EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 16.3.2011 
SEC(2011) 316 final 
. 
COMMISSION STAFF WORKING PAPER 
SUMMARY OF THE 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) 315 final}  
EN 3   EN 1. P ROBLEM DEFINITION  
Globalisation has reshaped the economic la ndscape. Not only the geography of production, 
but also the internal organizati on of firms operating in interna tional markets has dramatically 
changed. The framework of stead ily progressing market integration changes radically when it 
comes to corporate taxation. With 27 different tax systems that co-exist and often clash, the 
EU market remains indeed highly fragmented. This situation places the EU at a significant 
disadvantage vis-à-vis  its major trading partners, the Un ited States and Japan, each being 
perceived as one single market by businesses. 
Firms currently operate through schemes structur ed to accommodate increased mobility of 
capital and frequent cross-borde r transactions between associat ed companies. Consequently, 
concepts defined for tax purposes, such as source  and residence, traditionally used to address 
the needs of relatively closed ec onomies, often prove inappropriate  to tackle the challenges of 
commercial activity within an integrated market. Specifically, the coexistence of 
heterogeneous, frequently changing tax rules re presents an obstacle for businesses competing 
in international markets. Further, national ta x systems become increasingly vulnerable to tax 
avoidance schemes. In fact, income shifting and treaty shopping are natu rally facilitated in a 
context of high mobility of productive factors.  
Against this background, a numbe r of tax obstacles remain fo r companies with cross-border 
operations in the EU, namely:  
I. Additional compliance costs, which arise from compliance with different national tax 
systems and with transfer pricing rules. According to evidence reported in the Company Tax Study published by the Comm ission in 2001, tax related compliance 
costs are in the range of 2-4% of the corpor ate income tax revenues. In the context of 
the EU27, this could be translated into an  average figure of more than €10 billion for 
2008. 
II. Double taxation , which takes place when comparable taxes are imposed on the same 
income in two or more states.  
III. Over-taxation , which occurs when cross-border activities create tax liabilities that 
would not occur in a purely domestic contex t (e.g. associated companies of different 
Member States or their permanent establis hments are not entitled to share losses, 
whereas loss consolidation for companies established only in one Member State reduces their taxable profits and tax burden).  
2. A
NALYSIS OF SUBSIDIARITY  
The current framework with 27 different natio nal corporate tax systems impedes the proper 
functioning of the Internal market. Member Stat es cannot provide a comp rehensive solution to 
this problem. Non-coordinated action – pl anned and implemented by each Member State 
individually – would replicate th e current situation, as taxpayers would still need to deal with 
as many administrations as the number of jurisdictions in which they are liable to tax. Community action is necessary in view of establishing a juridical framework with common rules. The Commission has taken the initiativ e having in mind that, under the principle of 
EN 4   EN subsidiarity, Member States retain sovereignty in  setting their corporate tax rates. Therefore, 
they are free to determine the desired size and the composition of their tax revenues.  
3. OBJECTIVES OF EU INITIATIVE  
The specific policy objectives of the EU initiative  are to eliminate the remaining tax obstacles 
in the Internal market outlined above, that  is additional complia nce costs related to 
international activity, as well as instances of double taxation and over-ta xation. As a result, a 
general objective of improving econo mic efficiency in the alloca tion of productive capital in 
the EU could be attained by m eans of reduced tax distortions to investment decisions and 
increased opportunities for cross- border investments. As such, the envisaged improvement in 
the simplicity and efficiency of the corporate income tax system in the EU can significantly 
contribute to achieving the objectives of the EU2020 strategy, and to strengthening the 
Internal market, in line with  the initiatives advocated in the Single Market Act.  
The operational objective is to es tablish a common set of rules to calculate the taxable base 
for the relevant companies in the EU.  
It should be stressed that the effects on the si ze and the distribution of corporate taxable bases 
across the EU are not an intende d aim of the policy initiative per se . No objectives are 
therefore defined in terms of revenue dist ribution or revenue neutrality for MS.  
4. P OLICY OPTIONS  
The report considers four main policy scenarios,  which are compared wi th the "no action" or 
status-quo scenario (option 1):  
• The adoption of an optional Common Corporate Tax Base (CCTB), i.e. the replacement, 
for the relevant companies, of the 27 diffe rent company tax code s by a common tax base, 
calculated using a single se t of rules (option 2).  
• The compulsory  introduction of a Common Corporate Tax Base  (CCTB) for all EU-based-
companies (option 3). 
• Under an optional Common Consolidated Corporate Tax Base  (CCCTB) companies could 
opt for a common (eg, calculated using a single set of tax rules) EU-wide consolidated tax 
base that would replace the current 27 diffe rent company tax codes and the separate 
accounting mechanism (option 4).  
• The same rules would be obligatory for all EU-based companies under a compulsory 
Common Consolidated Tax Base  (CCCTB)  (option 5).  
Under all possible options, common rules would be  established only for the calculation of the 
tax bases, whereas Member States would be le ft with fiscal sovere ignty in deciding the 
applicable tax rates.  
EN 5   EN 5. A SSESSMENT OF IMPACTS  
5.1. Impact on the size and on th e distribution of the tax base 
The policy options entail changes in the size  and the cross-country distribution of the 
corporate tax bases that is worth quantif ying, although such effect s are not objectives per se  
of the tax reforms under analysis . Importantly, no general conc lusions should be drawn on the 
final effect on revenues or on the budgetary position of the different MS, as these will ultimately depend on national policy choices with regard to possible adaptations of the mix of different tax instruments or applied tax rates. 
The findings indicate that the introduction of the common tax base provisions unrelated to 
cross-border loss consolidati on (CCTB) could lead on average and for most EU-based 
companies to broader tax bases than the current ones. However, the magnitude of this increase 
seems to depend essentially on the depreciation  rules applied. In any case, the common tax 
base would reduce the current s ubstantial variation in tax ba ses across European countries. 
The CCCTB provisions would allow for cross- border consolidation of  profits and losses
. 
Calculations on a sample of EU multinatio nal groups based on the Amadeus and ORBIS 
databases show that, on average every year a pproximately 50% of non-financial and 17% of 
financial multinational groups in the respective samples could benefit from immediate cross-border loss compensation. Weighting the separate results for the differe nt sectors indicates 
that on average for the groups involved the ta xable base under the CCCTB scenario would be 
around 3% lower than in the status-quo scenario
1.  
Under the CCCTB, the question arises on how th e overall tax base should be divided among 
the Member States in which the multinational group operates, and thus requires the definition of ad hoc apportionment mechanisms. Using data  from financial accounts to proxy for taxable 
profits of multinational groups shows that the fo rmula with employee costs, assets and sales 
by destination equally weighted would lead to increases in the bases mostly in the MS in 
Central and Eastern Europe, as well as in Germany, Spain, Fr ance, Greece and Italy. Survey 
results indicate that changing th e weighting of the apportionment factors has little effect on 
the relative distribution of th e tax base between countries.  
5.2. Impact on compliance costs  
According to survey evidence, the main cor porate compliance cost drivers for multinational 
enterprises are directly or indirectly relate d to transfer pricing tasks (transfer pricing 
documentation, clearances and rulings and mutu al agreement procedures). Moreover, the 
compliance burden due to transfer pricing has been  increasing over time, mainly as a result of 
two factors: (i) more demanding documenta tion requirements from tax authorities 
accompanied by tax authority reviews; (ii) adjust ments and changes of th e type and scope of 
business operations around the world
2.  
                                                 
1 Overall, in the sample used, the combined eff ect of the new tax base provisions unrelated to 
consolidation (which tend to broaden the tax base) and the introduction of immediate cross-border loss consolidation (which tend to shrink it) realised in  the CCCTB scenarios tends to keep the aggregate tax 
bases roughly constant compared to the cu rrent ones (for the companies concerned). 
2 Ernst & Young Transfer Pricing Survey . 
EN 6   EN According to a study commissioned to Deloitte , the CCCTB is expected to translate into 
substantial savings in compliance time and outlays in the case of a multinational setting up a new subsidiary in a different Me mber State. On average, the tax experts participating in the 
study estimated that a large enterprise spends over €140,000 (0.23% of turnover) in tax 
related expenditure to open a new subsidiary in another MS. The CCCTB will reduce these costs by €87,000 or 62%. The savings for a me dium sized enterprise are even more 
significant, as costs are expected to drop from €128,000 (0.55% of turnover) to €42,000 or a 
decrease of 67%. Additional evidence gathered from a sample of existing European multinationals (PWC study) point s to more moderate but stil l significant reduction in the 
compliance burden for recurring tax related task s. The savings expected from the introduction 
of the CCCTB would amount to 8 percenta ge points of the compliance time.  
5.3. Economy wide impacts  
The CGE model CORTAX is used to assess the economy-wide impacts of the different 
reforms. The model, conceived to simulate ta x policy changes for the EU Member States, has 
been extended and refined for the purpose of this impact assessment
3. However, like any 
general equilibrium model, CORTAX includes simplifying assumptions and specifications 
that are not undisputed, and cannot take away th e uncertainty about the strength of certain 
behavioural effects of tax po licies. More importantly, CORT AX does not capture the long run 
dynamic gains from further integration in the Inte rnal Market, e.g. in terms of an increase in 
the number of internationally active firms. The removal of cross-border tax barriers is 
expected to translate into reduced distortions in  the allocation of capital, as it will increase the 
substitutability between domes tic and cross-border investment, on the one hand, and enhance 
the attractiveness of the EU as whole for multinational investors, on the other. The increased allocative efficiency is expected to translate into productivity and employment gains, stemming also from the economies of scale that  can be exploited in the larger market.  
The four different policy options – optional CCTB, compulsory CCTB, optional CCCTB and 
compulsory CCCTB – are compared to the status quo scenario. In the optional  scenarios it is 
assumed that all multinationals, but no domestic companies, opt for the alternative tax systems, whereas in the compulsory scenario al so domestic companies need to apply the new 
tax provisions. This assumption might lead to an underestimation of the welfare gains in the 
optional scenarios as it can be expected that in practice multinational firms would opt in the 
new system only if that would not lead to lowe r net profits than dealing with the different 
national tax systems. In all scenarios it is assumed that corporate tax revenues are kept 
constant ex-ante adapting the tax rate, so that the government budget is balanced before 
companies react to the new policy environment. 
The important economic mechanisms in the CGE analysis of the CCTB is the trade-off 
between a low effective marginal tax rate (result of a narrow base and high  statutory tax rate), 
which minimises distortions in investment, a nd a low statutory corpor ate tax rate (coupled 
with a broad base), which reduces multinational profit shifting to outside locations and improves the attractiveness of a location in the case of discrete investment choices. Base-
                                                
 
3 The extensions concern the inclusion of (i) tax havens , to capture the opportunity for profit shifting 
outside the EU, (ii) loss probabilities , to precisely quantify the economic effects of loss consolidation, 
and (iii) discrete location choices , to model the infra-marginal choices of firms on where  to invest, 
preliminary to the decision on how much  to invest. 
EN 7   EN broadening implied by the new definition of the co mmon tax base -, and the consequent rate 
reduction are found to decrease aggregate welfare in the EU4.  
On the other hand, the main positive effect of  the CCTB reform stems from the assumed 
reduction in compliance costs. All in all, a co mpulsory CCTB leaves welfare at a European 
level nearly constant while the introduction of a CCTB optional for multinationals renders 
slight welfare gains. 
Compared to the CCTB, the welfare effects of the CCCTB options are more favourable under 
any of the analysed scenarios. The overall final impact is a small net positive welfare gain of around 0.02% of GDP in aggregated terms for th e EU, which amount to roughly € 2.4 billion 
(2009 figure). Disentangling the effects of the di fferent elements of the reforms shows that:  
• The lion's share of the positive economic impact of consolidation and formula 
apportionment is due to lower compliance costs. 
• The move from separate accounting to formula apportionment exerts a negligible effect on 
GDP and welfare. It is the result of different offsetting effects: fewer incentives to shift 
profits and capital from high tax countries, but  additional distortions in the allocation of 
formula factors to low tax economies.  
• Loss consolidation tends to shrink the tax ba ses. Hence, given the model assumptions, 
certain increase in corporate tax rates may be required to balance the government budget. 
The combination of a lower tax burden via loss  consolidation and a hi gher tax burden due 
to higher rates may raise overall the cost of capital. Accordingl y, investment slightly falls 
but employment expands due to lower labour costs. On balance, GDP slightly falls, 
whereas the net effect on welfare is negligible. 
6. C
OMPARISON OF OPTIONS  
The removal of all the three types of identifie d corporate tax obstacles – possible under the 
CCCTB policy options – would allow business to make sounder economic choices thus 
improving overall economic efficiency in the EU. On the basis of the quantified economic 
impacts, the optional CCCTB and the compulso ry CCCTB are preferred to the alternative 
options given the savings in compliance costs they can generate. However, the 
macroeconomic evidence points to the optional CCCTB as the overall preferred policy option 
of the scenarios analysed.  
The reforms under analysis are potentially associated  with important dynamic effects in the 
long run. The reduction in uncertainty and in the costs (actual and pe rceived) that firms 
operating in multiple jurisdictions incur is the main channel through which these effects are 
expected to materialize. Ultimately, this will translate into increased cross border investment 
                                                 
4 In the model a policy of base-broadening cum rate-reduction results in welfare gains when applied 
separately by individual countries, and particularly by  high-tax countries that su ffer from profit shifting. 
However, a generalized implementation of such policy at the European level reduces the beneficial 
effects of lower corporate tax rates. In fact, the comparative location advantage of a country does not 
improve if all other Member States reduce their tax rate too. Only location choices vis-à-vis  third 
countries will be affected. On balance, a multilateral policy of base broadening and rate reduction is 
therefore less likely to be welfare improving than a unilateral policy. 
EN 8   EN within the EU, stemming both from further expa nsion of European and foreign multinationals 
and from de novo investment of purely domestic fi rms into other Member States. By the same 
token, to the extent that the current fragment ed landscape of corporate tax systems acts as a 
barrier to entry into international markets, sm all and medium sized enterprises (SMEs) might 
be particularly advantaged by the level play ing field created by the reforms under analysis. 
The elimination of additional compliance costs a ssociated with having to deal with different 
tax rules and the introduction of the 'one-stop shop' principle in tax administration is likely to 
enhance SMEs' capacity to expand cross-border.  
7. M ONITORING AND EVALUATION  
The proposed policy intervention will exert effect s 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 be haviour across national borders should be 
assessed. To overcome the well-known difficulties in obtaining reliable estimates of actual and perceived compliance costs, ad hoc survey s should be designed, and particular attention 
devoted to the representativeness of the select ed samples. Propensity to expand abroad by 
SMEs might be particularly revealing on the e xpected long term impacts of the policy options. 
Such effects can be gauged both by means of su rveys among the relevant companies and by 
analysing observed changes in actual investment choices.  
At the macroeconomic level, consistent wi th 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.  
The evaluation of the consequences of the app lication of the legislative measure could take 
place five years after the entry into force of  the legislative measures implementing the 
Directive. The Commission could then submit to  the European Parliament and the Council a 
report on the technical functio ning of the Directive.  
The content of such a report would vary accordi ng to the scope of the Directive as finally 
agreed in the Council.  
Table 1: Ranking of policy-o ptions (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)