14 -0.11 -0.28 -0.20 0.84 0.86 0.88 0.94
NL -0.21 -0.18 -0.58 -0.47 -1.69 -1.65 -1.96 -1.85
PL -0.10 -0.06 -0.04 0.06 -0.42 -0.37 -0.31 -0.20
PT 0.01 0.01 -0.14 -0.11 -0.52 -0.50 -0.63 -0.58
RO -0.10 -0.08 -0.30 -0.24 -0.58 -0.56 -0.74 -0.68
SE 0.06 0.06 -0.17 -0.13 -0.34 -0.35 -0.52 -0.49
SI -0.09 -0.07 -0.22 -0.13 -0.31 -0.27 -0.40 -0.29
SK -0.17 -0.13 -0.41 -0.31 -0.76 -0.72 -0.97 -0.86
UK 0.05 0.03 -0.04 -0.04 -0.02 -0.05 -0.12 -0.12
EU total -0.04 -0.03 -0.25 - 0.18 -0.17 -0.15 -0.32 -0.25
Source: simulation based on CORTAX.  
 
EN 140   EN Annex 11. CCCTB WG working paper 4 and annex 
 EUROPEAN COMMISSION 
DIRECTORATE-GENERAL TAXATION AND CUSTOMS UNION 
Analyses and tax policies 
Analysis and Coordination of tax policies 
 
Brussels, 28 October 2004 
Taxud E1 MH/  
CCCTB/WP\004\doc\en 
Orig. EN 
COMMON CONSOLIDAT ED CORPORATE TAX 
BASE WORKING GROUP (CCCTB WG)  
 
ASSETS AND TAX DEPRECIATION  
Meeting to be held on Tuesday 23 November 2004 
Centre de Conférences Albert Borschette 
Rue Froissart 36 - 1040 Brussels 
WORKING DOCUMENT 
B-1049 Bruxelles / B-1049 Brussel - Belgium. Office: MO59 06/075.  
Telephone: (32-2) 299.11.11; direct line (32-2) 298.41.16. Fax: (32-2) 295.63.77. 
E-mail: taxud-e1 @cec.eu.int  
 
EN 141   EN ASSETS AND TAX DEPRECIATION  
I. Purpose of this paper  
1. The treatment of assets and their depreciation is one of the main structural elements 
of the existing national tax bases and will be of any Common Consolidated Corporate Tax Base (CCCTB) . As the CCCTB solution is intended to replace up to 
25 national tax bases (at least for those companies who make use of it) it has to be agreed by up to 25 Member States (MS). Currently assets and depreciation are 
generally subject to different rules in ea ch MS in the taxati on accounts, and to 
varying degrees, in the financial accounts as well. However, the general objectives of 
both tax and accounting rules are often broadly similar and in the consolidated 
accounts of certain listed companies as fr om 2005 the same accounting rules will be 
applied across the EU – the Internationa l Accounting Standards and International 
Financial Reporting Standards (IAS) which have been endorsed for use in the EU. 
2. The objective of this paper is to identify the key issues and some possible solutions 
for the tax depreciation of assets. As the firs t such paper on structural elements it also 
serves as a sort of 'test' of the working methods outlined in the work programme. The starting point for discussion is generally the accounting treatment permitted in the 
relevant IAS. The use of these IAS definitions, such as those in IAS 16, does not 
imply that the tax treatment should necessarily be the same as the one agreed for accounting purposes. By starting from the IAS definition the paper aims to use terms 
which should already be familiar to MS. Wh ether tax solutions can be derived from 
the IAS accounting treatment requires specific  analysis on a case by case basis. In 
addition to the IAS analysis the paper also re fers to some of the different approaches 
taken by individual MS in their national tax legislation. These references illustrate 
how the general accounting rules could be clarified, or ame nded, to take into account 
specific tax concerns and objectives. Th e sheer number of existing different 
treatments across the EU also illustrates the scale of the task  of achieving a CCCTB, 
and gives an indication of the possibiliti es for simplification that a CCCTB could 
bring if consensus can eventually be ac hieved. Tables with more details on 
depreciation schemes and practices cu rrently applied in MS are annexed. 
3. The principle issues in both accounting and taxation for assets are their definition, 
the timing of the recognition of the assets, the determination of their valuation or 
carrying amounts, and the depreciation charges to be recognised in  relation to them. 
Recognised assets cannot be immediately expensed and they are depreciated only 
when certain conditions are met (eg. in ta xation after a business purpose test). The 
depreciation of assets is a measure which allocates the costs of the asset to the periods of time over which an asset is expect ed to be used by the enterprise (useful 
life). Assets are generally classified as eith er tangible or intangible, and within these 
two groups there are often fu rther sub-divisions. This pa per concentrates on the sub-
set within tangible assets of  'property, plant and equipment' and considers each of the 
principle issues in turn before sugges ting some possible solutions for discussion. 
II. Assets, qualifying assets
 
 
EN 142   EN 4. Resources held and controlled by an enterp rise for use in the production or supply of 
goods or services, for rental to others or for administrative purposes which are 
expected to be used during more th an one period are recognised as assets121. 
Tangible, intangible and financial assets ar e distinguished. As noted above this paper 
elaborates further on tangible assets (hereaf ter assets), specifically property, plant 
and equipment. Intangible and financial assets will be discussed separately at a later stage. 
5. For accounting purposes an item of prope rty, plant and equipment should be 
recognised as an asset when it is probabl e that future economic benefit associated 
with the asset will flow to the enterprise and the cost of the asset to the enterprise can 
be measured reliably
122. For tax purposes this definiti on is in principl e accepted, but 
some of its elements are further developed. Assets subject to normal wear and tear, with a limited useful life and serving the realization of profits qualify for tax depreciation in most MS. A direct link betw een the asset and the re alization of profits 
('business purpose test') is explicitly  required and underlined in most MS. A 
minimum useful life is also fixed in some MS (e. g. 1 or 3 years).  
6. Assets that are not subject to wear and tear , i. e. assets that ge nerally do not change 
(decrease) their value over time are not in principle deprecia ble for tax purposes. 
Land is often explicitly ex cluded. The value of land can be written down only if the 
fair market value has fallen permanently below the acquisition cost. 
7. Assets of minor value or assets with a ve ry short useful life may be expensed (100% 
of their cost may be written off) in th e year of acquisition in most MS for both 
accounting and tax purposes. Whereas in ac counting this is often based on the 
materiality principle, tax law gives more detailed guidance on what "minor value" or 
a "very short useful life" is. Guidance on what constitutes minor value may come from existing or standard practice in bot h tax and accounting, but for tax purposes it 
is more often determined by specific tax le gislation. Generally a statutory definition 
satisfies legality and transparency requi rements while the determination of minor 
value by reference to existing or standard pr actice is more flexible and often reflects 
the material, or immaterial, character of the case in question. Mi nor value currently 
ranges between EUR 200 and 1,300 in MS, although the upper figure seems to be 
rather exceptional (Czech Republic). Assets w ith a very short useful life regardless of 
acquisition costs are expensed in some  MS (Denmark, Finland, Luxemburg, 
Sweden). A very short useful life is de termined as 1 – 3 years in these MS. 
Sometimes the total value of assets so expensed may not exceed a certain limit per 
tax year (Finland). 
III. Valuation of asset and depreciable basis
 
8. In accounting an asset is initially measured at its cost. The cost of an item of 
property, plant and equipment comprises its purchase price and any directly 
attributable costs of bringi ng the asset to the working condition for its intended use. 
Cost is understood as the amount of cash equi valents paid or the fair value of other 
consideration given to acquire an a sset at the time of its acquisition or 
                                                 
121 IAS 16 Para 6., IAS 38 Para 7. 
122 IAS 16 Para 7. 
 
EN 143   EN construction123. Tax solutions are derived from this principle, but may disallow some 
kinds of directly attributable costs from  being included in the acquisition costs. 
Historical, production or acquisition costs (h ereafter acquisition cost) are generally 
distinguished for tax purposes depending on whether an asset is purchased from a 
third party, produced by the enterprise itself or acquired by other means than 
purchase for monetary payment or in excha nge for other benefits. Detailed rules on 
acceptable ways and procedures if assets are acquired for non monetary payment and 
the determination of a fair value are freque nt in taxation. The ac quisition cost for tax 
purposes is restricted for some assets (e. g. cars) generally as a re sult of a particular 
public policy applied in so me MS (e. g. Belgium). 
9. Subsequent to initial recognition an asset is carried at its acquisition costs less any 
accumulated depreciation. Acquisition costs decreased by depreciation charges give 
the residual value of an asset. Accounting also requires devaluation of an asset in 
case of any accumulated impairment losses a nd alternatively revaluation of an asset 
on a regular basis if its fair value increases124. Recognition of such changes in the 
residual value of a depreciable asset for ta x purposes is rather exceptional and its 
impact on the tax base is usually excl uded. On the other hand some MS require 
taxpayers to revalue their assets regula rly for tax purposes as well (e. g. Greece, 
Hungary)125. It is currently proposed that revalu ation and devaluation of assets will 
be further discussed at a la ter stage, under the tentativ e heading of Capital Gains. 
10. If subsequent expenditure relating to an asset that has already been recognised (and 
has already been depreciated) is incurred, in accounting it shoul d be added to the 
carrying amount of the asset when it is pr obable that future economic benefits, in 
excess to the originally assessed standard of performance of the existing asset will 
flow to the enterprise. All other subsequent expenditure is to be recognised as an 
expense in the period in which it is incurre d. Subsequent expenditu re on an asset is 
recognised in case of modification of an asse t to extend its useful  life or increase in 
its capacity, upgrading machine parts to ach ieve a substantial improvement in the 
quality of output or adoption of a new production processes enabling a substantial 
reduction in previously assessed operating  costs. Expenditure on repairs or 
maintenance of an asset made to restore or maintain the future economic benefits that 
an enterprise can expect from the origina lly assessed standard of performance of the 
asset is expensed when incurred126. For the distinction whether it should be treated as 
an expense or as an asset it is importan t whether a new asset has been created by a 
subsequent expenditure. If so, it should be  recognised as an asset and depreciated 
(either separately or as an increased residua l value of the original asset) otherwise it 
can be fully expensed in the year when  this expenditure incurred. Tax systems 
generally apply similar, although in some cas es stricter, rules to distinguish between 
capital expenditure on assets eligible for tax depreciation over a number of years and 
revenue expenditure which is immediately deductible for tax purposes in full. As 
already mentioned some of them require comp anies to increase the residual value of 
the asset by the subsequent expenditure  and others recogni se a subsequent 
expenditure as a new distinct asset and de preciate it separately. For the appraisal of 
                                                 
123 IAS 16 Para 6. and 15. 
124 IAS 16 Para 28. and 29. 
125 Unrealized gain is taxabl e under special tax in Greece. 
126 IAS 16. Para 23. and following 
 
EN 144   EN the subsequent expenditure the same method should be applicable as was applied in 
case of originally acquired asset. 
IV. Purpose of depreciation  
11. Costs of assets acquired or produced a nd used by companies for their business are 
expensed over the period for which the asset is supposed to bring proceeds to a company through depreciation charges. The overall expenditure on the asset is thus 
systematically spread out to the asset's useful life.  
12. The depreciable amount of an asset should be allocated on a syst ematic basis over its 
useful life. The depreciation charge for each period should be recognised as an 
expense unless it is included in the carrying amount of another asset
127. This 
accounting principle is also recognised in tax depreciation. Tax solutions tend to be 
prescriptive as regards the method and the amount (either as a pr ecise or a maximum 
amount) of the depreciation charge and leave much less room for the taxpayer's judgement and interpretati on of the general rule.  
13. Tax systems may occasionally introduce sp ecial depreciation schemes that do not 
necessarily follow this principal purpose of depreciation. The a llocation of assets' 
acquisition costs are then spread out ove r a statutory period shorter (occasionally 
longer) than the assets' usef ul lives. Tax rules may provide  for faster depreciation in 
order to promote and support a particular sector of economic activity, or activity 
within a particular region or designated  area. Such measures have an incentive 
character. Members of the gr oup might therefore wish to postpone di scussion of this 
aspect to a later stage of the discussions when special incentive schemes in general 
are addressed.
128 
V. The right to claim depreciation  
14. With regard to the question of who is en titled to claim depreciation charges two main 
approaches (with several vari ations) exist. According to the first one only the legal 
owner is allowed to depreciate assets. Th e second one gives the right to depreciate 
the asset to the person bearing the risk of the wear and tear of an asset regardless the 
legal title that such a person has to the asset ('economic owner'). 
15. In accounting terms a holder of an asset is  generally supposed to recognise an asset 
in the balance sheet. Accordingly the lessee should recognise finance leases as assets and liabilities in his balance sheet at amounts equal at the in ception of the lease to the 
fair value of the leased property or, if lower, at the present value of the minimum lease payments
129. However a broad discussion on this topic has been ongoing. 
16. Different solutions (in both tax and account ing at national level)  have been adopted 
for leases, financial leases and usufruct hol dings as well as for purchases of assets 
with a clause reserving ow nership to a seller until the payment of full price 
('reservation of title'). The purchaser is often allowed to depreciate the asset from the moment when he starts to use it for busine ss, but if ownership is not subsequently 
                                                
 
127 IAS 16 Para 41. 
128 Draft Work Plan, II, the last indent, CCCTB/WP/003 
129 IAS 17 Para 12. 
 
EN 145   EN acquired any claimed depreciation charges have to be recaptured. Some MS who 
apply in principle the legal ownership a pproach allow an economic owner (e. g. a 
lessee) to depreciate the asset under certain  conditions, e. g. if they qualify as the 
beneficial owner of the leased asset (Austria). 
17. In most cases the legal successor is allo wed to continue depreciation commenced by 
his predecessor (company reorganisa tions - mergers, acquisitions).  
VI. Timing  
18. In accounting an asset is depr eciated over its useful life. Th e useful life of an asset is 
defined in terms of the asset's expected uti lity to the enterprise. The estimation of the 
useful life of an asset is a matter of j udgement based on the experience of the 
enterprise with similar assets130. Whereas accounting leaves the door open for 
judgement of each individual case as much  as possible tax law prefers to fix 
applicable principles. Actual practices are further discussed in section VII. 
19. Companies depreciate assets on an annua l basis in all MS. Different approaches 
occur in respect to the first year deprecia tion charge, the interrupt ion of depreciation 
and the year in which an a sset is alienated or sold. 
20. A full annual tax depreciation charge applie s in a tax year in which the asset is 
acquired or produced, even though the asset is he ld for only part of that year in some 
MS. In others if the asset in question is owned for more than 6 months full annual tax 
depreciation charge is allowed and if less,  50% of an annual tax depreciation charge 
can be deducted (e. g. Austria, Germany). An other possibility is to use 50% of an 
annual depreciation charge regard less of when the asset is ac quired (e. g. Italy) or to 
create a special rate for the first year, which can lead to approximately the same result of 50% (Czech Republic). An accrual basis (1/12 for each month) could also 
be a solution for the first year. This approach  is applied by several MS in case of tax 
year longer or shorter than  12 calendar months. For consistency a similar rule should 
be adopted for the year when the asset is al ienated or sold (a full charge, 50% of the 
normal amount or the accrual basis). 
21. If a depreciable asset is sold or otherw ise alienated, the difference between the sale 
price and the tax residual value (acquisition value minus  depreciation applied) is 
subject to corporate income taxation or capital gains taxation. The various methods 
used in MS will be analysed when the taxation of capital gains discussed. Roll over 
relief is granted for some kinds of as set especially if re placed by a new one. 
22. Some MS allow companies to interrupt depreciation under certain conditions (Czech 
Republic, Lithuania, Latvia) thus allowing taxpayers to optimize their tax base for 
example to facilitate the utilization of allo wances and credits that cannot be carried 
forward to following years. This sort of approach illustrates how in some MS the 
underlying purpose of tax depreciation is su btly different from that of accounting 
depreciation. In accounting the accent is  on correctly matching expenses and 
revenues in accordance with the judgement of  the enterprise, whereas in taxation 
there is less flexibility over the maximum amount of depreciation in any given year, 
                                                
 
130 IAS 16 Para 41. and 44. 
 
EN 146   EN but more flexibility as regards the mi nimum amount. However, most MS do make 
depreciation compulsory in both profit a nd loss tax years (Belgium, Cyprus, France, 
Germany, Greece, Luxemburg, and Netherlands) and some MS actually impose a sanction on taxpayers who do not claim de preciation charges properly (France).  
VII. Methods and mechanics
 
23. A variety of depreciation methods can be used to allocate the depreciable amount of 
an asset on a systematic basis over its usef ul life. Accounting ru les do not prescribe 
exact methods for the depreciation of partic ular assets. The depreciation method used 
should reflect the pattern in which the asse t's economic benefits are consumed by the 
enterprise127. The choice of the actual method is however  a matter of judgement in 
the application of the esta blished accounting principles. 
24. As already mentioned in previous sections  the level of judgement to be applied is 
much lower in the tax area. Tax depreciati on rules tend to be much more specific. 
They fix a compulsory method in most cases . If a taxpayer believes that the statutory 
method does not reflect the actual situation a special scheme may be granted by tax 
authorities or approved by the court in some  MS. It is sometimes possible to apply 
for an increase in the statutory (maximum statutory) depreciation charge in cases of 
more intensive use of an asset than is normal in the sector of activity or in case of 
extraordinary wear and tear (e . g. Belgium, Italy, Spain). 
25. Some MS fix just maximum depreciation ch arges and the taxpayer is allowed to use 
any rate within the range between zero and the maximum rate. Such a measure 
makes the system very flexible, but as ou tlined above is sensitive to tax planning 
techniques. 
26. Assets may be depreciated on an individual or pool basis. The latter approach allows 
the addition of the depreciable bases of all assets and the calculation of the depreciation charge as an  overall figure. Some MS recognise only one group of 
assets (pool) covering essentia lly all depreciable assets (e . g. any plant, machinery or 
equipment), others categorise the assets in  several groups (pools) and apply different 
rates to each of them. A significant numbe r of MS (e. g. Belgium, Germany, Italy, 
Spain) require companies to depreciate (and record) each asset separately on an 
individual basis. The calculation of the depreciation charge on the pool basis is 
simpler than if it has to be calculated separa tely for each particular asset. However in 
case of sale or alienation of an asset a speci al rule for the calcul ation of the residual 
value of the sold or alienated asset is needed under the pool method. On the other 
hand the individual method of depreciation gi ves residual values of any asset at any 
time during the course of depreciation. A di fferent regime for the taxation of any 
capital gains earned on the sale of an asset or the recapture of 'excessive' tax depreciation may follow from the application of these two methods. 
27. Straight line or declinin g balance methods are two of the most common methods for 
the calculation of a deprecia tion charge. Under the straight  line method the useful life 
of an asset (or pool of assets) is fixed at  a certain number of years. The acquisition 
value (the depreciable basis) is spread out acco rdingly; usually at a flat rate (i. e. the 
same amount is deducted every year at a ra te of 1/number of years). There exists an 
accelerated variation of the st raight line method, under which the asset is depreciated 
at higher rates at the beginning of the asset' s useful life. The base for the calculation 
 
EN 147   EN of the depreciation charge is the acquisiti on price of the asset in all depreciation 
years. 
28. Under the declining balance method rates are usually higher th an those used for 
straight line, but they apply to the ac quisition value only in the first year of 
depreciation and in the following years they apply to the residual value of the asset. 
The asset is depreciated more quickly at the beginning of its useful life than under 
straight line method but its acquisition value is theoretic ally never expensed up to 
100%. The declining balance method may be modified to a double declining balance 
method, when the basis for de preciation for every following year is calculated as the 
residual value minus double the annual depr eciation charge. Another modification of 
the double declining method is also some times applied which is more a hybrid 
method combining features of  both straight line and decl ining balance methods. It 
also derives the depreciation base from the residual value of the asset, but calculates 
the annual charges in a way that allows  the taxpayer to de duct 100% of the 
acquisition costs by the end of  useful life of the asset131. 
29. In respect to the combination of pool/indi vidual depreciation w ith straight line or 
declining balance methods, it is worth noti ng that the use of th e declining balance 
method and its variations if assets are depreciated on an individual basis may become 
cumbersome and potentially inefficient, espe cially in the later stages of an asset's 
useful life. The basis for depreciation (tax residual value) of each asset becomes very 
low as do the depreciation charges while indi vidual records of each asset have to be 
kept. If the individual concept of depreciati on of assets is applied, a straight line 
method (with or without accelerated rate sc hemes) seems to be more appropriate. 
30. The declining balance method may be also  used as an optional method or as a 
method reserved only for some types of a ssets. However practices applied in MS 
differ rather widely. Some MS do not recognize the declining balance method 
whatsoever and the straight  line basis is the only method for the depreciation of 
assets (e. g. Austria). 
31. Other methods such as the depletion met hod are applicable in certain sectors ( eg 
natural resources) but are not considered in any de tail in this paper. 
32. If two or more methods are allowed to be used in respect of th e same kind of asset, 
rules determining when a taxpayer is allo wed to change depreciation method are 
necessary. Some MS make any change conditional upon meeting certain conditions; 
others prohibit any change in method at all once a choice has been made. 
33. The differences in the rates currently applicab le to different kinds of assets in MS are 
rarely very large. As discu ssed above MS in principle set rates for different types of 
assets primarily according to the length of an asset's useful life. However the number 
of different rates and the nu mber of different categories of assets for depreciation 
purposes vary considerably among MS. 
                                                 
131 If a useful life of an asset is e. g. fixed as 4 years, the first year depreciation charge is  acquisition 
value/4 , and the following years' charges are calculated as a double residual value/(5 minus number of 
years in which the asset has already been depreciated) . 
 
EN 148   EN 34. All MS distinguish between movable (e. g. plant, machinery, equipment) and 
immovable (e. g. buildings) assets for the purpose of tax depreci ation. Depreciation 
rates for immovables range between 1% and 20%, while the most frequent range is 2 
– 5%. Different rates for diffe rent types of buildings (offi ce, residential) are often 
applicable.  
35. The remaining tangible assets  are further categorised into  several groups (up to five, 
or occasionally practically on an individual asset basis) by MS, or the same treatment 
is applicable to all of them (pooled). It would be difficult and a little bit misleading to 
generalize in respect of the applicable rates in this area, since many specific rates are given for a number of assets in some MS.  
36. To be deductible for tax purposes, the amounts depreciated must be recorded 
transparently by the company. Wh ether the tax depreciation charges are registered as 
adjustments to a company's accounting depreciation plan (when they are different), taken to be equal to the accounting depreciation or deduc ted separately after the 
accounting depreciation charges have been added back to the company's accounting 
profit depends on the degree of 'dependency'  between the financial accounts and the 
tax accounts, which varies across the EU. 
37. A common approach to tax depreciation implies a common approach to dependency 
of the tax treatment on acc ounting: either dependency is  weakened to permit the 
common depreciation rules, or the accounting rules are amended to permit depreciation in line with the common tax depreciation rules. Wh ere there is little 
dependency, i. e. the linkage s between the financial acc ounts and the tax accounts are 
not very strong, changing from existing na tional rules on tax depreciation to a 
common approach to tax depreciation has little impact on fi nancial accounting. 
However, where links are strong, this ch ange has implications for the financial 
accounts. If national tax depr eciation rules are changed to a newly defined common 
approach, national accounting rules woul d have to be ame nded accordingly. 
Although the treatment of  assets and tax depreciation is an obvious example of how 
the issue of tax and accounting dependency n eeds to be resolved, the same question 
arises with other structural elements such as provisions. 
VIII. General solutions
 
38. The CCCTB aims to provide MS with a complete solution for the tax depreciation of 
assets and should not in principle be subj ect to any modifications made by national 
laws. Ideally the system would replace up to 25 different tax depreciation schemes 
with one. 
39. Tax depreciation rules curren tly applicable in MS are often similar in essential 
principles, but different in details, especially  in respect of the categorisation of assets 
for tax purposes and the various schemes a pplicable to them. The reasoning behind 
some aspects of the 25 systems have been developing over many years. These national systems are an important starting po int for an EU-wide scheme, but all these 
different elements cannot simply be combin ed together without some changes. In 
order to reach consensus pa rticipating members will have to be open to new 
innovative solutions seeking an accurate, simple, transparent and neutral scheme 
which reflects economic reality and measur es the profit of companies on a relatively 
 
EN 149   EN objective base, even if such solutions lead to a change in the traditional methods in 
some MS. 
40. In order to create a complete and functional set of rules it will be necessary to agree 
and elaborate on the following issues. In order to progress it is suggested that 
solutions for the general rules should be examined in the first instance. 
 
EN 150   EN General rule      Specific rule 
 
 A DETERMINATION
 OF ASSETS   
QUALIFYING  FOR  TAX  DEPRECIATION  
● Expenses 
● Non depreciable assets 
● Assets of minor value 
 
 
B DETERMINATION  OF DEPRECIABLE  BASE  
● Acquisition for non monetary payment 
● Second-hand property 
●Subsequent expenditure treatment 
 
 C WHO
 IS ELIGIBLE  TO CLAIM  TAX   
DEPRECIATION  CHARGES 
●'Economic' (beneficial) ownership e. g. 
financial lease ● Purchase with the clause reserving 
ownership 
● Subsequent expenditu re on rented asset 
● Legal successor 
 
 D TIMING
 OF TAX  DEPRECIATION  
● First year, last year (if an asset sold) rule 
● Tax year longer or shorter than 12 months 
 
 
E MECHANICS  OF TAX  DEPRECIATION  
● Methods 
● Rates 
 
 F SALE
 OF THE  ASSET,  TAX  VALUE  
 
 
G RELATION  BETWEEN  ACCOUNTING   
AND  TAX  DEPRECIATION  (DEPENDENCY ) 
  H RECORDING
 OF DEPRECIATION  
 
 
EN 151   EN  
A. DETERMINATION OF ASSETS QUAL IFYING FOR TAX DEPRECIATION 
41. The accounting solution creates a good starti ng point as it is accepted in most MS. 
Assets with a limited useful life recognised in the ba lance sheet of a company should 
in principle be depreciate d for tax purposes. As the aim of CCCTB is to measure 
business profits of companies it is advisable to ensure that only the costs of assets 
used for business purposes will affect th e tax base. A business purpose test should 
therefore be added. 
► Do members agree that only assets acquire d and used for business purposes shall be 
depreciable for tax purposes? 
B. DETERMINATION OF DEPRECIABLE BASIS 
42. Historical, acquisition or pr oduction costs seem to be the most appropriate basis for 
tax depreciation. For the determination of th e actual costs the simplest solution seems 
to be to follow the accounting one.  
► Do members of the group think that more  specific guidance should be given on what 
costs should be/should not be included in the acquisition price or could the 
accounting rules be accepted as a general basis? 
C. WHO IS ELIGIBLE TO CLAI M TAX DEPRECIATION CHARGES 
43. A 'legal owner' rule is the simpler, but the more formalistic solution. The "economic 
owner" approach better refl ects the real relation between  the asset and business in 
which it is used. On the other hand it require s the creation of a set of rules to define 
and identify the economic owner. Special ru les for the depreciati on of the asset by 
the beneficial owner would be in line with the principle substance over form132; on 
the other hand depreciation by the legal owne r is more in line with the simplicity133 
principle. 
44. A legal successor should be allowed to  continue depreciation commenced by his 
predecessor. Companies are mainly affected in the case of reorganisations (e. g. mergers, acquisitions). The determination of situations when depreciation is not to be 
recaptured even if the owner of the asset has changed could be done in line with the 
'Merger' Directive on the common system of taxation applicable to mergers, 
divisions, transfers of assets and excha nges of shares concerning companies of 
different Member States. 
► Would members agree that only the legal ow ner shall be in principle entitled to 
depreciate an asset? Will it be necessa ry to adopt exceptions to this rule? 
D. TIMING OF TAX DEPRECIATION 
                                                
 
132 Commission Working Document on General Tax Principles, Para 26, CCCTB/WP/001. 
133 Commission Working Document on General Tax Principles, Para 17, CCCTB/WP/001. 
 
EN 152   EN 45. The recognition of the acquisition costs of an asset for tax purposes should primarily 
relate to the actual useful life of the asset. This principle as applied in accounting is further developed by the company itself for each particular asset. Tax systems traditionally tend to decrease the elemen t of permissible judgement and provide 
taxpayers with fixed rules for different ca tegories of assets. This approach closely 
corresponds with the principle of certainty a nd effectiveness. The difficulty is to find 
the best balance between simplicity and accuracy.  
46. Different schemes for movable and immova ble assets will prob ably be necessary. 
Any further differentiation within each of the two groups should however be 
thoroughly considered and justified in orde r to avoid unnecessary complications and 
conflicts with the simplicity and transparency principles. 
47. Tax depreciation charges should be clai med on an annual basis. Tax depreciation 
should probably be compulsory in bot h profit and loss years, although it is 
recognised that flexibility here is linked in some cases to loss ca rry-forward rules and 
the treatment of foreign tax credits. 
48. Rules for the first year, the year in which an asset is sold or alienated and for tax 
years longer or shorter than 12 months are needed. Any of the cu rrently applicable 
solutions (full depreciation charge or 50% or  combination of the two) could be used. 
This is an example of where there does not se em to be a particular point of principle 
involved or a best practice identified, in which case the solution that members can 
agree on most easily is probabl y the most appropriate one. 
► Would members of the group like to comme nt on this issue and proposed solutions? 
E. MECHANICS OF TAX DEPRECIATION 
49. Various methods and rates are currently a pplicable in MS and it is not possible to 
combine them all together. It will be n ecessary to establish a common approach 
agreed by all participating MS. As a starting point for a common solution 
depreciation of immovable property (bu ildings) on an individual basis under the 
straight line method and for movable prope rty (plant, machinery, equipment) on a 
pool basis under the declining balance me thod could be envisaged. Movable assets 
could be divided into three categories a ccording to their usef ul life (e. g. 4, 8 and 
12.5 years). The choice of different methods fo r the same type of asset should not be 
possible as it seems to create unnecessary  complications and requires additional 
considerations concerning whether or not companies can 'change their mind' etc. 
Depreciation rates could be fixed to correspond with the length of the estimated 
useful life of each category of assets (i . e. in the above example 25%, 12,5% and 
8%).  
► The above example solution illustrates the so rt of framework that  could be applied. 
Do members have any comments on such an approach or do they have other 
suggestions? 
► Could members of the group comment on what elements of the framework are 
particularly important for them and wh at sort of framework they might find 
acceptable? 
 
EN 153   EN F. SALE OF ASSET, TAX VALUE 
50. This issue should be analysed in line with  the solutions for any capital gains taxation; 
therefore it will be discussed in more detail later. 
G. RELATION BETWEEN ACCOUNT ING AND TAX DEPRECIATION 
51. To the extent that the rules for accounting depreciation charges differ across the EU 
accounting depreciation char ges should be tax non deductible. It would permit to 
introduce a common EU-wide se t of rules for calculating tax depreciation charges 
(see also H below). 
► Could members of the group agree with this approach? 
H. RECORDING OF TAX DEPRECIATION 
52. The amounts depreciated for tax purposes shall be reco rded transparently by the 
company. Tax depreciation charges may be  registered as adjustments of the 
accounting depreciation plan or accounting depreciation ch arges may be added back 
to company's accounting profit and tax depr eciation charges deducted afterwards and 
registered separately.  
► Do members of the group have a prefer ence for any of above mentioned solutions? 
GENERAL QUESTIONS:  
► Do members believe that all of the issues important for tax depreciation are identified 
in this document? Do memb ers wish to add anything? 
► Do members think that some of specific issues should be dele gated to a subgroup in 
order to elaborate on them in more detail? 
 
EN 154   EN Annex 1 - Draft summary tables of main tax depreciation ru les for fixed assets in Memb er States – after revision 
Method, rate IAS/ 
Member 
state Non 
depreciable 
assets Immediate 
write off Right to 
depreciate Base 
Movable 
(machinery) Immovable 
(buildings) Intangibles Irregularities 
IAS Land134  Subject to 
materiality. 
 
An asset 
not 
expected 
to be used 
for more 
than one 
period 
(useful life 
of < 1 year 
= write off) Essentially 
ownership 
test. 
 
The lessee 
under 
certain 
conditions.
135  Historic cost, 
unless the 
alternative 
treatment of 
revaluation 
applied Depreciation to be 
allocated on a 
systematic basis 
over asset's useful 
life136  
 
The useful life is a 
matter of 
judgement.137  
 
Range of methods 
e. g. straight line, 
declining balance 
etc. The choice of 
method to be 
based on expected 
pattern of economic 
benefits arising 
from the asset.138 As for machinery See IAS 38 Rules on impairment of 
assets139 
                                                 
134 IAS 16 Para 45  
135 The lessee should recognise finance leases as assets and liabili ties in his balance sheet at amounts equal at the inception of  the lease to the fair valu e of the leased property 
or, if lower, at the present value of the minimum lease payments – IAS 17  
136 IAS 16 Para 41  
137 IAS 16 Para 44  
138 IAS 16 Para 45  
 
EN 155   EN AT Land 
 
(Participations 
of +20%)  Assets 
below EUR 
400 per 
item Essentially 
the legal 
owner, the 
lessee only if 
qualifies as 
a beneficial 
owner. 
 
Special rules 
for economic 
(beneficial) 
ownership. Historical, 
acquisition 
or 
production 
costs. Straight line 
method 
 
10% - 20% 
 
Special write off for 
obsolesce Straight line method 
 
3% buildings serving 
the business of a 
company; 
 
2.5% buildings 
serving the business 
of a bank or 
insurance company 
 
2% other buildings.  Same rules as for 
movable property, if 
intangible asset 
depreciable 
 
Goodwill 15 years Personal cars minimum 
8 years. 
 
Historic renovation of 
buildings up to 10%. 
 
Natural resources 
subject to exhaustion (in 
case of mines quarries)  
according to actual 
proportional depletion of 
the asset 
 
Land only if the fair 
market value has gone 
permanently below the 
acquisition cost. 
BE Land 
 
Other fixed 
assets that 
have an 
unlimited Possible 
only for 
indirectly 
attributable 
costs of 
production 
and for 
costs Essentially 
the legal 
owner, in 
case of 
“lease and 
similar 
rights”, the 
lessee Historical, 
acquisition, 
production 
or 
contribution 
costs. Machinery: straigth 
line Method or 
declining balance 
method (excluding 
cars and assets 
used by lessee) - 
10 – 33¨% - 
Declining balance Straight line method 
or declining balance 
method (excluding 
assets used by 
lessee) Straight-line only 
According to 
expected use  
minimum 5 years (3 
years for R&D) Exceptional depreciation 
for extraordinary 
technical wear and tear 
and for economic loss of 
value due to natural 
calamities 
                                                                                                                                                                                                                                                    
139 IAS 36  
 
EN 156   EN useful life (e.g. 
some works of 
art) related to 
the 
creation of 
a company is a double rate of 
straight line with a 
maximum of 40% 
of the historical 
cost.  
Accelerated 
depreciation schemes140 
and investment 
allowances as incentive 
measures 
 
Cars: only 75% of the 
cost price on straight 
line only 
 
CZ Land 
 
Works of art Tangibles 
below CZK 
40,000 
(EUR 
1,300) per 
item 
 
Intangibles 
below CZK 
60,000 
(EUR 
1,880) per 
item Legal owner 
(lessor) in all 
cases 
 Historical, 
acquisition 
or 
production 
costs. Straight-line 
method or straight 
line method with an 
accelerated rate 
plan. 
 
Individual basis. 
 
4 – 20 years 
according to the 
type of an asset141 Straight-line method 
 
30 – 50 years142 Straight-line 
16.66% Cars depreciable only 
up to CZK 900,000 
(EUR 30,000) 
 
Special schemes for 
reconstruction of 
historical buildings. 
                                                                                                                                                                                                                                                    
140 Special schemes for ships, plant and machinery used for scientif ic research, real property purchased, demolished and rebuilt fo r bank premise, works of art, such as statues, 
frescos, etc., made by residents of Belgium and incorporated in a building, the costs related to the creation of a company. Acc elerated depreciation means depreciation which 
does not represent, either in economic or fiscal sense, a reasonable spreading out of  costs or provision for an extraordinary l oss in value; can not exceed 100% of the 
depreciable base.  
141 Fixed assets are divided into five groups with maximum depreciat ion periods of 4, 6, 12, 20, 30, 50. The fifth and the sixth gr oup includes buildings only, some items in the 
forth group refer to immovable as well.  
 
EN 157   EN CY Land 
 
(Goodwill) Computer 
application 
software 
costing up 
to £1.000. 
Expenditur
e on 
Scientific 
Research 
of non-
capital 
nature Legal owner. 
 
The lessee 
may qualify 
under 
certain 
circumstanc
es (e.g. in 
the case of 
finance 
leases the 
lessee).143 Historical, 
acquisition 
or 
production 
costs.144 Straight - line 
method applying 
various rates 
ranging from10% 
το 25% according 
to the type of plant 
& machinery.  
 
In the case of ships 
straight - line 
method applying 
various rates ranging from 4.5% 
to12.5%. Straight-line method 
 
25/33 years
145 Patents, Patent 
Rights and Rights 
on Intellectual 
property, are 
depreciated in a 
reasonable manner 
(to the satisfaction 
of the Director of 
the Inland 
Revenue) over the 
economic life of 
such Patents or Rights. Expenditure on 
Scientific Research 
146 
 
Motor Vehicles that can 
be classified as private  
Motor Vehicles (in accordance with the 
legislation for Motor Vehicles) are not  tax 
depreciable.  
 
A special scheme 
applies for the depletion 
of natural mineral 
resources.  
 
Fixed assets transferred 
under reorganization are 
depreciated in the same 
manner as if the 
reorganization did not 
take place. 
                                                                                                                                                                                                                                                    
142 30 years residential buildings, 50 years administrative buildings.  
143 In the case of rented immovable property where the te nant incurs the cost of erection of the building, both  the landlord and the tenant have t he right claim tax depreciation.  
144 In the case of second hand buildings  tax depreciation can be claimed on the residual value of the asset (cost minus the tax depreciation given) over the remaining tax life of 
the building from date of erection. Second hand ships  over the remaining useful economic life in accordance with  the certificate from the shipping authority. Additional 
capital expenditure on ships  is depreciated over the remaining useful economic life of the ship. 
145 25 years for industrial or hotel buildings, 33 years for any other building  
146 Expenditure on Scientific Research on Plant, Machinery and Buildings including em ployees’ dwellings are depreciated using the rates stated under the method rate above 
for Movable Machinery and Immovable Buildings. Any other Expenditure  on Scientific Research of a capital nature is depreciated over 6 (six) years on a straight - line 
method. 
 
EN 158   EN DE Real  
Property 
 Participating
 
Interests  
 Financial
 
Assets  Movable, 
independe
ntly usable economic 
goods up 
to  
€ 410 
(without 
VAT) Economic  
Owner Historical 
Acquisition 
or  
Construction 
Costs Straight-line, 
declining balance, 
or sum-of-the-units
 
depreciation. 
 
Individual 
valuation. 
 
Depreciation over 
the useful life (tax 
depreciation tables)  Straight-line 
depreciation 
2% - 3%   
 
Declining balance  
depreciation for 
certain buildings used 
for residential 
purposes. Straight-line 
depreciation over 
the useful life. Good will over 15 
years. 
 Unplanned depreciation 
to be taken for 
economic goods (without limitation
) for 
which there is a 
probable  lasting 
reduction in value. 
 
Deductions for 
extraordinary technical 
or economic wear and 
tear are allowed. 
 
Special depreciation 
allowed in principle 
only in addition to 
straight-line or sum-of-the-units tax 
depreciation. 
Exception: special 
depreciation for SMEs 
(§ 7g Income Tax Law) 
is also possible in 
addition to declining 
balance tax 
depreciation.  
 
Deduction for depletion 
in regard to minerals. 
 
EN 159   EN  
DK Land 
 
Housing 
property and 
hospitals 
 
 Assets 
below DKK 
11,000 per 
item. 
 
Assets with 
useful life 
not longer 
than 3 
years. Legal owner 
(lessor) 
 
A lessee 
may qualify 
and opt to 
depreciate 
an asset 
under 
certain 
conditions  Historical, 
acquisition 
or 
production 
costs. Declining balance 
method. 
 
Pool basis 
 
max 25 %  
(detailed rules for 
different types of 
assets) Straight –line method 
 
5  Straight-line  
14,3%  Computer software 
may be written off 
immediately 
 
R&D plant, machinery 
and equipment may be 
written off immediately 
 
EE147 = IAS 
EL  Assets 
below EUR 
600 per 
item. Legal owner, 
(lessor) in all 
cases 
 Acquisition 
or 
production 
costs or 
value after 
reappraisal.
148 Straight line 
method or declining 
balance method 
according to the 
type of an asset. 
 
2 – 40% 
 Straight line method 
 
5 - 8% 
 
up to 12% for 
temporary 
constructions Straight line,  
Patents 5% 
Trademarks 10% 
goodwill 5 years Research and 
development costs may 
be written off in the year 
when they incurred. 
 
Computer hardware and 
software may be written 
off in the year when 
acquired under certain 
conditions 
 
                                                 
147 Business profits are not taxable under traditional concept in Estonia. The depreciation scheme does not have a direct impact o n the taxable base for corporate income tax 
purposes . 
148 Since 1992 companies are required to revalue fixed assets every four years. The capital gain arising from revaluation is subje ct to a special tax.  
 
EN 160   EN Special schemes for 
taxpayers benefiting 
from tax incentives. 
ES Land No 
minimum  Legal owner 
(lessor)  
 
A lessee 
may qualify 
under 
certain 
conditions 
(e. g. 
financial 
lease) Acquisition 
or 
production 
costs Straight line 
declining balance  
5 -12% Straight line 1 -3% Straight line over 
useful life 
10% - increased charges for 
very intensively used 
assets 
FI Land 
 
(Securities 
Participations) Assets with 
useful life 
not longer 
than 3 
years. 
 
Assets 
below EUR 
850 per item. 
 
The total 
value of 
assets so 
expensed 
may not 
exceed 
EUR 2,500 Legal owner 
(lessor) Historical, 
acquisition 
or 
production 
costs. Declining balance 
method  
 
Pool basis 
 
Taxpayer may 
choose any 
depreciation 
percentage between 0% and 
25% annually 
 Declining balance 
method 
 
Residential and 
administrative 
buildings 4% 
 
Commercial and 
industrial buildings 7% 
 
Light construction and 
building used for 
research 20% Straight line 10 
years 
Goodwill may be 
expensed directly if 
the probable period 
of use does not 
exceed 3 years Natural resources 
depletion methods 
 
Land only if decrease in 
value is substantial and 
justified by taxpayer 
 
Accelerated scheme 
available for SMEs in respect of investment in 
most of the northern and 
eastern Finland from 
1998 – 2003 (increase 
by 50% for the first three 
years) 
 
 
EN 161   EN per tax 
year. Special scheme for cars 
and some boats.149 
 
Investment allowances 
for shipping companies. 
FR Land Assets 
below EUR 
500 per 
item 
(excluding 
VAT). Legal owner 
(lessor) in all 
cases Historical, 
acquisition 
or 
production 
costs. Straight line 
method 
 
Declining method 
for specified 
assets.  
 
Depreciable basis 
spread over asset's 
useful life 
(Generally 
accepted rates 
range between 2 
and 25% according 
to the type of the 
asset, under 
declining balance 
method 1, 5 – 2, 5 
multiple of the Straight line method 
 
Depreciable basis 
spread over asset's 
useful life (2 -5% 
generally accepted) 
 Straight line, 
spread over its 
useful life (if the 
asset depreciable) Exceptional depreciation 
in the form of an initial 
deduction of 100% 
available for software, 
energy-saving 
equipment and 
equipment for 
preventing pollution, 
noise reduction and 
certain medical research 
equipment. 
 
Start up costs special 
scheme. 
 
Accelerated schemes 
for subscriptions to the 
capital of approved film 
and audio-visual finance 
companies or finance 
                                                 
149 The acquisition value of automobiles which are used for business purposes, such as buses and taxis, may be depreciated by apply ing the following maximum depreciation 
rates to the acquisition value over 5 successive years: 25%, 20% , 20%, 15% and 15%. If this depreciation method is used instead  of the main depreciation rule, the profit on 
the sale or other transfer of assets at pric es in excess of the net book value is deem ed to be taxable income in the year of th e sale or transfer. The acquisition value of 
pleasure boats (i.e. boats not directly used in business) is deprec iable over a 10-year period at the minimum by applying the s traight-line depreciation method. Hence, the 
maximum annual rate of depreciation for pleasure boats is 10%. It should, however, be noted that if the boat has initially been  purchased for entertainment purposes, only 
50% of the original purchase price is deductible.  
 
EN 162   EN straight line rates). innovation companies 
and for industrial and 
commercial buildings 
constructed in certain 
economically depressed 
regions 
 
Cars only up to EUR 
18,300 
 
Special rules for real 
estate leasing 
HU Land 
 
Forests 
 
Investments 
not put in use Assets 
below HUF 
50,000 
(EUR 200) 
per item. Legal owner 
 
A lessee 
may qualify 
under 
certain 
conditions 
(e. g. 
financial 
lease). Acquisition 
or 
production 
costs.  Straight-line 
method 
 
14, 5%, 33% and 
50% according to 
type of the asset150 Straight-line method 
 
2% - 6% according to 
durability of building 
and construction 
material (brick, stone, 
steel, light metal, rig 
timber, etc.) 
151 No specific tax 
rules, according to 
useful life of the 
asset 
 
Goodwill minimum 
of 5 years Value of land can be 
written down only if the 
fair market value has 
gone permanently below 
the acquisition cost 
 
Tangible assets with an 
acquisition or production 
cost not exceeding HUF 
200,000 (EUR 810) per 
                                                 
150 The rate of 14.5% is general, the following assets may be depr eciated according to accounting rules or, optionally, at a rate of 33%: 
- control engineering (automation) and gener al purpose computer technology products and equipment; industrial robots; solar pan els; protective devices against noise; office 
equipment; machinery used for environmental protection; and progr amme-controlled machines in general, gauging and testing equip ment.  
Alternatively, a 50% depreciation rate may be applied to:  
- general computer technology equipment; tangible assets newl y acquired or produced in 2003 or 2004 and normally subject to dep reciation at 14.5% or 33%; intellectual 
property or the capitalized value of experimental development ac quired or created in 2003 or 2004; and machines and equipment u sed exclusively for film or video 
production.  
A rate of 20% applies to motor vehicles. For leased plants reco rded between the lessor's assets, the accelerated tax depreciati on rate is 5% and for such machinery and 
equipment, 30%.  
 
EN 163   EN  
Works of art, 
etc. item may be depreciated 
according to the 
accounting rules 
IE  Under 
scrutiny Person who 
bears the 
burden of 
wear and 
tear of the 
asset, 
Essentially 
the owner, 
exceptionally 
the lessee. Historical, 
acquisition 
or 
production 
costs. Straight line 
method 
 
Pool basis 
 
7 years (first six 
years 15% the 
seventh year 10%) 
 
motor vehicles 20% Straight line method  
 
- industrial buildings 
4% 
 
- certain buildings 
over 7 years  
 Patents over their 
residual life max 17 
years. 
 
Software over 7 
years. Special scheme for tax 
incentive scheme areas 
 
 
IT Land Assets 
below EUR 
520152. Legal owner 
(lessor) 
 
Person 
carrying the 
business in 
case of 
usufruct or 
rent ed 
enterprise Historical, 
acquisition 
or 
production 
costs. Straight line 
method 
 
10% - 40% 
according to the 
type of an asset. 
 Straight line method 
 
3% - 5% according to 
the sector of activity. Trademarks 10% 
Patents 33,3% 
Goodwill (except 
that created by 
company itself) 
10% More intensive use may 
justify higher 
depreciation charges. 
                                                                                                                                                                                                                                                    
151 Special rates apply to agricultural constructions (3%, 5% and 10%), railway constructions (4% and 7%), bridges (4%), power lin es, oil and water pipelines (4%, 6% and 8%) 
and waste storage (20%). For leased buildings accounted for as t he lessor's assets, the accelerated tax depreciation rate is 5% . 
152 EUR 516,46  
 
EN 164   EN (lessee, 
holder of 
usufruct) 
LT   Legal owner 
(lessor) in all 
cases. Historical 
acquisition 
or 
production 
cost. Straight line 
method or declining 
balance method  
 
3 – 15 years 
according to the 
type of an asset. Straight line method  
 
Declining-balance 
method may be used 
when certain 
conditions are met. 
 
8 – 20 years 
according to the type. Straight line 15%  
LU Land 
Works of art 
Financial 
assets. Assets 
- with 
useful life 
not 
exceeding 
1 year 
or 
- not 
exceeding 
EUR 870 
(excluding Economic 
owner153. Historical 
acquisition 
or 
production 
cost. Straight line 
method or declining 
balance154 method 
if statutory 
conditions met. 
 
Useful life 
(3 % - 40 %) 
according to the Straight line method 
 
1,5 % - 3 % office 
buildings. 
 
4 % - 5 % industrial 
buildings. 
 Straight line 
method. 
 
Useful life. With the approval of the 
tax authorities, 
depreciation on the 
basis of asset utilization 
may be applied in the 
case of assets the 
annual use of which 
fluctuates widely. 
 
Extraordinary 
depreciation is permitted if justified by excessive 
                                                 
153 For tax purposes, assets are attributed to the economic owner, ev en if he is not the legal owner.  The economic owner of an ass et is in general the person who bears the 
economic risk and has the economic benefit of the asset (i.e. fi nancial lease). In all cases, the economic owner is entitled to  the depreciation.  
154 The declining-balance method may be used only for certain tangible assets (not buildings) provided the owner is also the effec tive user of the assets. Under the declining-
balance method, a fixed percentage of the book  value is depreciated each year. The declining-balance method rate may not exceed  three times the rate applicable under the 
straight-line method, nor 30 %. Consequentl y, if the straight-line depreciation rate is 15 %, the maximum rate under the declin ing-balance method will be 30 %. However, for 
assets used in research, the rate may not exceed four times the rate applicable under the st raight line method, nor 40 %.  
 
EN 165   EN VAT). 
In the latter 
case, the 
owner 
must be 
the 
effective 
user of the 
asset. type of an asset. 6 % rented flats 
(during a fixed period 
of 6 years following 
completion). wear and tear (technical 
as well as economic). 
 
Non depreciable assets 
can be written down 
only if the fair market 
value has gone 
permanently below the 
acquisition cost. 
Natural resources, 
mines, etc. : depletion 
method. 
Special depreciation for 
investments tending to 
the protection of the 
environment, the 
realization of energy 
savings and the creation 
of employment for 
handicapped workers. 
 
LU Land 
Works of art 
Financial Assets 
- with 
useful life 
not Economic 
owner155. Historical 
acquisition 
or 
production 
cost. Straight line 
method or declining 
balance156 method 
if statutory 
conditions met. Straight line method 
 
1,5 % - 3 % office Straight line 
method. 
 With the approval of the 
tax authorities, 
depreciation on the 
basis of asset utilization 
may be applied in the 
case of assets the 
                                                 
155 For tax purposes, assets are attributed to the economic owner, ev en if he is not the legal owner.  The economic owner of an ass et is in general the person who bears the 
economic risk and has the economic benefit of the asset (i.e. fi nancial lease). In all cases, the economic owner is entitled to  the depreciation.  
156 The declining-balance method may be used only for certain tangible assets (not buildings) provided the owner is also the effec tive user of the assets. Under the declining-
balance method, a fixed percentage of the book  value is depreciated each year. The declining-balance method rate may not exceed  three times the rate applicable under the 
straight-line method, nor 30 %. Consequentl y, if the straight-line depreciation rate is 15 %, the maximum rate under the declin ing-balance method will be 30 %. However, for 
assets used in research, the rate may not exceed four times the rate applicable under the st raight line method, nor 40 %.  
 
EN 166   EN assets. exceeding 
1 year 
or 
- not 
exceeding 
EUR 870 
(excluding 
VAT). 
In the latter 
case, the 
owner 
must be the 
effective 
user of the 
asset.  
Useful life 
(3 % - 40 %) 
according to the 
type of an asset. buildings. 
 
4 % - 5 % industrial 
buildings. 
 
6 % rented flats 
(during a fixed period 
of 6 years following 
completion). Useful life. annual use of which 
fluctuates widely. 
 
Extraordinary 
depreciation is permitted 
if justified by excessive 
wear and tear (technical 
as well as economic). 
 
Non depreciable assets 
can be written down 
only if the fair market value has gone 
permanently below the 
acquisition cost. 
Natural resources, 
mines, etc. : depletion 
method. 
Special depreciation for 
investments tending to 
the protection of the 
environment, the 
realization of energy 
savings and the creation 
of employment for 
handicapped workers. 
 
LV Land, works of 
art and 
antiques, 
jewellery  Legal owner. 
A lessee 
in cases of  Historical 
acquisition 
or Declining balance 
Method 
 Declining balance 
method 
 Straight line 
 
 Research and 
development costs 
100% in the year when 
 
EN 167   EN financial 
leasing 
 production 
cost. 
 15% - 70% 
depending on the 
type of asset 
(assets are divided 
into five 
depreciation 
categories, for most 
of 
them depreciation 
calculated on 
a pool basis) 
 Individual basis 
 
10% 
  
Patents, licences, 
trademarks 20% 
 
Concessions 10% 
 incurred 
 
MT  Under 
scrutiny  Acquisition 
or 
production 
costs. Straight-line 
method 
 
6,6 – 25% Straight-line method 
 
2% straight-line 
8% 
 
 Industrial buildings and 
structures, initial 
deduction of 10% 
allowable in the first 
year in addition to the 
annual deduction 
 
Depreciable amount in 
case of motor vehicles 
limited to MTL 3,000 
(EUR 7,000) if not 
commercial vehicles 
 
 
EN 168   EN Accelerated scheme for 
R&D 
NL Land 
 
(Participations 
 
Securities) Assets 
below EUR 
450. Economic 
owner, i.e. e. 
person 
bearing the 
risk ob wear 
and tear of 
the asset. Historical 
acquisition 
or 
production 
cost. Declining balance 
method 
 
- Machinery and 
equipment 10% - 
20% 
 
- Computer 
equipment 25% - 
33% 
 
- Trucks 30% Straight line method 
 
2 – 4% Straight line, 
declining balance 
provided the 
method is in 
accordance with 
sound business 
practice 
Rate depends on 
useful life of the 
asset, patents and 
concessions 20%) Accelerated 
depreciation allowed for 
certain assets 
(environmentally friendly 
investments) 
 
Depreciation on the 
basis of asset's usage 
for assets with great 
variety in annual use 
 
Random depreciation as 
a tax incentive 157 
 
PL 1) land and 
the right to 
perpetual 
usufruct of 
land; 
2) buildings, 
accommodatio
ns, 
constructions 
and devices 
treated as Assets 
below 
3.500 PLN 
(ca. 850 
EUR) Legal owner 
 
A lessee 
may qualify 
under 
certain 
conditions (e. g. 
financial Acquisition 
or 
production 
costs. Straight-line 
method 
 
7-30% Straight-line method 
 
1,5/2,5/4, 5/10/14/20% straight-line 
20 – 50% 
 
Development costs 
3 years Statutory option to 
apply: 
1) declining balance 
method, 
2) increase or decrease 
the rates contained in 
statutory list of depreciation rates, 
                                                 
157 "Random" depreciation means that the taxpayer can choose between depreciation from 0% to 100% in order to equalize the tax bur den over various years. It is even possible 
to entirely stop depreciation if this is favorable for the taxpayer's tax position. Unlike normal depreciation, random deprecia tion is even possible before the moment of utilizing 
the asset although not from a higher amount than was actually paid on the asset.  
 
EN 169   EN cooperative 
housing 
resources or 
resources 
used for social 
and 
educational 
activity 
conducted by 
housing 
cooperatives; 
3) works of art 
and museum 
exhibits; 
4) value of the 
firm if it is the 
result of a 
different 
process than 
purchase or 
acceptance 
for use for 
consideration 
(leasing); 
5) component 
assets which 
are not used 
due to 
cessation of 
the economic 
activity in 
which such 
assets were 
used. lease) 3) individual 
determination of 
depreciation rates  
 
 
EN 170   EN PT Land158 
 
Tourism boats 
and 
airplanes159  
 
Some 
intangible 
assets Assets 
below EUR 
200. Legal owner 
(lessor),  
 
A lessee 
under 
certain 
conditions 
(e. g. 
financial 
lease) Acquisition 
or 
production 
cost or a 
regularised 
net value 
when 
revaluation 
legally 
authorized. Straight line 
method or declining 
balance method160  
 
Individual basis161 
 
12,5%162 Straight-line method 
 
Individual basis 
 
2% office buildings 
 
5% industrial 
buildings Straight line 
method 
3 
3,3% software 
rest over useful life 
(or time of 
exclusive use) if 
depreciable 
 
The light passenger 
vehicles are 
depreciable only up to the acquisition 
value of € 
29.927,87 
 
  
SE Land Machinery 
or 
equipment 
with useful Legal owner 
(lessor).  
 Historical, 
acquisition 
or 
production Straight line 
method or declining 
balance method. Straight line  
 The same rules as 
the ones for 
machinery Enterprise can show 
that the market value of 
the assets is lower than 
the residual value of the 
                                                 
158 In case of buildings 25% of their value is deemed to be land.  
159 Except when used for public trans portation or operational leasing.  
160 Declining balance method is only allowed to newly acquired mo vable assets and is not applicable neither to light vehicle passe ngers (except when used in public transport or 
rented) nor to furniture.  
161 Assets of the precisely same type (except light passenger vehi cles), to which the same method applies and which were acquired in the same date should be depreciated 
together.  
162 The depreciation rate of 12,5% applies to non-specified machiner y, but specific depreciation ra tes are established which depen d on the type of asset and the activity branch 
in which it is used.  
 
EN 171   EN life less 
than 3 
years or 
below SEK 
5,000 (VAT 
exclusive)
163.  costs.  
Pool basis 
 
30% declining 
balance or 20% 
straight line. 
25% declining 
balance if the 
taxable 
depreciations differ 
from the ones in 
the accounts. Individual basis 
 
2-5% asset (after 
depreciation) and claim 
excess depreciation164.  
SI Land and 
other 
natural 
wealth, 
assets of 
cultural, 
historical or 
artistic 
importance, 
lower 
construction 
of railways, 
roads, 
airports etc., 
assets that 
are 
permanently 
out of use 
and other  
Tangible 
fixed asset 
whose useful 
life is longer 
than one 
year and 
whose 
individual 
historical cost 
does not 
exceed the 
tolar 
equivalent of 
500 EUR is 
recognised 
as expense 
at the time of Legal owner; 
 
lessee in the 
case of 
financial 
leasing. Acquisition 
or 
production 
costs. 
 Straight-line method 
 
25% 
Exceptions: 
– cars: 12,5% 
– computers and 
computer 
equiptment: 50%  Straight-line method 
 
5% Straight-line 
method 
 
10%  
                                                                                                                                                                                                                                                    
163 Higher limit up to SEK 20,000 per item may be permitted for large co mpanies. The amount may not be material in relation to the  company’s result or financial position.  
164 Value for tax purposes does not exceed the highest acceptable value under Swedish accounting standards.  
 
EN 172   EN assets that 
can be used 
for unlimited 
period of 
time. the transfer 
into use. 
SI  Under 
scrutiny Legal owner 
(lessor) Acquisition 
or 
production 
costs. Straight-line 
method 
 
25% Straight-line method 
 
5% straight-line 
20%  
SK Land 
 
Works of art Assets 
below SKK 
20,000 
(EUR 500). Legal owner 
(lessor) in all 
cases. Acquisition 
or 
production 
costs. Straight line 
method or declining 
balance method 
 
Individual basis 
 
6 -16,6% Straight line method 
 
Individual basis 
 
3,3 – 5% Straight-line 
method 
 
20% 
  
UK Land and 
most non-
industrial 
buildings 
   
Very short 
life assets Legal owner 
(lessor) 
under 
scrutiny. 
 
In case of 
industrial 
buildings 
person with 
the relevant 
interest. Acquisition 
or 
production 
costs. 
 
Relief on 
buildings is 
limited, 
viewing 
successive 
owners of 
the building 
together, to Declining balance 
method 
 
Pool basis  
 
25% 
 
6% (on assets with 
expected life of 25 Straight line method 
 
Individual basis 
 
4% 
 
Relief for buildings is 
limited to industrial 
buildings, certain Accountancy 
treatment subject to 
option for 4% 
straight-line. Various first-year 
allowances. 
 
Special scheme for 
assets used for mineral 
extraction. 
 
Capping of write-down 
allowances on most 
business cars at £3000 
 
EN 173   EN the original 
cost of its 
construction. years plus) hotels, commercial 
buildings in enterprise 
zones and agricultural 
buildings. a year. 
 
 
EN 174   EN Literature references 
Agundez-Garcia, A., 2006. “The Delineation and Apportionment of an EU Consolidated Tax 
Base for Multi-Jurisdictional Corporate Income Taxation: A Review of Issues and Options”, 
European Commission Directorate-General, Taxation and Customs Union, Working Paper 
No. 9/2006. 
Bettendorf, L. and A. Van der Horst, 2006. Documentation of CO RTAX, CPB Memorandum 
No. 161.  
Cincera, M. and O. Galgau, 2005. "Impact of market entry and exit on EU productivity and 
growth performance", European Economy, Economic Papers 222.  
de Mooij, R.A. and S. Ederveen, 2008. "Corpor ate tax elasticities: a reader's guide to 
empirical findings," Oxford Review  of Economic Policy, 24(4), 680-697. 
Devereux, M. P., Lockwood, B. and M. Redoano, 2008. "Do countries compete over 
corporate tax rates?," Journal of Public Economics , 92(5-6), 1210-1235. 
Devereux, M.P. and R. Griffith, 2003. "Evalu ating Tax Policy for Location Decisions," 
International Tax and Public Finance , Springer, vol. 10(2), 107-26.  
Devereux, M.P. and S. Loretz, 2008. "Increased efficiency through consolidation and formula 
apportionment in the European Union?," Worki ng Papers 0812, Oxford University Centre for 
Business Taxation. 
Devereux, M.P., Griffith R, and A. Kle mm, 2002. "Corporate income tax reforms and 
international tax competition", Economic Policy , vol. 17(35), 449-495. 
Dischinger, M., 2007. "Profit Shif iting by Multinationals: Indire ct Evidence from European 
Micro Data", Working Paper, University of Munich.  
Driffield, N. and Girma, S., 2003.  "Regional foreign direct investment and wage spillovers: 
plant level evidence from the UK electronics industry", Oxford Bulletin of Economics and 
Statistics , 65, 453-474.  
Ernst & Young, Global Transfer Pricing Surveys , various years.  
Ernst &Young, 2010. European Attractiveness Survey.  European Commission, 2004. " European Tax Survey ", Taxation Papers, Working Paper 
3/2004.  
European Commission, Taxation Trends in the European Union , various years.  
Eurostat, Features of Interna tional Sourcing in Europe in 2001-2006, Statistics in focus, 
73/2009.  
Eurostat, International Sourcing in Eu rope , Statistics in focus, 04/2009.  
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EN 175   EN Feliciano, Z. and Lipsey, R.E., 1999. "Foreign ownership and wages in the United States 
1987-1992", NBER Working Paper  6923.  
Fuest C, Hemmelgarn T. and F. Ramb, 2007. "H ow would the introduc tion of an EU-wide 
formula apportionment affect the distribution and size of the corporate tax base? An analysis 
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605-626.  
Haufler, A. and G. Schjelderup, 2000. "Corpo rate Tax Systems and Cross Country Profit 
Shifting", Oxford Economic Papers , Oxford University Press, vol. 52(2), 306-325.  
Hellerstein W. , 2005. "Income Allocation in the 21st century: The End of Transfer Pricing? 
The Case for Formulary Apportionment", International Transfer Pricing Journal , Vol. 3. 
Klassen, K. and D. Shackelford, 1998. "State an d provincial corporate tax planning: income 
shifting and sales apportionme nt factor management", Journal of Accounting and Economics , 
25, 385-406. 
Lang M., Obermair C., Schuch J., Star inger C. and P. Weninger, 2008. “ Tax Compliance 
Costs for Companies in an Enlarged European Union ” – Linde Verlag Wien, Vienna. 
Navaretti, B.G. and Venables, A., 2004. Multinationals in the World Economy , Princeton 
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OECD, 2001. "Product and labour market interactions in OECD countries", Economics 
Department Working Paper No. 312.   
OECD, 2009. Taxes and economic growth, Economics Department Working Paper No. 620.  
PricewaterhouseCoopers LLP, Total Tax Contribution Survey , various years. 
PricewaterhouseCoopers, Annual Global CEO Survey, various years.  PricewaterhouseCoopers, Total Tax Cont ributions Survey, various years.  
Sørensen, P.B., 2007. "Can capital income ta xes survive? And should they?", CESifo 
Economic Studies, 53(2), 172-228.  
 
EN 176   EN List of abbreviations and technical terms  
CCCTB Common Consolidated Corporate Tax Base  
CCTB Common Corporate Tax Base  CGE Computable General Equilibrium FA Formulary Apportionment  LSE Large-sized enterprise  MNC Multinational Corporation MNE Multinational Enterprise PE Permanent Establishment  PTA Principal Tax Authority  SA Separate Accounting  SME Small and medium-sized enterprise