Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee - Implementing the Community Programme for improved growth and employment and the enhanced competitiveness of EU business: Further Progress during 2006 and next steps towards a proposal on the Common Consolidated Corporate Tax Base (CCCTB)
Date: 2007-05-02
Institutions: European Commission
Subjects: EU programme, basis of tax assessment, competitiveness, corporation tax, economic growth, employment policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 2.5.2007 
COM(2007) 223 final 

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

Implementing the Community Programme for improved growth and employment and 
the enhanced competitiveness of EU business: 
Further Progress during 2006 and next steps towards a proposal on the Common 
Consolidated Corporate Tax Base (CCCTB) 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

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

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

Activities of the Common Consolidated Corporate Tax Base Working Group 
(CCCTB WG) .............................................................................................................. 4 

2.2. 

Progress outside the Working Group – Impact Assessment ........................................ 5 

3. 

4. 

The next steps............................................................................................................... 5 

Conclusions .................................................................................................................. 7 

ANNEXES ................................................................................................................................. 9 

Annex 1 

Some specific technical points discussed in the December 2006 extended CCCTB Working 

Group meeting.............................................................................................................. 9 

Annex 2 

Some detailed technical issues which have been discussed in the CCCTB Working Group and 
which the Commission is still reflecting on................................................................. 9 

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1. 

BACKGROUND 

This  Communication  outlines  progress  to  date  on  the  CCCTB  under  the  outline 
Work Programme established in 2004. It concentrates on the work done during 2006, 
highlighting some of the more noteworthy issues which have arisen and recapping on 
some of the key strategic issues related to the CCCTB. 

The  2006  Communication1  explained  the  background  to  and  objectives  of  the 
CCCTB  and  announced  that  a  further  progress  report  would  be  prepared  in  2007. 
These objectives remain valid, as there have been few decisive developments since 
then to remove the tax obstacles in the Internal Market.  

The Council discussed the Communication in June 2006 but adopted no conclusions. 
The Commission made a further oral report on progress to the Council in December 
2006.  The  CCCTB  is  an  ambitious  objective  which  poses  a  number  of  technical 
difficulties for Member States. Further efforts are needed to reach a consensus. There 
has been some progress in some very specific areas,  for  example  the  adoption  of a 
Code  of  Conduct  on  documenting  transfer  pricing2  and  Guidelines  for  Advanced 
Pricing Agreements in the EU3, and the Commission issued three Communications in 
December 20064 on the need for increased coordination between Member States as 
regards  their  tax  systems  and  one  on  tax  incentives  in  favour  of  research  and 
development5.  However,  the  Commission  remains  convinced  that  although  these 
targeted  measures  will  go  some  way  to  reducing  some  of  the  obstacles,  a 
comprehensive approach via the introduction of the CCCTB can provide the largest 
overall benefits as regards the taxation of companies' profits in the Internal Market. 
Thorough preparation is however necessary. 

The  implementation  of  the  CCCTB  could  make  a  significant  contribution  to  the 
success  of  the  Internal  Market,  to  improved  growth  and  employment  and  to  the 
enhanced  competitiveness  of  EU  business  in  the  world  in  line  with  the  renewed 
Lisbon  strategy6.  In  addition,  the  EU  could  become  a  more  attractive  market  for 
investment and this should lead to increased intra-EU investment and foreign direct 
investment. 

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5 
6 

Implementing the Community Lisbon Programme: Progress to date and next steps towards a Common 
consolidated Corporate Tax Base (CCCTB) - COM(2006) 157. 
Code  of  conduct  on  transfer  pricing  documentation  for  associated  enterprises  in  the  EU  (EUTPD), 
published with the Commission Communication on the work of the EU Joint Transfer Pricing Forum on 
transfer pricing documentation for associated enterprises - COM(2005) 543, 7.11.2005 - adopted by the 
Council on 27 June 2006. 
Communication on the work of the EU Joint Transfer Pricing Forum in the field of dispute avoidance 
and  resolution  procedures  and  on  Guidelines  for  Advance  Pricing  Agreements  within  the  EU  - 
COM(2007) 71. 
COM(2006) 823, COM(2006) 824 and COM(2006) 825, 19.12.2006. 
COM(2006) 728, 22.11.2006. 
Implementation of the Community Lisbon programme – Communication from the Commission to the 
Council  and  the  European  Parliament  –  The  contribution  of  tax  and  customs  policies  to  the  Lisbon 
Strategy - COM(2005) 532, 25.11.2005.  

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The objectives of this Communication are: 

•  to  keep  the  Council,  Parliament,  the  European  Economic  and  Social  Committee 

and the public at large informed of progress,  

•  to outline the plans for continuing the work, and  

•  to recap on and to draw attention to some of the specific technical points which 
require  particular  attention  and  a  number  of  particularly  important  issues  which 
have a more strategic dimension. 

2. 

PROGRESS TO DATE 

2.1. 

Activities  of  the  Common  Consolidated  Corporate  Tax  Base  Working  Group 
(CCCTB WG) 

The CCCTB WG has continued to meet on a quarterly basis. In addition to the first 
four  sub-groups  (assets  and  depreciation,  provisions  and  reserves,  taxable  income, 
international  aspects),  two  further  sub-groups,  dealing  with  group  taxation  and  the 
sharing  mechanism,  have  been  set  up.  The  main  issues  discussed  in  the  WG  (in 
addition  to  the  reports  from  the  sub-groups)  were  summarised  in  a  Working 
Document7 presented to the December 2006 meeting.  

Part  of  this  December  2006  meeting  was  held  in  "extended"  format  with 
representatives  from  business  and  academia  in  attendance  to  discuss  the  CCCTB. 
This  followed  a  similar  extended  meeting  in  2005.  A  more  specialised  extended 
meeting  was  held  in  June  2006  with  business  experts  from  the  financial  sector  to 
discuss the particularities of this sector. The purpose of these meetings has been to 
ensure  that  there  is  adequate  consultation  and  that  the  Commission  and  Member 
State experts are able to benefit from the collective expertise of business practitioners 
and academic experts.  

As explained in the 2006 Communication, no formal agreement on issues is sought 
in  the  sub-groups  or  the  Working  Group  but  it  is  possible  to  identify  those  issues 
where  there  is  a  reasonable  degree  of  common  ground  and  those  issues  which  will 
require  hard  decisions  when  the  Commission  comes  to  finalise  its  legislative 
proposal. Additional expert opinion from beyond the Commission and Member State 
administrations on these latter points can be particularly helpful. 

The Working Document included progress reports on the work on Taxable Income, 
International Aspects, Personal Scope, Financial Institutions, Consolidation, and the 
Administrative  Framework.  Some  specific  technical  points  relating  to  each  issue 
were  singled  out  for  particular  attention.  Some  of  these  technical  points  are 
summarised in Annex 1. The full details are available on the relevant web pages. 

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CCCTB/WP/046 20  November 2006  'Progress  to date  and  future  plans for  the  CCCTB';  available  on 
the following web-page: 
http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/article_3147_en.htm. 

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In order to consolidate the base a method for sharing the base has to be agreed. The 
subject  was  first  raised  at  the  December  2006  meeting  and  discussions  have  only 
recently started. It has to be ensured that the mechanism produces fair and equitable 
results.  

2.2. 

Progress outside the Working Group – Impact Assessment 

In accordance with current practice, the legislative proposal will be preceded by an 
Impact Assessment drafted in accordance with the key analytical steps laid down in 
the  'Impact  Assessment  Guidelines'8.  The  Impact  Assessment  will  describe  the 
corporate  tax  obstacles  that  deter  EU  companies  from  exploiting  all  investment 
opportunities across the Internal Market in their EU-wide cross-border activities, and 
the  scope  for  tax  avoidance  and  tax  evasion  that  the  current  system  offers  to 
companies.  The  difference  in  compliance  costs  between  small  and  medium  sized 
enterprises  and  multinational  enterprises  will  be  one  of  the  elements  of  the 
assessment.  It  will  define  the  objectives  to  be  achieved  by  the  tax  reform,  ranging 
from the general objective of making corporate income taxation systems simpler and 
more  efficient,  so  that  the  Internal  Market  works  better,  to  the  specific  and 
operational  objectives,  such  as  reducing  the  compliance/administrative  costs  of 
corporate taxation for firms and tax administrations, favouring the emergence of new 
cross-border  activity,  including  particularly  of  small  and  medium  sized  enterprises, 
promoting  tax  neutrality  between  purely  domestic  and  EU-wide  investments,  and 
minimizing distortions to the international allocation of investment and tax bases. 

A  number  of  alternative  policy  options  will  be  identified  and  their  respective 
economic,  environmental  and  social  impacts  assessed  in-depth,  in  qualitative  and 
where possible quantitative terms. The alternatives will include at least a 'no-change' 
scenario, a common base without consolidation and a common consolidated base. It 
will aim to assess the most relevant macroeconomic and microeconomic impacts as 
well  as  the  impact  on  tax  revenues  of  the  alternatives.  Several  possible  pathways 
towards  achieving  the  CCCTB  will  be  assessed,  based  on  an  evaluation  of  its  key 
components. Due consideration will be given to the principle that any step towards 
the  CCCTB  should  have  a  fair  impact  on  the  Member  States'  public  finances, 
possibly leading to an overall increase of revenues reflecting an enhanced dynamism 
of the EU economy. 

Work on this started in 2006 and the final Impact Assessment will be published when 
the  proposal  is  made.  The  depth  of  the  quantitative  assessment  will  depend  to  a 
certain  extent  on  how  much  quantitative  data  Member  State  administrations  and 
companies are willing and able to provide in time. 

3. 

THE NEXT STEPS 

With  work  on  most  of  the  major  structural  elements  of  the  tax  base,  consolidation 
and  the  sharing  mechanism  underway  the  next  step  would  be  to  bring  together  all 
these  different  areas  to  discuss  how  these  different  parts  can  fit  together.  This 
‘second  round’  of  the  work  will  be  aimed  at  ensuring  that  there  are  no 

8 

SEC(2005) 791, 15.6.2005, with March 2006 update. 

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inconsistencies and the base as developed can be considered a workable proposition, 
'fit for purpose'. 

As  discussed  in  the  2006  Communication,  the  creation  of  a  single  base  inevitably 
means that there will be differences between this new base and the current individual 
tax bases. Member States will have to accept that the CCCTB cannot replicate all the 
features  of  all  their  existing  tax  bases,  and  will  in  some  cases  propose  a  different 
treatment of specific items from their existing base.  

For many of the detailed technical issues the Commission will have to make a clear 
choice between one or more specific possibilities and will do so on the basis of the 
ongoing  work  in  the  WG,  internal  research  and  consultation  with  business  and 
academia. Some detailed technical issues which have been discussed in the Working 
Group and which the Commission is still reflecting on are included in Annex 2. 

There is also a second category of choices which the Commission will have to make 
where  there  is  clearly  a  greater  ‘political’  element  to  take  into  account  in  choosing 
one approach or another. Both general economic policy and the best interests of the 
European  Community,  particularly  with  regard  to  the  programme  for  improved 
growth  and  employment  and  enhanced  EU  business  competitiveness  and  a  stable 
development  of  government  finances,  will  be  fundamental  elements  of  these 
decisions. Some of the choices to be made were outlined in the 2006 Communication 
and  the  Commission  indicated  its  position,  explaining  how  it  had  arrived  at  its 
conclusions. Some of the main issues highlighted were that:  

•  the  Common  Corporate  Tax  Base  should  be  accompanied  with  consolidation  to 

fully reap the benefits of this process, 

•  the  CCCTB  should  be  optional  (companies  should  be  able  to  remain  within  the 
existing  rules  where  these  are  maintained  alongside  the  CCCTB  by  Member 
States, or opt for the CCCTB, providing the rules on State aid are observed). 

The  Commission  also  confirmed  that  it  does  not  intend  to  extend  the  work  on  the 
base to include the rate and this is still the case. It also stated that it believed that the 
CCCTB should be uniform and should generally simplify and broaden the corporate 
tax base. Uniformity and simplification are therefore guiding principles of the work 
to date and the new base should be 'broad' rather than 'narrow'. 

It is generally accepted by many economists that a broad tax base with low tax rates 
is  the  most  economically  efficient,  having  both  the  least  and  fewest  potentially 
distortionary effects. The practical implications of this approach are that there will be 
fewer  incentives  and  exceptions,  given  in  particular  that  provision  for  cross  border 
consolidation will itself result in a slight decrease in the size of the taxable base as 
relief  for  losses  is  more  consistently  and  rapidly  available  than  at  present.  Thus, 
specific reliefs and incentives should be limited in number and properly targeted and 
justified  and  these,  such  as  research  and  development  tax  incentives,  will  be 
discussed  in  the  Working  Group.  Fines  of  a  sanctioning  nature  would  not  be 
deductible. 

Two key policy issues to emerge during 2006 concerned the financial sector and the 
administrative  framework  for  the  CCCTB.  As  regards  the  financial  sector,  the 

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extended  meeting  attended  by  experts  from  the  sector  in  June  2006  confirmed  that 
there is a degree of support for including the sector in the CCCTB. The alternative of 
a  separate  system,  or  complete  exclusion,  does  not  currently  attract  a  great  deal  of 
support. However, there is less consensus over the nature of the specific rules needed 
within the CCCTB to take into account the characteristics of the sector. Further work 
on this is needed. In particular, it seems very likely that any general method used for 
the  sharing  mechanism  would  also  have  to  be  amended  to  take  into  account  the 
particularities of the sector. 

As  regards  the  administrative  framework,  work  is  still  at  a  relatively  early  stage. 
There have been some discussions in the Working Group on possible approaches and 
some sections of business have strongly advocated some form of 'one stop shop' so 
that  EU  groups  of  companies  only  have  to  deal  directly  with  one  administrative 
authority.  Within  the  individual  sub-groups,  the  issue  of  which  authority  should  be 
responsible for which aspects of tax compliance has also been raised and during 2007 
further work will be carried out. These two issues will have a major impact on the 
form  of  the  proposal  and  the  Commission  will  therefore  be  seeking  to  draw 
conclusions on: 

•  the  extent  to  which,  and  manner  in  which,  the  financial  sector  should  be 

incorporated into the CCCTB from its inception, 

•  the  administrative  framework  of  the  CCCTB,  in  particular  how  cooperation  and 
mutual assistance can be improved and how the necessary new working methods 
at Community level can be introduced. 

The  proposal  presented  in  2008  will  reflect  the  conclusions  that  the  Commission 
reaches on these issues in the light of the ongoing work. 

4. 

CONCLUSIONS  

The CCCTB Working Group has been set up and provides the necessary mechanisms 
for  discussions  with  experts  from  Member  State  administrations,  business  and 
academia. In addition, the Commission will continue to consult outside experts on an 
ad hoc basis to further the work. As noted in 2006, the work requires significant staff 
resources from both the European Commission and Member States. This requirement 
continues but the European Commission continues to prefer to involve Member State 
experts in technical work to the greatest extent possible. 

To conclude: 

•  The need for the CCCTB remains, both for small and medium sized enterprises, 
where  compliance  costs  are  of  particular  importance  and  for  large  multinational 
enterprises. The Commission is committed to making rapid progress towards the 
abolition  of  corporate  tax  obstacles  in  the  internal  market  while  also  taking 
account of the Member States' concerns on the process and remains committed to 
presenting a legislative proposal in 2008. 

•  The  Commission  will  continue  to  work  with  the  Working  Group  and  outside 
experts  on  a  technical  basis  to  resolve  these  specific  issues  and  arrive  at  a 

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balanced  proposal.  Several  specific  issues  are  highlighted  above  and  in  the 
Working  Document  CCCTB/WP/046  20  November  2006  'Progress  to  date  and 
future plans for the CCCTB'. 

•  The Commission would like to draw the attention of the Council, Parliament and 
the  European  Economic  and  Social  Committee  to  the  more  major  general 
elements  of  the  CCCTB  particularly  the  following  as  described  in  this 
Communication: 

– 

– 

– 

– 

the  consolidation  component  of  the  CCCTB  and  the  necessary  fair  and 
equitable sharing mechanism and its impact on Member States' revenues, 

the optional nature of the CCCTB, 

the treatment of the financial sector, 

the administrative and judicial framework for the CCCTB. 

Further  input  from  the  Member  States  would  also  be  welcome  on  how  the  process 
towards creating the CCCTB can best address their concerns. 

The  final  proposal  will  reflect  several  decisions  concerning  the  overall  approach 
taken in the CCCTB and input at this stage is important. However, the Commission 
confirms that it does not intend to extend the work to cover tax rates. 

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ANNEXES 

ANNEX 1 

SOME SPECIFIC TECHNICAL POINTS DISCUSSED IN THE DECEMBER 2006 EXTENDED CCCTB 
WORKING GROUP MEETING 

The  deductibility  of  certain  items  related  to  specific  domestic  situations  such  as  social 
contributions and taxes other than corporate income taxes. As the base will be consolidated and 
shared out between Member States, the question is whether these specific items should be deductible 
from  the  consolidated  base,  and  therefore  shared  out,  or  deductible  only  from  the  relevant  Member 
States' individual shares. 

The  main  principle  for  the  taxation  of  residents  (worldwide  or  territoriality)  and  how  double 
taxation should be eliminated (credit or exemption method). Currently Member States do not have 
a  common  approach  and  a  method  must  be  devised  which  provides  sufficient  commonality  to 
safeguard the common tax base, while bearing in mind the existing network of bilateral conventions 
which Member States have entered into with third countries. 

The definition of the CCCTB group for consolidation and the mechanism for consolidating the 
group companies. Which related companies should be permitted and/or required to consolidate their 
profits  and  losses?  How  should  intra-group  transactions  be  eliminated  to  avoid  arm's  length  pricing 
complexities? 

ANNEX 2 

SOME DETAILED TECHNICAL ISSUES WHICH HAVE BEEN DISCUSSED IN THE CCCTB WORKING 
GROUP AND WHICH THE COMMISSION IS STILL REFLECTING ON 

Discussed in 2005: 

Fixed  assets and  depreciation. Qualifying  assets  may  be  depreciated  either  on  an  individual  basis, 
which would require that the useful life of every individual asset be estimated when purchased (in line 
with  common  rules  applicable  across  the  EU)  and  depreciated  individually  over  its  useful  life,  or 
qualifying  assets  may  be  depreciated  in  one  or  more  'pools'  with  a  common  assigned  life.  In  the 
Commission's view there are significant advantages to developing the pooling method in the CCCTB. 

Deductions for provisions. Provisions may be generally non-tax-deductible, supplemented by a list 
of tax deductible exceptions, or provisions may be generally tax deductible, supplemented by a list of 
non-tax-deductible  exceptions.  In  the  Commission's  view,  tax  deductible  provisions  should  be 
defined, supplemented by a list of non-deductible exceptions. 

General methodology. The initial starting point for the calculation of the tax base of a company may 
be by reference to the comparison of opening and closing balance sheets or by reference to the profit 
and loss account of the company. The former requires the preparation of a 'tax balance sheet' under 
commonly defined rules, including the profit and loss account. The latter requires only the profit and 
loss  account  to  be  commonly  defined  in  the  CCCTB  legislation;  balance  sheet  information  can  be 
verified by reference to the financial accounts. In the Commission's view, a tax balance sheet is not 
necessary and represents an additional administrative burden. 

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Discussed in 2006: 

Local taxes. In some Member States there are local taxes, set at a relatively high level. These can be 
either  deductible  against  the  consolidated  base,  and  hence  included  in  the  sharing  mechanism,  or 
retained  at  national  level  and  deducted  only  against  the  relevant  Member  State's  share  of  the 
consolidated  base.  In  the  Commission's  view,  it  is  generally  preferable  to  provide  for  as 
comprehensive a set of rules as possible, avoiding national 'derogations' or additional taxes as much as 
possible.  However,  the  full  implications  require  further  study  as  'sharing'  the  deductions  related  to 
local  taxes  across  the  EU  but  not  'sharing'  the  national  taxes  levied  on  the  base  could  create 
inconsistencies.  

Foreign  income.  Foreign  income  can  either  be  excluded  completely  from  the  CCCTB,  or  it  can  be 
incorporated  in  the  CCCTB  and  a  method  devised  for  including  it  in  the  consolidation  and  sharing 
mechanism. The question arises because the different methods of avoiding double taxation currently 
followed by Member States under their existing legislation and bilateral treaties with third countries 
must  be  taken  into  account.  In  the  Commission's  view,  it  is  preferable  to  design  a  method  which 
incorporates  foreign  income  in  the  CCCTB,  supplemented  where  appropriate  by  a  form  of  relief  to 
avoid double taxation. The Commission is still reflecting on the precise arrangements for relief. 

Group  definition.  A  detailed  definition  of  what  constitutes  a  group  of  companies  for  consolidation 
will be required. In addition to defining a common acceptable level of ownership the range of possible 
ownership structures creates difficulties. Where, for example, a foreign company owns a series of EU 
companies, and is itself owned by an EU company, it seems preferable that all the EU companies in 
the group should be consolidated. However, some experts prefer to keep EU companies separate when 
the chain of ownership is broken by a foreign entity and a way of resolving this issue must be found. 

Intra-group  transactions.  The  avoidance  of  transfer  pricing  problems  is  a  major  benefit  of 
consolidation.  However,  there  are  a  number  of  ways  of  eliminating  intra-group  transactions  when 
consolidating the base. They could be ignored, recognised at cost or recognised at the current arm's 
length price. Each has advantages and disadvantages and the Commission must decide which method 
is preferable, or whether it would be possible to permit each group a choice of methods.  

Sharing  mechanism.  In  addition  to  the  fundamental  question  of  whether  a  macro,  value  added, 
formula or combination approach should be adopted, there are several detailed definitional questions. 
For example, under a formula approach the weightings of each possible factor and the exact items to 
be included in each factor need to be examined in more detail before any decision can be taken. Even 
the  apparently  'simple'  factor  of  labour  raises  questions  such  as  how  'outsourced'  labour  should  be 
treated and in which Member State labour costs should be recognised as a factor for employees who 
work in more than one Member State. 

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