Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee - Implementing the Community Lisbon Programme - Progress to date and next steps towards a Common Consolidated Corporate Tax Base (CCCTB)
Date: 2006-04-05
Institutions: European Commission
Subjects: EU programme, European tax cooperation, action programme, basis of tax assessment, corporation tax, single market, tax harmonisation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 5.4.2006 
COM(2006) 157 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Implementing the Community Lisbon Programme: 
Progress to date and next steps towards a Common Consolidated Corporate Tax Base 
(CCCTB) 

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TABLE OF CONTENTS 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN 
PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE: 
Progress to date and next steps towards a Common Consolidated Corporate Tax Base 
(CCCTB) 

1. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

Background .................................................................................................................. 3 

Progress to date ............................................................................................................ 4 

Objectives of the work in the Working Group............................................................. 4 

Organisation of the Working Group ............................................................................ 5 

Achievements in the Working Group .......................................................................... 6 

The next steps............................................................................................................... 6 

General approach ......................................................................................................... 6 

The link between international accounting standards and the tax base ....................... 7 

Consolidation ............................................................................................................... 7 

Optional versus compulsory tax base........................................................................... 8 

3.5.  Work Programme beyond 2006 ................................................................................... 8 

4. 

Conclusions .................................................................................................................. 8 

ANNEXES ............................................................................................................................... 11 

Annex 1 
Summary work programme of the CCCTB WG...................................................................... 11 

Annex 2 
Summary details of technical progress to date in the CCCTB WG ......................................... 13 

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1. 

BACKGROUND 

The  Lisbon  Strategy  is  intended  to  play  a  key  role  in  achieving  competitiveness, 
growth and jobs in the EU. Eliminating tax obstacles such as high compliance costs 
for  cross-border  operations  and  transfer  pricing  and  the  lack  of  cross-border  loss 
compensation  in  the  internal  market  can  contribute  to  these  goals.  The  Common 
Consolidated  Corporate  Tax  Base  (CCCTB)  would  significantly  reduce  the 
compliance costs of companies operating across the internal market, resolve existing 
transfer pricing problems, allow for the consolidation of profits and losses, simplify 
many international restructuring operations, reduce some of the complexities arising 
from  the  co-existence  of  the  classical  and  exemption  approaches  to  international 
taxation  (without  extending  into  the  personal  tax  field),  avoid  many  situations  of 
double  taxation  and  remove  many  discriminatory  situations  and  restrictions.  The 
CCCTB  would  contribute  to  greater  efficiency,  effectiveness,  simplicity  and 
transparency  in  company  tax  systems  and  remove  the  hiatuses  between  national 
systems.  

Since  2001,  when  the  Communication  'Towards  an  internal  market  without  tax 
obstacles: A strategy for providing companies with a consolidated corporate tax base 
for  their  EU-wide  activities'  (COM(2001)  582)  was  issued,  it  has  been  European 
Commission policy to work towards providing companies who operate in more than 
one  EU  Member  State  with  a  CCCTB.  This  policy  was  confirmed  in  2003  in  the 
Communication  'An  internal  market  without  company  tax  obstacles:  achievements, 
ongoing initiatives and remaining challenges' (COM(2003) 726). 

In  2004,  following  an  encouraging  discussion  at  the  informal  meeting  of  the 
ECOFIN  Council  in  September  under  the  Dutch  Presidency,  where  a  Commission 
Non-Paper  'A  Common  Consolidated  EU  Corporate  Tax  Base'  was  presented,  the 
Common  Consolidated  Corporate  Tax  Base  Working  Group  (CCCTB  WG)  was 
established.  

In  October  2005  in  the  Communication  'Implementation  of  the  Community  Lisbon 
Programme  –  The  contribution  of  taxation  and  customs  policies  to  the  Lisbon 
Strategy'  (COM(2005)532)  the  Commission  drew  attention  to  the  link  between  its 
work on the CCCTB and the Lisbon Programme and committed itself to the political 
objective of presenting a legislative measure in 2008.  

In  December  2005  the  European  Parliament  adopted  a  resolution1  (the  'Bersani 
Report')  on  'The  taxation  of  undertakings  in  the  European  Union:  a  common 
consolidated corporate tax base' and in  February  2006  the  European  Economic  and 
Social  Committee  issued  an  opinion2  on  the  'Creation  of  a  common  consolidated 
corporate tax base'. Both of these were supportive of the Commission's work in this 
area. 

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2 

European  Parliament  resolution  on  taxation  of  undertakings  in  the  European  Union:  a  common 
consolidated corporate tax base (2005/2121(INI)) 13 December 2005 
Opinion of the European Economic and Social Committee on the Creation of a common consolidated 
corporate tax base in the EU (Explanatory Opinion) ECO/165 14 February 2006 

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In  December  2005  the  Commission  outlined  a  method  of  addressing  some  of  the 
specific tax problems of small and medium-sized enterprises in the short term. The 
Communication  'Tackling  the  corporation  tax  obstacles  of  small  and  medium-sized 
enterprises in the Internal Market - outline of a possible Home State Taxation pilot 
scheme'  (COM(2005)  702)  contains  full  details  of  the  scheme  and  encourages 
Member States to consider this pragmatic and modest initiative in a constructive and 
open spirit. 

This  Communication  has  the  dual  purpose  of  reporting  on  progress  to  date  and  of 
drawing  attention  to  those  areas  where  further  political  support  and  direction  is 
desirable  without  seeking  commitments  from  Member  States  to  the  legislative 
proposal. 

2. 

PROGRESS TO DATE 

2.1. 

Objectives of the work in the Working Group 

In line with the Lisbon objectives and the establishment of the CCCTB WG in 2004, 
the guiding objectives of the work are: 

–  to  find  ways  to  remove  corporation  tax  obstacles  to  the  efficiency  and  smooth 

functioning of the internal market, 

–  to reduce administrative burdens on companies and tax administrations alike, and 

introduce simple and transparent rules,  

–  to identify possible elements of a common consolidated tax base which improve 
the  international  competitiveness  of  European  companies  and  which  meet  the 
economic requirements of the 21st century, and 

–  to  ensure  that  Member  States  are  able  to  preserve  their  legitimate  financial 

interests, notably by curtailing the scope for tax evasion and fraud. 

The  overall  approach  to  the  work  since  its  formation  has  been  in  line  with  that 
discussed  in  the  original  Non-Paper  which  was  presented  to  the  informal  ECOFIN 
meeting  in  September  2004  and  which  led  to  the  creation  of  the  Working  Group. 
Specifically: 

–  the purpose is not to change the current level of taxation, 

–  all Member States should be encouraged to participate in the process,  

–  International  Accounting  Standards  and  International  Financial  Reporting 

Standards (IAS/IFRS) should be used as a tool for defining the base, 

–  the  work  should  be  guided  by  an  established  set  of  tax  principles,  to  reflect  the 

Lisbon objectives. 

The  level  of  taxation  has  not,  and  will  not,  form  part  of  the  discussions  since  this 
would  involve  discussion  of  the  tax  rate  and  the  Commission  does  not  intend  to 
extend  the  work  on  the  base  to  include  the  rate.  If  the  new  base  is  broader  or 

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narrower  than  some  Member  States'  existing  tax  bases  then  the  existing  level  of 
taxation  could  be  maintained  by  Member  States  amending  their  tax  rates. 
Nevertheless,  the  Commission  will  study  from  a  qualitative  and  quantitative 
standpoint  the  possible  impact  of  the  CCCTB  on  tax  revenues  and  their 
predictability.  Participation  by  Member  States  in  the  WG  has  so  far  been 
encouraging. All Member States have participated in the WG meetings, although it is 
acknowledged  that  participation  does  not  necessarily  imply  support  for  the  concept 
of  a  CCCTB.  Nevertheless,  the  technical  input  received  from  all  experts  has  been 
appreciated and taken into account. 

2.2. 

Organisation of the Working Group 

The  CCCTB  WG  meets  quarterly,  chaired  by  an  official  from  the  Taxation  and 
Customs Union Directorate-General of the European Commission, and is composed 
principally of experts from Member State administrations, but is extended on an ad 
hoc basis to include experts from business and academia. The work of the CCCTB 
WG  is  fully  transparent  and  can  be  followed  via  a  series  of  dedicated  web  pages3 
which contain details of the WG meetings and the working documents. 

At the first meeting of the CCCTB Working Group a tentative work programme was 
agreed.  As  shown  on  the  chart  in  Annex  1,  four  main  categories  of  work  were 
identified:  

–  General issues,  

–  Structural technical elements of the tax base,  

–  Structural legal aspects, and  

–  Consolidation at group level and allocation of the tax base.  

The  first  two  categories  are  common  to  any  tax  base  –  the  relation  (if  any)  to 
financial accounts and the principles, and the structural 'building blocks' are found in 
all tax systems. The second two categories concern aspects which are not found in all 
tax bases and are therefore new to some, if not all, Member States – the legal aspects 
of  a  consolidated  base,  and  the  actual  consolidation  technique  and  allocation 
mechanism  to  share  the  base  between  the  Member  States.  The  final  items  on  the 
chart  are  self  explanatory  –  the  legislation  itself  and  the  associated  impact 
assessment. 

The  approach  taken  has  been  for  Commission  staff  to  introduce  at  each  Working 
Group  meeting  at  least  one  new  subject  for  discussion  by  preparing  a  working 
document. Depending on the complexity of the issue a sub-group of experts from a 
number  of  Member  States  may  then  be  formed  to  meet  separately  to  deepen  the 
analysis,  chaired  by  an  expert  from  a  Member  State.  The  sub-group  reports  back 
periodically to the Working Group so that all experts are kept informed of progress. 
This  working  method  allows  for  maximum  technical  input  from  Member  State 
experts. In the course of 2004 and 2005 four sub-groups were set up. 

3 

Available on the following web-page: 
http://europa.eu.int/comm/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm. 

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2.3. 

Achievements of the Working Group 

At the first meeting of the Working Group, the tax principles that should guide the 
work were discussed and these preliminary discussions have provided a framework 
for  the  ongoing  work  on  the  structural  elements.  No  sub-group  was  deemed 
necessary  but  the  tax  principles  were  re-visited  at  a  subsequent  meeting  and  are 
likely to be discussed again in future meetings.  

Regarding  the  structural  technical  elements  of  the  tax  base,  four  main  blocks  of 
issues  have  been  discussed  so  far:  (1)  Assets  and  their  depreciation,  (2)  Reserves, 
provisions and liabilities, (3) Taxable income and (4) the International aspects of the 
CCCTB. For each of these structural elements a dedicated sub-group has been set up, 
most of which have already met on several occasions.  

Each sub-group has been (or in the case of the second two sub-groups, are expected 
to  be)  able  to  identify  some  areas  of  the  structural  elements  it  is  examining  where 
there  is  likely  to  be  broad  agreement  on  how  it  should  be  taxed  or  relieved  from 
taxation.  Each  has  also  identified  areas  where  there  is  clearly  more  than  one 
possibility,  and  experts  are  currently  divided  over  which  one  is  preferable.  Early 
indications from the latest sub-group, concerning international aspects, suggest these 
issues are particularly wide-ranging as they concern relations with third countries and 
potential implications for existing bilateral double tax conventions. 

Issues specific to the CCCTB, such as the consolidation and the allocation method, 
have  not  yet  been  addressed  in  the  Working  Group  but,  because  these  are  closely 
linked to the base, the Commission considers that the Working Group should begin 
work  on  these  issues  later  this  year.  It  should  be  noted  that  although  there  may 
appear  to  be  fewer  of  these  issues  they  are  extremely  complex,  and  will  require 
significant  work,  not  least  because  they  represent  areas  beyond  the  traditional 
elements  of  a  tax  base.  The  format  of  the  CCCTB  WG  and  the  Work  Programme 
seem robust and the output will be useful to the Commission when work starts on the 
Impact Assessment and the legislative proposal itself. 

3. 

THE NEXT STEPS 

3.1. 

General approach 

It  is  often  stated  that  company  tax  bases  across  the  EU  have  become  broader  in 
recent  years  as  special  tax  incentives  have  been  reduced.  This  makes  the  tax  base 
simpler and more transparent, and hence efficient and neutral (in the sense that the 
fewer special regimes and incentives there are the more neutral the base is) and also 
allows the same amount of revenue to be raised with a lower statutory tax rate. As 
work progresses on the CCCTB it is becoming evident that the new base will work 
best  if  it  maintains  this  momentum,  i.e.  it  should  be  uniform  and  represent  an 
overall simplification and broadening of the corporate tax base. 

Overall the initial Work Programme provisionally agreed at the first Working Group 
meeting remains valid. It is the intention of the Commission that the work of the 
first  four  sub-groups  (on  Assets  and  Depreciation;  Provisions,  Reserves  and 

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Liabilities;  Taxable  Income;  and  International  Aspects)  should  be  broadly 
completed by the end of 2006.  

It is also planned to start work on three further elements in 2006: first, consolidation; 
second, the mechanism for sharing the common consolidated tax base; and third, the 
structural  and  legal  framework  which  covers  the  administrative  framework,  audit 
arrangements,  legal  interpretation  and  court  procedures.  The  work  will  take  into 
account the specific situation of small and medium-sized enterprises. 

3.2. 

The link between international accounting standards and the tax base 

Although work on the CCCTB might be more straightforward if all companies, in all 
Member  States,  were  permitted  to  use  IAS/IFRS  and  therefore  there  were  a  single 
starting point for all companies, the Commission accepts that currently this is not the 
case.  Given  the  importance  of  the  CCCTB  for  the  Lisbon  Programme,  the 
Commission cannot delay work on the CCCTB pending any future harmonisation of 
company  accounting.  Furthermore,  the  CCCTB  WG  is  a  technical  group  of  tax 
experts  and  its  role  is  limited  to  technical  tax  matters.  The  rules  governing  the 
content of the CCCTB will be applicable whether, at the national level, the starting 
point for companies preparing their tax accounts is accounts prepared in accordance 
with IAS/IFRS or national accounting standards. IAS/IFRS will therefore be used 
only  as  a  tool  in  designing  the  base  because  they  provide  a  common  language 
and  some  common  definitions.  In  particular,  elements  of  these  international 
standards which do not suit the CCCTB will not be imported into the CCCTB 
and  there  will  be  no  direct  formal  link  to  the  constantly  changing  standards 
(IAS/IFRS).  

3.3. 

Consolidation 

The  Commission,  the  European  Parliament  and  the  European  Economic  and 
Social  Committee  are  convinced  that  the  base  should  be  introduced  from  the 
beginning  as  a  consolidated  tax  base  and  accordingly,  as  outlined  in  the  original 
CCCTB  WG  work  plan,  work  will  commence  on  consolidation  during  2006. 
Although ambitious, this approach will bring the greatest benefits to the Internal 
Market  and  contribute  most  to  the  Lisbon  goals.  The  alternative  of  a  two-stage 
process, first a common base without consolidation and second a consolidated base, 
does not address the problems associated with a lack of cross-border loss relief, nor 
does it simplify the existing difficulties of transfer pricing. Additionally, unless work 
is directed towards  a consolidated  base there is a danger that consolidation may be 
made  more  difficult  in  the  long  term  if,  for  example,  a  lower  level  of  common 
treatment of certain structural elements, or methodologies, is accepted. Indeed, it is 
difficult  to  identify  many  advantages  from  simply  introducing  a  'common'  base  to 
operate  independently  in  each  Member  State  which  might,  over  time,  revert  to 
twenty  five  different  bases  as  national  interests  prevail  over  the  interests  of  the 
internal market as a whole.  

Work on the mechanism to share the consolidated base between Member States will 
also  be  necessary.  This  can  be  carried  out  concurrently  as  the  technical  issues  are 
relatively  independent,  and  from  a  resources  point  of  view  will  demand  different 
expertise  and  skills.  Indeed  some  preliminary  work  has  already  been  carried  out 

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internally  by  Commission  staff  on  possible  mechanisms  such  as  formula 
apportionment. 

3.4. 

Optional versus compulsory tax base 

The  Commission,  together  with  the  European  Parliament,  also  continues  to 
believe that the CCCTB should initially be proposed as optional for companies 
given that the primary goal is to improve the operation of the internal market 
rather than Member State domestic economies. Not all companies operate in more 
than one Member State and there is no need for such companies to change their tax 
base. While the simultaneous operation of two corporate tax bases – the CCCTB and 
the national tax base – admittedly may raise specific issues for tax administrations, it 
is  also  the  Commission's  view  that  an  optional  CCCTB  is  more  likely  to  gain  the 
support  of  all  Member  States  and  of  business  than  a  compulsory  CCCTB.  For 
enterprises,  using  only  one  tax  base  rather  than  up  to  twenty  five  will  be  much 
simpler. Designing the CCCTB as optional also creates an incentive for its design to 
be as competitive as possible, simple and uniform across the EU, although care will 
be needed to ensure that State Aid rules are not infringed and that appropriate anti-
abuse rules are introduced. 

3.5.  Work Programme beyond 2006 

Beyond  2006,  planning  is  subject  to  the  rate  of  progress  achieved  in  the  CCCTB 
WG.  At  the  beginning  of  2007  a  further  'progress  report'  is  planned.  At  the  same 
time,  work  on  tax  incentives  and  anti-avoidance  could  start  with  a  view  to  work 
being broadly completed by the end of 2007. During the year, work on consolidation 
and  the  sharing  mechanism  could  be  broadly  completed  and  the  process  of  're-
visiting'  the  elements  already  discussed  could  be  started.  This  would  enable  the 
Commission  to  complete  the  work  and  present  a  comprehensive  Community 
legislative measure at the end of 2008. 

It  should  be  noted  that  the  term  'broadly  completed'  is  deliberately  used:  no  final 
agreement  will  be  sought  until  work  on  all  the  structural  elements  has  been 
completed. Even then, as the CCCTB WG is a technical expert group it will take no 
formal decisions. However, a 'second round' of discussions on the structural elements 
will  need  to  take  place  within  the  WG  before  legislative  drafting  begins  to  ensure 
that  the  work  on  individual  elements  fits  together  in  a  coherent  and  satisfactory 
overall approach.  

4. 

CONCLUSIONS  

Internally,  the  Commission  is  committing  the  necessary  resources  to  meet  the 
ambitious work programme set out in this Communication with a view to being able 
to present a legislative proposal in 2008. Externally, the CCCTB Working Group has 
been established and provides the necessary mechanisms for discussions with experts 
from Member State administrations, business and academia. 

However,  it  is  a  challenging  exercise  and,  if  it  is  to  be  achieved,  more 
commitment, from more Member States, will be required. Although good initial 
progress  has  been  made  in  a  number  of  areas,  there  are  three  possible  areas  of 

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concern.  First,  there  is  a  tendency  for  some  experts  to  primarily  defend  aspects  of 
their  current  tax  system,  rather  than  to  seek  a  solution  which  could  be  applicable 
across the whole EU. Second, there is a tendency to either postpone discussions on 
more 'difficult' elements or to seek to maintain two different solutions for each issue 
by suggesting that an element of choice may be maintained. Third, there is a growing 
discrepancy in the amount of resources which Member States are committing to the 
work which, given the ambitious timetable, may lead to delays in implementing what 
is a fundamental part of the strategy for achieving the Lisbon goals. 

Whereas it may be understandable that experts prefer 'what they already know', and 
argue  that  since  it  has  worked  domestically  for  many  years  there  is  no  reason  to 
change,  this  hampers  progress  in  designing  a  common  tax  base.  It  is  precisely 
because  there  are  so  many  differences  between  the  existing  national  rules  that 
there  is  a  need  for  a  single  common  solution.  If  each  Member  State  were  to 
insist on retaining its own existing rules then there could be no common base – 
in brief adopting a common base necessarily means changes to the existing domestic 
computational rules. In this context, it is essential to use the development of a new 
common  tax  base  as  an  opportunity  for  economic  reform  by  striving  for  a 
modernisation and simplification of tax rules.  

Similarly,  the  need  to  make  some  initial  progress  has  understandably  led  to  the 
postponement of discussion of some issues, in order not to delay matters. However, 
this  cannot  continue  indefinitely.  More  importantly,  it  is  not  desirable  to 
'compromise' by permitting for each issue two quite different technical solutions 
to  co-exist  as  national  options  as  this  will  not  lead  to  the  full  benefits  of 
simplification. When a group of companies operates in several Member States it is 
important  that  they  are  able  to  adopt  a  common  approach  to  complying  with  tax 
requirements – it will not be very helpful if they still have to comply with different 
requirements depending on where they operate. Should such 'options' extend beyond 
computational  methodologies  into  the  actual  tax  treatment  of  certain  transactions 
then  not  only  is  simplicity  sacrificed  but  in  addition  difficulties  will  arise  in  the 
consolidation process as mentioned above. 

As the work on the CCCTB accelerates, the demands on staff resources increase. The 
political priority given to achieving the Lisbon objectives, to which the CCCTB will 
make  an  important  contribution,  should  be  reflected  in  the  allocation  of  staff 
resources.  The  Commission  has  responded  by  allocating  additional  staff  to  the 
project  and  some  Member  States  have  done  the  same.  The  advantages  of  a 
specialised team are clear and providing adequate resources will enable everyone to 
fully participate in the project. The early work on each structural element of the tax 
base necessarily involves a degree of 'information gathering' but there is a risk that 
those who devote insufficient resources to the project will be less satisfied with the 
eventual  Commission  proposal  than  those  who  have  been  more  actively  involved. 
The  choice  of  individual  experts  who  attend  each  Working  Group  and  sub-group 
meeting has deliberately been left to Member States to enable them to call on a range 
of experts with expertise in the particular aspect of the tax base under discussion at 
any given meeting. 

The  Commission  recognises  that  on  some  issues  technical  experts  are  not  in  a 
position  to  support  work  on  a  particular  element  without  further  higher  level  or 
political support. This Communication therefore has the dual purpose of reporting on 

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progress  to  date  and  of  drawing  attention  to  those  areas  where  further  political 
support  and  direction  is  desirable.  It  is  recognised  that  Member  States  will  not  be 
able to make a final decision on whether or not to support the CCCTB until a formal 
proposal  has  been  presented  by  the  Commission  but  clear  support  for  the  general 
concept and work programme is essential for progress to continue. 

To conclude: 

•  Although  the  definition  of  the  CCCTB  can  be  conceptually  inspired  by 
corresponding  international  accounting  standards  (IAS/IFRS),  no  formal  link 
between the two should be established, because not all companies are able to use 
IAS/IFRS  and  the  standards  change  frequently.  The  CCCTB  legislation  should 
therefore be a self-standing document containing all the necessary definitions for 
determining taxable profits. 

•  The initial work programme for the CCCTB, which envisaged a tax base optional 
for  companies,  with  consolidation,  and  shared  between  Member  States,  remains 
the  best  approach  to  achieving  the  implementation  of  the  CCCTB  and  the 
consequent  contribution  to  the  Lisbon  goals.  Without  prejudging  future  political 
decisions, technical work should therefore progress along these lines. 

•  The current approach of working in close cooperation with Member State experts 
is  the  best  way  of  ensuring  that  the  Commission's  eventual  legislative  proposal 
will be acceptable to Member States. In this way Member States can participate in 
the  work  without  making  a  premature  or  final  commitment  to  the  CCCTB. 
Cooperation with business and academics, as illustrated by the 'extended format' 
meeting of the CCCTB Working Group in December, is also useful.  

•  Reasonable  progress  towards  the  CCCTB  has  been  made  with  good  input  from 
Member State experts in the CCCTB Working Group. The quality of further work 
will depend on the active involvement of Member States and Commission alike. 

•  The  introduction  of  a  simple,  modern  and  transparent  common  consolidated  tax 
base will necessarily involve each Member State making some changes otherwise 
the benefits of a common base will not be realised, hence the importance of open-
mindedness and flexibility by all participants in this process. 

The Commission would welcome political support and direction from Member States 
for the above conclusions. 

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ANNEXES 

ANNEX 1 

SUMMARY WORK PROGRAMME OF THE CCCTB WORKING GROUP 

CCCTB – summary of work programme and progress to date 
General 
Implications and use of IAS/IFRS(1) 
Tax Balance Sheet/Dependency 
Tax Principles 

→ 

Initial discussions in Working Group 

Structural, technical elements of the tax base 
Assets & tax depreciation – tangible and intangible 
Capital Gains – tangible and intangible 
Leasing/Economic Ownership 

Reserves/Provisions/Liabilities 

Taxable Income 
Deductions 
Loss carry back, carry forward 

Financial Assets 
Financial Activities 

International Aspects 
Waters edge – EU/non EU 
Double taxation relief 

Business Combinations/Mergers 
Dividends/distributions 

→ 

→ 

→ 

Initial discussions in Working Group 
Further discussions in Sub-Group 

Initial discussions in Working Group 
Further discussions in Sub-Group 

Initial discussions in Working Group 
Further discussions in Sub-Group 

→ 

Initial discussions in Working Group 

→ 

Initial discussions in Working Group 
Further discussions in Sub-Group 

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Not yet started 

Incentive Measures, including R&D 

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Not yet started 

Structural – legal 
Administrative framework 
Audit 
Interpretation/courts etc 

Anti-avoidance 

Compulsory/optional application for companies 
Restriction – size/sector 

→ 

Not yet started 

→ 

→ 

Not yet started 

To be discussed outside the technical 
Working Group 

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Consolidation & allocation 
Consolidation method, rules etc 
Allocation Method 

→ 

Internal Commission work started 
Not yet started in Working Group 

Overall discussions to link structural elements 
Additional issues identified during work 

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Not yet started 

Impact Assessment – of CCCTB 
Drafting of legislative proposal 

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Not yet started 

(1) International Accounting Standards/International Financial Reporting Standards 

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ANNEX 2 

SUMMARY DETAILS OF TECHNICAL PROGRESS TO DATE IN THE CCCTB WG 

Accounting standards and financial and tax accounting dependency 

The degree of linkage between financial accounts and tax accounts or the tax base is 
a perennial issue. Even though many companies now prepare their financial accounts 
in  accordance  with  International  Accounting  Standards  and  International  Financial 
Reporting Standards (IAS/IFRS)4 many are still required to use national accounting 
standards instead of IAS/IFRS.  

As not all companies use the same accounting rules, the continuation of 'dependency' 
of  tax  accounts  on  financial  accounts  and/or  'reversed  dependency'  is  conceptually 
impossible.  Currently  there  are  25  different  sets  of  national  financial  accounting 
rules. Accordingly, financial accounts prepared in accordance with these 25 different 
sets of rules cannot be directly linked with a single identical common tax base. Some 
form of reconciliation will be necessary at national level. It follows that the CCCTB 
legislation will have to explicitly contain definitions which in many Member States 
are  currently  simply  taken  from  their  national  accounting  rules  and  regulations  for 
the purposes of their national tax base.  

Tax principles 

Any newly developed tax base should be firmly based on established tax principles 
and  at  the  first  meeting  of  the  WG  a  series  of  possible  principles  were  discussed. 
This  should  form  a  useful  'checklist'  against  which  to  evaluate  possible  solutions 
which  emerge  during  discussions  on  individual  elements.  However,  it  was  not 
considered desirable or necessary, at the beginning of the exercise, either to formally 
agree  on  a  final  set  of  principles,  or  to  prioritise  individual  principles  which  may 
conflict in certain instances. Nor was any decision taken on whether or not a formal 
statement  of  principles  should  be  adopted  as  part  of  the  CCCTB,  although  it  was 
noted  that  no  Member  State  currently  has  such  a  statement  in  its  legislation.  There 
seems  to  be  a  wide  consensus  that  the  current  flexible  approach  is  the  most 
appropriate  and  there  are  no  plans  to  propose  formalising  a  statement  on  tax 
principles at this stage. 

During the discussions on principles it was noted that they are generally discussed in 
the context of an overall tax system, i.e. including the base and the rate; the company 
and  the  individual  shareholder.  They  are  therefore  not  automatically  transferable  to 
the  current  exercise,  which  concerns  the  corporate  tax  base.  However,  certain 
elements are clearly relevant, notably the principles of efficiency (also described as 
neutrality,  particularly  in  relation  to  different  types  of  investments)  simplicity, 
transparency  and  certainty.  The  design  of  a  new  tax  base  creates  a  'golden' 

4 

IAS – International Accounting Standards: accounting standards issued by the International Accounting 
Standards Board, now issued as IFRS – International Financial Reporting Standards. 

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opportunity  to  satisfy  these  principles  and  the  Commission  wishes  to  underline  in 
particular the importance of simplicity. 

Structural elements of the tax base 

As  outlined  in  the  main  text,  work  has  already  started  on  four  main  structural 
elements:  (i)  fixed  assets  and  depreciation  (including  capital  gains),  (ii)  reserves, 
provisions and liabilities, (iii) net taxable income and (iv) international aspects. 

Fixed assets and depreciation (including capital gains) 

In general, discussions on assets and tax depreciation and on capital gains and losses 
have  been fruitful and  the sub-group dedicated to this issue has  identified common 
approaches in several areas. These include the definition of a depreciable asset, the 
need  for  a  uniform  definition  of  when  to  recognise  an  asset  and  the  approach  to 
intangible  assets,  in  particular  the  distinction  between  purchased  and  self-created 
intangibles.  A  number  of  relatively  detailed  issues  have  also  been  covered  such  as 
assets  of  very  low  value,  and  an  approach  to  legal  as  opposed  to  economic 
ownership. There remain varying views in other areas such as how to deal with major 
repairs  to  damaged  assets.  The  discussion  and  analysis  made  by  the  sub-group  and 
main  WG  will  represent  valuable  input  and  a  starting  point  for  the  Commission's 
eventual  proposal  but  input  from  outside  the  WG  will  also  have  to  be  taken  into 
consideration. 

The  main  issue  on  which  there  are  varying  views  concerns  the  choice  between 
individual asset depreciation and pooling. Individual asset depreciation requires that 
the  useful  life  of  every  asset  be  estimated  when  purchased,  and  depreciated 
individually over its useful life. In practice, detailed tables of assets and their useful 
lives are maintained by the tax administrations that follow this practice. Depreciation 
by pooling assumes that all assets in a pool have a common 'life' and it is the pool 
that  is  depreciated,  rather  than  individual  assets.  It  is  much  simpler  since 
administrations  do  not  need  to  maintain  detailed  lists  of  individual  assets  and  their 
estimated useful lives, although it may be less accurate. The possibility of a series of 
pools  deserves  further  examination,  in  the  Commission's  view,  as  a  possible 
compromise solution.  

The Commission is convinced that pooling is preferable for the CCCTB as it is 
simple and efficient and believes that a compromise based on a small number of 
pools should be possible. Simplicity and efficiency are fundamental goals of the 
CCCTB  and  the  necessary  harmonisation  of  the  several  existing  national  tables 
indicating  the  useful  lives  of  several  thousand  individual  depreciable  assets  would 
represent a very demanding, time-consuming task which, even if it were possible to 
achieve  in  a  timely  fashion,  would  contribute  to  neither  simplicity  nor  efficiency. 
Pooling  furthermore  has  the  added  advantage  that  it  also  addresses  a  number  of 
linked issues such as the provision of tax relief on the sale of certain assets ('rollover 
relief'), which under an individual asset approach remain to be resolved. 

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Reserves, provisions and liabilities 

Granting  a  tax  deduction  when  a  provision  is  created  rather  than  waiting  for  the 
actual expenditure to be incurred 'only' advances the deduction, so the potential loss 
of revenue to a tax administration is 'only' the time value of recognising a deduction 
early. However,  there  is  currently  a wide range of practices in Member States, and 
some of the potential provisions, for example those relating to environmental clean-
up costs, could be large in relation to the tax base of an individual entity. 

from  past  events'.  However, 

As regards definitions, good progress has been made, relying heavily on the existing 
definitions  available  in  IAS/IFRS,  such  as  the  definitions  that  'provisions  are 
liabilities  of  uncertain  timing  or  amount'  and  'liabilities  are  present  obligations  of 
enterprises  arising 
the  different 
methodologies  for  granting  tax  deductions  currently  used  by  Member  States  has 
proved  difficult.  The  Commission  believes  that  the  two  main  approaches  discussed 
(provisions generally tax non-deductible with a list of tax deductible exceptions, or, 
provisions generally tax deductible with a list of tax non-deductible exceptions) are 
not as opposed as they may appear. Both techniques should lead to the same results 
providing the underlying defined principles of what should be tax deductible are the 
same. The Commission prefers the concept of preparing a general definition of 
tax deductible provisions supported by a list of non-deductible exceptions as this 
seems to be the most efficient way of proceeding. 

reconciling 

More  specifically,  discussions  on  provisions  for  environmental  clean-up  costs  have 
highlighted  one  of  the  situations  where  a  company  may  be  legally  required  by 
national  'non-tax'  legislation  to  create  certain  provisions.  There  now  seems  to  be 
general acknowledgement at the technical level that a degree of mutual recognition 
of  national  legal  requirements  will  be  necessary,  which  has  important  implications 
beyond environmental policy, for example where certain expenses are incurred as a 
result  of  national  legislation.  As  regards  provisions  this  also  seems  to  satisfy  the 
principle of 'ability to pay' in the sense that deferring the recognition of a provision 
for clean-up costs until they are incurred – which may be when the operations have 
ceased – may leave the company with no profits with which to 'pay' for the clean-up. 

Other  non-tax  considerations  have  also  influenced  the  discussions  on  this  subject. 
For example, where financial accounts and tax accounts are closely linked and these 
'dual  purpose'  accounts  are  also  used  for  other  purposes,  such  as  defining  what 
amounts  can  be  distributed  as  dividends  to  shareholders,  changes  to  existing 
practices may appear to cause problems in some Member States. However, it is not 
the  aim  of  the  CCCTB  to  harmonise  legislation  beyond  that  related  to  the 
calculation of the tax base. Care therefore needs to be taken to ensure that these 
'non-tax'  considerations  do  not  take  on  too  much  significance.  For  example,  it 
should be possible to define distributable reserves at the national level in such a way 
that  the  tax  treatment  in  the  CCCTB  is  either  recognised  or  not  recognised, 
depending  on  an  individual  Member  State's  approach  to  which  reserves  may  be 
distributed. 

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Taxable income 

Work on defining the structural element 'taxable income' began in September 2005. 
Three  main  factors  have  been  identified:  the  definition  of  income,  the  definition  of 
expenses and the methodological issue of how the calculations should be carried out. 

As regards income, one of the initial questions concerned whether or not a distinction 
should  be  made  between  business  and  non-business  income.  Although  no  firm 
conclusions  have  been  reached  there  is  comparatively  little  support  in  the  WG  for 
creating  such  a  distinction.  In  general  terms  there  are  clear  similarities  between 
national  tax  bases  but  when  detailed  transactions  are  considered  the  issue  is  more 
complicated.  For  example,  the  question  of  timing,  as  regards  the  point  when  a 
transaction  should  be  recognised  as  having  taken  place,  is  particularly  complex. 
Currently, national civil law generally provides the solution but within the CCCTB it 
will  not  necessarily  be  possible  to  rely  on  national  civil  law  as  this  could  result  in 
differences:  the  fine  details  of  civil  law  are  not  harmonised  across  the  EU.  Work 
done on capital expenditure and depreciation will provide a useful reference point for 
taking discussions further. 

Similar issues arise in relation to expenditure and it will be important to ensure that 
the  definitions  of  income  and  expenditure  are  consistent,  as  clearly  one  company's 
expenditure  generally  represents  an  item  of  income  in  another  company.  In  this 
context the treatment of long-term contracts requires special attention. The provision 
and use of services, as opposed to goods, represents another 'sub-set' of transactions 
for which suitable definitions need to be finalised. 

Lastly,  the  methodological  issue  of  how  the  calculations  should  be  carried  out  will 
have to be resolved. Here, the issue is to what extent formal reference to the opening 
and closing balance sheets should be made and whether this should be the main focus 
of computing income or whether it should be the profit and loss account, which is the 
primary  source  of  information.  In  this  regard,  the  concept  of  the  tax  balance  sheet 
and whether this should form part of the CCCTB will be addressed. This is linked to 
a certain extent to the issue of tax and accounting dependency. With no common set 
of rules for the preparation of financial accounts, if the balance sheet forms a primary 
part  of  the  tax  calculation  the  CCCTB  may  have  to  include  specific  rules  defining 
elements of the 'tax' balance sheet. 

International aspects 

National  tax  systems  include  rules  for  the  tax  treatment  of  income  earned  by  their 
residents in third countries, and also for the tax treatment of income earned by non-
residents (companies resident in third countries) which arises within their territory. In 
order to avoid double taxation, Member States traditionally conclude bilateral double 
taxation  conventions  with  third  countries  to  provide  a  set  of  rules  for  determining 
taxation  rights.  Currently  such  conventions  are  also  in  place  between  EU  Member 
States. The latter will assume less importance when the CCCTB is implemented but 
if  not  all  Member  States  implement  the  CCCTB  a  number  of  issues  will  arise 
between  these  States  and  'CCCTB'  States.  However,  at  this  stage  work  is 
concentrating  on  examining  the  issues  assuming  all  Member  States  implement  the 
CCCTB. 

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The territorial scope of the CCCTB is being examined closely. As the consolidated 
base will be 'shared out' between Member States it is particularly important to ensure 
that  a  robust  definition  of  the  limits  of  the  CCCTB  –  the  'water’s  edge'  –  be 
established  that  can  apply  across  the  EU,  and  that  can  be  adopted  with  minimal 
impact on existing double tax conventions with third countries. Some improvements 
to  conventions  may  be  desirable  in  the  long  term  but  the  Commission  is  keen  to 
ensure that the CCCTB can work within existing conventions as far as possible.  

Work is still at the stage of identifying the main issues but it is clear that this area is 
of  fundamental  importance  for  the  success  of  the  CCCTB.  For  example,  it  will  be 
particularly  important  to  ensure  that  Member  States  can  continue  to  protect  their 
share  of  the  tax  base  against  potential  erosion  and  avoid  the  situation  where  third 
country losses can be imported into the CCCTB area but profits remain outside. At 
the same time, if the CCCTB is to bring the expected benefits, some adaptations to 
existing national approaches will be required in order to provide a uniform base for 
'sharing out' between Member States. 

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