EN Official Journal of the European Union C 71/42

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament and the Council — A fair and efficient corporate tax system in the European Union: five key areas for action’

(COM(2015) 302 final)

(2016/C 071/07)

Rapporteur: Mr Petru Sorin DANDEA Co-rapporteur: Mr Paulo BARROS VALE

On 6 July 2015, the European Commission decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, on the:

Communication from the Commission to the European Parliament and the Council — A fair and efficient corporate tax system in the European Union: five key areas for action

(COM(2015) 302 final).

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee’s work on the subject, adopted its opinion on 26 November 2015.

At its 512th plenary session, held on 9 and 10 December 2015 (meeting of 9 December), the European Economic and Social Committee adopted the following opinion by 169 votes to 15 with 8 abstentions.

1. Conclusions and recommendations

1.1. Combating aggressive tax planning has been one of the key concerns of Member States and the Commission in recent years. The action plan for implementing a fair and efficient corporate tax system presented by the European Commission is an important step towards reducing this damaging phenomenon. The EESC welcomes the publication of the plan and expresses its support for the Commission in combating this practice which erodes Member States’ tax bases and promotes unfair competition.

1.2. As previously stated (1), the EESC endorses the introduction of a compulsory CCCTB for transnational companies. An optional CCCTB would be less effective because companies engaged in profit shifting in order to reduce taxes will refuse to adopt the CCCTB.

1.3. The EESC recommends that the Member States and the Commission consider extending the CCCTB in the future to all companies, to avoid operating two different tax bases. Before extending the CCCTB to all companies, a thorough impact assessment should be carried out, particularly with regard to the impact of this system on micro and small businesses operating locally.

1.4. The EESC recommends that, when drafting the proposal, the Commission pay attention to the clarity of the definitions and concepts that are to govern the common base. The clarity of these definitions will be pivotal as regards the quality of the transposition process and preventing major discrepancies between the Member States, which could significantly reduce the effectiveness of the legislation.

1.5. The EESC considers that the mechanism for cross-border loss relief, which the Commission wishes to introduce until consolidation is adopted, should not affect the right of a Member State to tax the profits resulting from an activity carried out on its territory.

1.6. The EESC is pleased that in the appendix to the communication, the Commission has published a list of non-cooperative tax jurisdictions. The Committee reiterates the proposal it made in previous opinions, that EU rules should include sanctions for companies that continue to run their business through tax havens and thereby avoid having to pay tax within the tax systems of the Member States in which they operate.

1.7. The EESC recommends that, following the adoption of the CCCTB directive and the introduction of consolidation, the Commission carry out an impact assessment of the new rules. Should this assessment show that there has been no decrease in profit shifting to Member States with lower tax rates, the EESC proposes that targeted complementary measures be adopted.

1.8. The EESC recommends to the Commission that in the context of reviewing the mandate of the Platform for Tax Good Governance, it also consider including among its members representatives of the European social partners. They could make an important contribution to the work of the platform.

2. The Commission proposal

2.1. On 17 June 2015, the European Commission presented a communication (2) setting out an action plan for implementing a fair and efficient corporate tax system in the European Union. The action plan follows on from the tax transparency package presented by the European Commission in March, which included a proposal for a directive on the mandatory automatic exchange of information on advance tax rulings.

2.2. The plan sets out the following four objectives aimed at fostering a new approach to corporate taxation in the EU: re-establishing the link between taxation and where economic activity takes place; ensuring that Member States can correctly value corporate activity; creating a competitive and growth-friendly corporate tax environment for the EU; and protecting the single market and securing a strong EU approach to external corporate tax issues, including measures to implement the OECD BEPS project.

2.3. The action plan outlines a series of measures to help meet the objectives. These are as follows: implementing a common consolidated corporate tax base (CCCTB); ensuring effective taxation where profits are generated; introducing additional measures for a better tax environment for business; making further progress on tax transparency; and making better use of EU tools for coordination on tax matters.

2.4. The Commission also wishes to address the issue of the tax breaks granted by Member States for patents. The Commission is aiming to ensure that these preferential tax regimes do not create distortions in the internal market and will provide guidance to Member States as regards the new approach. Should the Commission find that Member States are not applying this new approach consistently, it will prepare binding legislative measures.

2.5. The Commission is continuing to work with its international partners here and stresses the importance of the implementation of the OECD BEPS action plan, which is aimed at fostering a level playing field for the taxation of multinational corporations, including in developing countries.

3. General comments

3.1. The Commission’s plan seeks to combat the damaging phenomenon of profit shifting used by businesses with cross-border activities which transfer profits to States or jurisdictions with very low or non-existent tax rates, eroding Member States’ tax bases and causing them to increase other taxes and thus increase the tax burden for compliant taxpayers (individuals or SMEs). The Committee welcomes the publication of the plan and expresses its support for the Commission in combating this practice.

3.2. The Commission’s main proposal in this plan is the implementation of a mandatory CCCTB. The proposal for a directive presented by the Commission in 2011 proposed an optional CCCTB. At that time, the EESC issued an opinion containing a number of substantive proposals on the CCCTB (3), which it still stands by today.

3.3. The Commission considers that the CCCTB should be compulsory because transnational companies engaged in aggressive tax planning will avoid adopting the CCCTB if it is optional. The EESC agrees with making the CCCTB mandatory and recommends that the Commission assess whether the CCCTB should be applied in the future to all companies so that Member States would not have to operate two different tax bases.

3.4. Taking account of consultations with the Member States, the Commission is proposing that the initial focus be on introducing the common tax base, with consolidation envisaged at a later stage. Given that aggressive tax planning is seriously affecting competition in the single market and leading to a significant loss of revenue for the Member States, the EESC recommends speeding up the timetable for implementation.

3.5. The proposal for a directive is to be published next year. The EESC recommends that, when drafting the proposal, the Commission pay attention to the clarity of the definitions and concepts that are to govern the common base. The clarity of these definitions will be pivotal as regards the quality of the transposition process and preventing major discrepancies between the Member States, which could significantly reduce the effectiveness of the legislation.

3.6. The Commission is planning to include a mechanism for cross-border loss relief in its proposal for a directive, to be in place until consolidation is introduced at a later stage. As consolidation is the chief economic advantage of the CCCTB, it should really have been introduced from the outset. Given the difficulties involved in securing a political agreement on this point, however, the EESC endorses the proposed mechanism. Bearing in mind the demands from the European Parliament and the Member States for profits to be taxed where they are generated, the EESC feels that this mechanism should not unduly affect the right of a Member State to tax the profits resulting from an activity carried out on its territory.

3.7. The Commission’s analysis shows that some companies with cross-border activities are shifting profits to Member States with a lower rate of taxation. This practice is encouraged by current corporate legislation (4). The EESC believes that should companies continue this practice in the single market even after the introduction of consolidation, appropriate legal measures should also be introduced.

4. Specific comments

4.1. The aggressive tax planning carried out by businesses with cross-border activities costs Member State budgets hundreds of billions in losses each year. The EESC agrees with the implementation of the CCCTB, and believes that this should become a general standard for corporate taxation in the EU. This would simplify the tax system for companies and prevent Member States having to apply the CCCTB to companies with cross-border activities and a different system to other companies.

4.2. The EESC recommends that, following the adoption of the CCCTB directive and the introduction of consolidation, the Commission carry out an impact assessment of the new rules. Should this assessment show that there has been no decrease in profit shifting to Member States with lower tax rates, the EESC proposes that targeted legal measures also be adopted that discourage companies with cross-border activities from continuing to engage in profit shifting to Member States with lower tax rates.

4.3. The Commission proposes better regulating the corporate concept of ‘permanent establishment’. The EESC believes that only by taxing the profits resulting from an activity carried out within a Member State can the possibility be ruled out that, in certain situations, companies can artificially avoid having a taxable presence. Adopting the OECD BEPS plan could significantly reduce the cases in which businesses can avoid corporate tax on the grounds of current EU legislation.

4.4. Consolidation is the operation through which the profits and losses of a company can be aggregated for the whole EU territory. The EESC recognises that, once adopted, this will constitute the main element of the CCCTB for combating the complex transfer pricing practices engaged in by companies with cross-border operations within the EU in order to reduce the tax they pay. However, the EESC recommends that the Commission factor in protecting the right of a Member State to tax the profits resulting from an activity carried out on its territory.

4.5. The Commission communication includes an appendix containing a list of non-cooperative tax jurisdictions. The Committee sees this as only a first step in the fight against uncooperative tax jurisdictions, which are generally referred to as tax havens. It reiterates the proposal it made in previous opinions (5), that EU rules should include sanctions for companies that continue to run their business through tax havens and thereby avoid having to pay tax within the tax systems of the Member States in which they operate.

4.6. The Commission recognises the important role played by the various groups, which have ensured cooperation with the Member States on tax matters. The two main groups here are the Code of Conduct for Business Taxation Group and the Platform on Tax Good Governance. The EESC recommends that the Commission and the Member States assess the possibility of incorporating the provisions of the code into EU legislation — so that they become binding.

4.7. The EESC recommends to the Commission that in the context of reviewing the mandate of the Platform for Tax Good Governance, in addition to prolonging its mandate beyond 2016, it also considers including among its members representatives of the European social partners. They could make an important contribution to the work of the platform.

4.8. The Committee recommends that the Commission and the Member States continue to address the issue of simplifying and harmonising the existing legal framework at both EU and national levels. This would help boost investment at European level, laying the foundations for sustainable growth and job creation.

Brussels, 9 December 2015. The President of the European Economic and Social Committee Georges DASSIS

(1) EESC Opinion on Coordination of direct taxation (OJ C 10, 15.1.2008, p. 113), EESC Opinion on the Creation of a common consolidated corporate tax base in the EU (OJ C 88, 11.4.2006, p. 48).

(2) A fair and efficient corporate tax system in the European Union: five key areas for action, COM(2015) 302 final.

(3) Common Consolidated Corporate Tax Base (CCCTB) (OJ C 24, 28.1.2012, p. 63).

(4) The Parent-Subsidiary Directive (Council Directive 2011/96/EU of 30 November 2011) and the Interest and Royalties Directive (Council Directive 2003/49/EC of 3 June 2003).

(5) EESC Opinion on The fight against tax fraud and tax evasion (OJ C 198, 10.7.2013, p. 34), EESC Own-initiative Opinion on The Community method for a democratic and social EMU (OJ C 13, 15.1.2016, p. 33).