COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT   Accompanying document to the    Proposal for a   COUNCIL DIRECTIVE  on a Common Consolidated Corporate Tax Base (CCCTB)   {COM(2011) 121 final} {SEC(2011) 316 final}
Date: 2011-03-16
Institutions: European Commission
Subjects: approximation of laws, basis of tax assessment, competitiveness, corporation tax, tax system

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EUROPEAN COMMISSION 

Brussels, 16.3.2011 
SEC(2011) 315 final 

. 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying document to the 

Proposal for a  

COUNCIL DIRECTIVE 

on a Common Consolidated Corporate Tax Base (CCCTB) 

{COM(2011) 121 final} 
{SEC(2011) 316 final} 

ELECTRONIC VERSION ONLY 

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TABLE OF CONTENTS 

MODIFICATIONS FOLLOWING THE OPINION OF THE IMPACT ASSESSMENT BOARD

......................................................................................................................................4 

1. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ...4 

PROBLEM DEFINITION............................................................................................7 

Background: the current institutional setting for company taxation in the EU ............7 

The remaining tax obstacles in the Internal market ......................................................9 

Summary of the problems and the baseline scenario..................................................14 

Subsidiarity and proportionality .................................................................................15 

OBJECTIVES.............................................................................................................16 

General objectives.......................................................................................................16 

Specific objectives ......................................................................................................16 

POLICY OPTIONS ....................................................................................................17 

Description of the options...........................................................................................17 

The choice of the legal instrument..............................................................................19 

4.2.1.  Recommendation and soft law....................................................................................19 

4.2.2.  Directive......................................................................................................................19 

4.2.3.  Regulation...................................................................................................................20 

4.3. 

Main design elements of the tax base .........................................................................20 

5. 

ANALYSIS OF IMPACTS OF THE RETAINED OPTIONS ..................................22 

5.1. 

Impact of the policy options on the size of taxable bases...........................................23 

5.1.1.  The impact of the common tax base provisions unrelated to consolidation...............24 

5.1.2.  The impact of consolidation of profits and losses ......................................................26 

5.2. 

5.3. 

Impact on the distribution of the tax bases between the EU Member States..............27 

Impact on costs to tax administrations and on compliance costs to firms ..................32 

5.3.1.  Member States tax administrations' costs ...................................................................32 

5.3.2.  Companies' tax related compliance costs....................................................................32 

5.4. 

5.5. 

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Economy-wide impacts...............................................................................................37 

Dynamic effects and impact on SMEs........................................................................42 

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5.6. 

Social and environmental impacts ..............................................................................43 

6. 

7. 

COMPARISON OF THE OPTIONS .........................................................................44 

MONITORING AND EVALUATION ......................................................................47 

Annex 1. Further details on the consultation process ...............................................................48 

Annex 2. The framework of the acquis communautaire in the field of corporate income taxation 60 

Annex 3. The samples of EU-based multinational groups from the Amadeus and ORBIS databases

....................................................................................................................................63 

Annex 4. The European Tax Survey.........................................................................................90 

Annex 5. The basic elements defining the comprehensive policy options consisting in a common 

consolidated corporate tax base ..................................................................................92 

Annex 6. The European Tax Analyzer....................................................................................100 

Annex 7. The impact of corporate income tax reforms at the EU level on European business 

taxpayers: case studies from a sample of multinational groups operating in the EU103 

Annex 8. The tax experts' study on tax compliance costs for businesses going cross-border – 
comparison of current situation and a situation after reform at EU level of corporate 
income tax systems ...................................................................................................117 

Annex 9. The assessment of the possible administrative costs for national tax administrations in the 

EU linked to the implementation of reforms at the EU-level of corporate taxation systems
..................................................................................................................................121 

Annex 10. The CORTAX model ............................................................................................129 

Annex 11. CCCTB WG working paper 4 and annex..............................................................140 

Literature references ...............................................................................................................174 

List of abbreviations and technical terms ...............................................................................176 

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MODIFICATIONS  FOLLOWING  THE  OPINION  OF  THE  IMPACT  ASSESSMENT 

BOARD 

A  draft  of  this  impact  assessment  (IA)  was  submitted  to  the  Impact  Assessment  Board  and 
discussed at its meeting of 15 December 2010. In its opinion dated 17 December 2010, the Board 
suggested some improvements of the draft IA-report. 

In its overall assessment, the Board recommended that the IA report should clarify that the analysis 
builds  on  a  consultative  process  in  which  the  relevant  technical  details  have  been  discussed 
extensively  with  Member  States,  stakeholders  and  tax  experts.  It  also  suggested  that  the  report 
should explain that the specific impacts on individual Member States depend largely on the way in 
which their governments decide to apply the Directive, and whether and how they adapt their mix 
of taxation instruments. In addition, it suggested that the reduction of tax compliance costs should 
be  prominently  identified  as  the  main  objective  and  analysis  on  this  issue  should  be  presented 
systematically  throughout  the  whole  report.  Related  to  that,  the  report  should  improve  the 
presentation  of  the  quantitative  evidence  on  the  scale  of  the  identified  problems,  or  explain  why 
certain data were unavailable.  

In  order  to  take  into  account  the  recommendations  of  the  Board  a  number  of  changes  have  been 
made  to  the  IA-report.  In  particular,  it  has  been  clarified  that  the  technical  design  of  the  policy 
options  were  discussed  extensively  in  a  consultative  process  involving  Member  States  (MS), 
experts and stakeholders. A list of the resulting working papers describing the technical aspects of 
the  options  as  well  as  the  current  rules  for  the  definition  of  taxable  bases  in  the  MS  has  been 
annexed,  and  references  to  the  relevant  papers  added  in  the  main  text.  In  addition,  it  has  been 
stressed that there are no intended objectives in terms of revenue distribution or revenue neutrality 
for MS behind the policy initiatives. The ultimate impacts will in fact depend on how the MS will 
react in terms of corporate tax rates, and the chosen tax mix, in which domains they will in any case 
retain  full  sovereignty.  The  reduction  in  additional  tax  related  compliance  costs  arising  from 
international  activity  has  been  given  the  suggested  relevance,  and  the  presentation  has  been 
strengthened  using  available  qualitative  and  quantitative  evidence.  The  well  known  caveats  that 
apply in the interpretation of survey data, as well as the problems in obtaining reliable quantitative 
evidence on this (and on the related issues of double- and over-taxation) have been spelled out.  

1. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

The present  initiative follows on from  a  formal mandate by the Council of Ministers in 1999, in 
which  the  Commission  was  invited  to  undertake  a  study  on  company  taxation  in  the  European 
Union. The results of the study were published in 2001 in the Company Tax  Study1 and a related 
Communication2.  The  study  presented  a  twin-track  strategy  to  tackle  corporate  tax  obstacles  and 
tax-induced  inefficiencies  in  the  Internal  Market  –  double  taxation,  the  lack  of  tax  consolidation, 
tax-related  obstacles  to  business  restructuring  and  significant  compliance  costs.  In  addition  to 
various  targeted  measures  in  the  short  run  (such  as  improved  transfer  pricing  rules  or  remedial 
measures  catering  for  cross-border  loss  relief),  some  approaches  for  possible  long-term,  all-
embracing solutions were presented. 

1 
2 

‘Company Taxation in the Single Market’. SEC (2001) 582 final. See Annex 1 for further details.  
‘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. 

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In the public conference organised in Brussels in April 2002 as part of the consultations on the 2001 
Study,  the  participants  showed  general  interest  in  the  comprehensive  solutions  "Home  State 
Taxation"  and  "Common  Consolidated  Corporate  Tax  Base".  In  its  2003  Communication3,  the 
Commission presented the two comprehensive corporate tax policy options retained: "Home State 
Taxation" as a useful means of relieving small and medium-sized enterprises from tax costs related 
to  their  cross-border  activity,  and  a  common  (consolidated)  corporate  tax  base,  as  a  general 
comprehensive solution. 

The two retained policy options were favourably received at the public conference organised by the 
Commission  services  in  Rome  in  December  2003.  Also  a  public  consultation  was  held  in  2003 
concerning the use of International Accounting Standards as a possible starting point for a common 
EU tax base4. A Common Consolidated Corporate Tax Base (CCCTB) was generally considered to 
be  the  most  promising  comprehensive  solution.  Since  2004,  the  Commission  has  therefore 
concentrated  its  work  on  this  initiative.  Ever since  the  Commission  services  have  maintained  and 
deepened co-operation with the stakeholders involved in order to get their advice and input for the 
specific  design  of  the  policy  best  suited  to  tackle  the  remaining  company  tax  obstacles  in  the 
Internal  market.  In  September  2004  Ministers  of  Finance  agreed  at  an informal  ECOFIN-Council 
that  the  discussions  on  the  development  of  a  CCCTB  should  progress  in  a  Commission  working 
group  (the  CCCTB  WG).  This  working  group  was  set  up  in  November  2004  and  held  quarterly 
plenary meetings until April 2008 (see Annex 1). 

Experts from the tax administrations of all Member States participated in the WG plenary meetings. 
The role of the members of the WG was limited to providing technical assistance and advice to the 
Commission services, without the participation implying a political dimension or a commitment to 
implement the common tax base. All Member States were represented in the WG, including those 
that opposed the idea of a common consolidated tax base itself5,6. In addition, six sub-groups were 
set up (five of which were chaired by a Member State) in order to deepen the technical analysis of 
certain  specific  issues.  The  subgroups  met  on  an  ad-hoc  basis  and  reported  back  to  the  plenary 
CCCTB WG. The Working Group, and the subgroups, worked intensely on structural parts of the 
tax base. Meetings generally included a review of how different Member States dealt with the parts 
and then attempted to consider how a common approach could be established. The emphasis was on 
simplicity – i.e. remove unnecessary complexity. Member States contributed during the meetings – 
diverging views are reported in the Summary Records of the WG meetings and the Reports of the 
Sub-group  meetings.  The  approach  of  the  CCCTB  WG  was  to  review  and  analyse  the  individual 
building blocks of the tax base one by one. The table below gives an overview of the main building 
blocks of the CCCTB that were discussed. 

CCCTB WG Building blocks 
1. Depreciation and Assets – discussed at subgroup chaired by DE 
2. Provisions and Reserves - discussed at subgroup chaired by IT 

3 

4 
5 

6 

"An  Internal  Market  without  company  tax  obstacles  –  achievements,  ongoing  initiatives  and  remaining 
challenges", COM(2003)726. 
See http://ec.europa.eu/taxation_customs/common/consultations/tax/article_385_en.htm 
See  CCCTB  WG,  Summary  Record  for  the  Meeting  of  the  Common  Consolidated  Corporate  Tax  Base 
Working Group held in Brussels on 23 November 2004, CCCTB/WP/05: "Two participants stressed that there 
has  to  be  a  clear  distinction  between  the  political  and  technical  aspects  of  the  whole  project.  They  were 
prepared to contribute to the work of the Group at the technical level only. Their respective governments had 
clearly expressed their political opposition to the idea of a common tax base". 
Indeed, during the discussions of the CCCTB WG, some members stressed repeatedly that their participation 
was not to be construed in any way as support from their Member State for the common consolidated tax base 
and that their state rejects the initiative. 

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3. Taxable Income - Revenues and expenses discussed at subgroup chaired by FR 
4. Foreign Income and relations outside of the EU - discussed at subgroup chaired by ES 
5. Consolidation – method and conditions for a group discussed at subgroup chaired by DK 
6.  Formulary  Apportionment  –  method  of  apportionment  and  factors  discussed  at  subgroup 
chaired by EC 

Working Paper 57 from the CCCTB WG7 summarised the main building blocks of the tax base in 
the  form  of  a  possible  technical  outline  on  the  basis  of  the  discussions  in  the  working  group  and 
subgroups. This working paper and all relevant documents for the CCCTB WG meetings have been 
accessible to the public on a DG TAXUD website dedicated to the CCCTB8: this includes, among 
other  documents,  more  than  50  working  papers  prepared  by  DG  TAXUD  which  have  been 
discussed  in  the  WG.  A  list  of  these  papers  is  included  at  the  end  of  Annex  1.  To  ensure  the 
involvement  of  all  key  experts  and  stakeholders,  the  CCCTB  WG  met  three  times  in  extended 
format,  allowing  professional  organisations9  and  academics  to  contribute  to  the  work.  Although 
Member  States  expressed  different  political  views  on  the  initiative,  in  concluding  the  WG  works 
they  shared  the  common  opinion  that  a  preliminary  careful  assessment  of  the  concrete  policy 
proposal would be necessary in order to take any official position on the policy reforms.  

Besides the discussions within the CCCTB WG, comments and advice have been received by the 
Commission  Services 
through  bilateral  meetings  with  business  federations,  professional 
organisations and other key stakeholders, such as trade unions. Regular meetings were held with a 
CCCTB Task Force set up by UNICE/Business Europe. In addition, in June 2006 a joint meeting 
between Member State experts and experts from the financial sector was held10. The Commission 
Services also received written contributions to the ongoing work from these stakeholders, and the 
contributions were made available to the public on DG TAXUD's website11.  

These discussions and consultations have shown a firm support from the business community to the 
initiative  of  simplifying  the  current  operation  of  corporate  tax  systems  in  the  EU  and  to  the 
prospect of removing tax obstacles for businesses that operate in a cross-border environment12. In 
addition, the academic community has also shown keen and increasing interest in the analysis of 
reforms  of  corporate  tax  systems  in  an  international  context.  The  results  of  the  theoretical  and 

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12 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/common_tax_base/ccctbwp057_en.pdf  
http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm 
The  organisations  represented  in  the  meetings  of  the  CCCTB  WG  held  extended  format  were:  EATLP 
(European  Association  of  Tax  Law  Professors),  UNICE  (Union  des  Industries  de  la  Communauté 
Européenne), FEE (Fédération des Experts Comptables Européens), CFE (Confédération Fiscale Européenne), 
EUROCHAMBRES (Association of European Chambers of Commerce), FBE (European Banking Federation), 
ERT (The European Round Table of Industrialists), CEPS (Centre for European Policy Studies), AMCHAM 
(American  Chamber  of  Commerce),  UEAPME  (European  Association  of  Craft  &  Small  and  Medium-sized 
Enterprises), CEA (Comité Européen des Assurances) and EBIT (European Business Initiative on Taxation). 
The  organisations  represented  were:  EACB  (European  Association  of  Co-operative  Banks),  EFAMA 
(European Fund and Asset Management Association), EFRP (European Federation for Retirement Provisions), 
ESBG  (European  Savings  Banks  Group),  FBE  (European  Banking  Federation)  and  CEA  (Comité  Européen 
des Assurances). 
http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/article_3130_en.htm 
The results of a KPMG International study published in September 2007 and based on a survey to more than 
400 companies from all 27 EU countries and Switzerland also show that tax professionals in Europe’s biggest 
businesses are heavily in favour of European Commission proposals for a new corporate tax system. The idea 
was supported by 78% of respondents across Europe. Business seemed to be attracted by the prospect of more 
straightforward tax compliance and better business planning. 

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applied  research  have  been  carefully  analysed  and  considered  throughout  the  policy  formulation 
process.  Moreover,  the  Commission  services  have  consulted  many  leading  scholars  on  various 
relevant topics in order to gauge their opinion on specific issues13.  

Along the way, the Commission issued some related Communications. In 2005, the Commission 
drew attention in two Communications to the link between its work on the CCCTB and the Lisbon 
Programme14.  In  April  2006  and  May  2007  the  Commission  issued  Communications15  on  the 
progress made towards a proposal on a CCCTB. These Communications have been discussed in the 
Council,  the  Economic  and  Social  Committee  and  the  European  Parliament.  The  Parliament  has 
issued  resolutions  in  support  of  the  project16.  The  latest  consultation  session  on  the  CCCTB  took 
place  on  20  October  2010  when  the  Commission  Services  held  a  CCCTB  Workshop,  which 
included  representatives  of  all  27  Member  States,  business  associations,  academics  and  think 
tanks17, focused on specific issues of the design of the CCCTB option (see Annex 1).  

All  these  continuous  and  extensive  consultations  have  informed  and  played  a  major  role  in  the 
development of policy. The conclusions from all these contributions (from Member States’ experts, 
business organisations, academic experts and other stakeholders) have been carefully analysed and 
feedback has been taken into careful consideration in formulating each aspect of the initiative. 

2. 

PROBLEM DEFINITION 

2.1. 

Background: the current institutional setting for company taxation in the EU  

In  order  to  put  the  assessed  policy  initiatives  in  quantitative  perspective,  table  1  reports  revenues 
from  taxes  on  the  income  of  corporations  in  the  EU27  countries,  alongside  applicable  rates.  On 
average, revenues are fairly stable in time, amounting to about 3 percentage points of GDP. This is 
roughly  8%  of  the  overall  tax-to-GDP  ratio  (including  social  security  contributions)  in  the  EU 
which reached 39.3% (in the GDP-weighted average) in 2008 (see Taxation Trends in the European 
Union, 2010 edition). On the policy side, the current system of corporate income taxation in the EU 
– in particular with respect to the treatment of international businesses - is characterised mainly by: 

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16 

17 

Thus, for example a meeting with academic experts was held in March 2004 on “the allocation mechanism” 
and written contributions on the factors for apportioning income were requested and received at other stages of 
the consultation process. 
‘Common  actions  for  growth  and  employment:  the  Community  Lisbon  Programme’  (COM(2005)330)  and 
‘Implementation of the Community Lisbon Programme – The contribution of taxation and customs policies to 
the Lisbon Strategy’ (COM(2005)532). 
‘Implementing  the  Community  Lisbon  Programme:  progress  to  date  and  next  steps  towards  a  Common 
Consolidated  Corporate  Tax  Base  (CCCTB)’  (COM(2006)157)  and  ‘Implementing  the  Community 
Programme for improved growth and employment and the enhanced competitiveness of EU business: Further 
Progress during 2006 and next steps towards a proposal on the Common Consolidated Corporate Tax Base 
(CCCTB)’ (COM(2007)223). 
European Parliament Resolution of 13 December 2005 on taxation of undertakings in the European Union: a 
common consolidated corporate tax base, Report of 1 December 2005, Committee on Economic and Monetary 
Affairs, Document A6-0386/2005. See also, EP Resolution of 24 October 2007. 
AMCHAM  (American  Chamber  of  Commerce),  Business  Europe,  CEA  (Comité  européen  des  assurances), 
CEPS  (Centre  for  European  Policy  Studies),  CFE  (Confédération  fiscale  européenne),  EATLP  (European 
Association  of  Tax  Law  Professors),  EBIT  (European  Business  Initiative  on  Taxation),  ETUC  (European 
Trade  Union  Confederation),  EUROCHAMBRES  (Association  of  European  Chambers  of  Commerce),  FBE 
(European  Banking  Federation),  FEE  (Fédération  des  experts  comptables  européens),  UEAPME  (European 
Association  of  Craft  &  Small-  and  Medium-Sized  Enterprises),  OECD  Secretariat  and  EESC  (European 
Economic and Social Committee). 

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Table 1: Income of corporations: tax revenues and rates 

Revenues  

in % GDP 

in millions 
euro 

Corporate tax 
rates 

1995 

2000 

2004 

2005 

2006 

2007 

2008 

2008 

2008 

2.4 

: 

4.6 

2.3 

2.1 

2.4 

2.8 

2.3 

1.9 

1.8 

2.9 

4.2 

1.8 

2.0 

6.6 

1.8 

2.6 

3.3 

1.6 

2.7 

2.4 

4.0 

0.5 

6.6 

2.3 

2.6 

2.8 

3.2 

2.8 

3.5 

3.3 

3.0 

0.9 

3.8 

4.1 

3.1 

2.8 

2.9 

6.2 

1.6 

0.7 

7.0 

2.2 

2.9 

4.3 

2.2 

2.4 

3.9 

3.0 

1.2 

3.5 

5.9 

3.8 

3.5 

3.1 

2.6 

4.7 

3.2 

2.2 

1.7 

3.7 

3.0 

3.5 

2.3 

3.1 

3.7 

1.8 

1.9 

5.7 

2.1 

4.1 

3.3 

2.4 

2.2 

3.0 

3.2 

1.9 

3.0 

3.5 

2.9 

2.9 

3.3 

2.5 

4.5 

3.9 

2.5 

1.4 

3.5 

3.3 

3.9 

2.3 

2.9 

4.6 

2.0 

2.1 

5.8 

2.2 

4.5 

3.6 

2.3 

2.5 

2.8 

2.7 

2.8 

3.0 

3.3 

3.6 

3.4 

3.5 

2.9 

4.8 

4.4 

3.0 

1.5 

4.0 

2.7 

4.2 

2.9 

3.5 

5.5 

2.3 

2.8 

4.9 

2.4 

5.0 

3.7 

2.3 

2.4 

3.0 

2.8 

3.0 

3.2 

3.4 

3.7 

4.0 

3.5 

3.4 

5.0 

3.8 

3.0 

1.7 

3.5 

2.5 

4.8 

2.9 

3.9 

6.8 

2.7 

2.6 

5.3 

2.8 

6.7 

3.5 

2.6 

2.8 

3.7 

3.1 

3.2 

3.2 

3.9 

3.9 

3.4 

3.3 

3.5 

4.4 

3.4 

2.7 

1.7 

2.9 

2.5 

2.9 

2.8 

3.7 

7.1 

3.1 

2.8 

5.1 

2.7 

6.8 

3.4 

2.6 

2.7 

3.7 

3.0 

2.5 

3.4 

3.5 

3.0 

3.6 

11,462 

1,208 

6,566 

7,970 

68,550 

266 

5,213 

5,875 

31,428 

54,415 

58,539 

1,218 

727 

888 

2,003 

2,836 

386 

20,410 

7,462 

9,838 

6,235 

4,185 

936 

2,203 

6,471 

9,700 

65,369 

34.0 

10.0 

21.0 

25.0 

29.8 

21.0 

12.5 

25.0 

30.0 

34.4 

31.4 

10.0 

15.0 

15.0 

29.6 

21.3 

35.0 

25.5 

25.0 

19.0 

26.5 

16.0 

22.0 

19.0 

26.0 

28.0 

30.0 

BE 

BG 

CZ 

DK 

DE 

EE 

IE 

EL 

ES 

FR 

IT 

CY 

LV 

LT 

LU 

HU 

MT 

NL 

AT 

PL 

PT 

RO 

SI 

SK 

FI 

SE 

UK 

EU-27 averages 

weighted 

arithmetic 

: 

: 

3.2 

3.2 

2.8 

3.0 

3.0 

3.2 

3.4 

3.4 

3.4 

3.6 

3.1 

3.4 

St.dev/mean 

49.5 

45.1 

30.7 

30.6 

28.2 

32.7 

34.9 

Max-min 

6.1 

6.3 

4.1 

4.4 

4.0 

5.1 

5.4 

Source: Commission services 

- 27 different corporate tax codes, which serve to compute the national corporate income tax bases 
of companies established within each Member State. These tax codes are inherently heterogeneous 
and  often  complex,  particularly  as  they  have  developed  by  adding  new  rules  to  adapt  to  the 
increasing  mobility  of  taxable  bases  as  a  result  of  globalization.  Furthermore,  not  only  does  each 
Member  State  have  its  own  sets  of  rules  for  determining  taxable  profits,  but  it  also  has  its  own 
arrangements  for  collection  and  administration  of  taxes  (e.g.  different  rules  and  deadlines  for 
completing and filing tax returns, different procedures to deal with the tax authorities, etc.) and its 
own  network  of  tax  treaties.  For  businesses  that  operate  in  a  cross-border  environment,  the 
level of complexity is exacerbated, as they are confronted with multiple tax regimes18, potentially 

18 

For the samples of EU multinational groups in the 27 Member States that have been used for several aspects of 
this  Impact  Assessment  (described  in  detail  in  Annex  3)  parent  companies  have  subsidiaries,  on  average,  in 
four EU Member States (other than that of the parent), for the sample based on EU multinational groups taken 
from Amadeus: thus, they have to deal with as many frequently changing corporate tax systems. Some parents 
reach  the  maximum  number  of  EU  foreign  destinations  which  is  26.  For  the  sample  of  EU  multinational 

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subject  to  frequent  changes.  Given  progressing  investment  mobility,  the  economy-wide  costs 
caused by this fragmented tax landscape can be expected to increase over time. 

- The allocation of taxable profits of multi-jurisdictional groups between tax jurisdictions according 
to  the  so-called  separate  accounting  (SA)  model.  SA  relies  on  the  principle  that  all  intra-group 
transactions  have  to  be  priced  at  arm's  length  (i.e.,  at  the  going  market  price  for  a  comparable 
transaction,  as  if  it  had  taken  place  among  unrelated  parties).  This  system  has  raised  theoretical 
concerns  (since  it  ignores  the  very  nature  of  economically  integrated  multi-jurisdictional 
corporations by treating their operations as if they were separate and independent) and also, mainly, 
practical ones19: in fact, it is costly for tax administrations and for taxpayers, offers opportunities for 
tax  avoidance  to  corporations  by  adjusting  transfer  prices  within  the  controlled  group,  and  often 
provides for measures that are particularly cumbersome to apply (e.g. finding comparables of high-
profit  firm-specific  intangibles).  Determining  the  tax  liability  in  each  jurisdiction  by  applying  the 
arm’s  length  pricing  standard  adds  complexity  to  the  working  of  international  businesses.  The 
resulting efficiency loss becomes significant at a global level given the large and increasing share of 
world trade consisting of transfer of goods, intangibles and services within multinational enterprises 
(MNEs).  The  WTO  (Nordas,  2003)  estimates  intra-firm  trade  at  one  third  of  world  trade 
flows20.  The  OECD  reports  that  the  share  of  intra-firm  exports  in  total  exports  of  manufacturing 
affiliates under foreign control ranges between 15% and 60% in OECD countries. According to a 
recent Eurostat21 survey carried out in 12 European countries, about 60% of enterprises engaged in 
international sourcing source their business functions within the EU27. At the same time, over 70% 
of them choose to organise the sourcing within the same group of enterprises instead of buying the 
services from other companies outside the group. 

- Often inadequate recognition of cross-border situations by national corporate income tax systems, 
particularly  in  the  area  of  cross-border  loss  compensation  within  a  multinational  group  of 
companies (see section 2.2).  

2.2. 

The remaining tax obstacles in the Internal market  

The current arrangements for corporate income taxation in the EU give rise to a number of obstacles 
to  cross-border  activities,  and  thus,  impede  the  proper  functioning  of  the  Internal  market  and  the 
achievement  of  its  potential  in  terms  of  efficiency  gains.  The  remaining  tax  barriers  to  the 
Internal  market,  which  have  prompted  the  current  policy  initiative,  can  be  categorised  into  the 
following three types: 

I. Additional compliance costs specifically linked to cross-border activities22.  

II.  International  double  taxation,  traditionally  divided  into:  economic  double  taxation 
(i.e.  the  imposition  of  comparable  taxes  on  the  same  income  in  the  hands  of  different 
taxpayers  in  two  or  more  states)  and  juridical  double  taxation  (i.e.  the  imposition  of 

19 

20 

21 
22 

groups operating in the financial sector (ORBIS database), on average parent companies have subsidiaries in 2 
Member States (other than that of the parent), so they have to deal with more than three tax codes. 
See for example Hellerstein (2005) "Income Allocation in the 21st century: The End of Transfer Pricing? The 
Case for Formulary Apportionment", International Transfer Pricing Journal, Vol. 3. 
More  specifically,  the  OECD  reports  that  the  share  of  intra-firm  exports  in  total  exports  of  manufacturing 
affiliates under foreign control ranges between 15% and 60% in the OECD countries for which such data are 
available. 
Statistics in focus 73/2009 
For  the  purpose  of  this  document  "compliance  costs"  are  defined  as  the  administrative  costs  incurred  by 
taxpayers to comply with tax legislation. 

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comparable taxes on the same income in the hands of the same taxpayers in two or more 
states). 

III. Over-taxation in cross border situations, which occurs when cross-border activities 
create tax liabilities that would not occur in a purely domestic context. 

The  following  focuses  on  examples  of  the  three  types  of  tax  barriers  identified  which  companies 
may  incur  in  the  current  scenario  as  a  result  of  doing  business  in  more  than  one  Member  State. 
However,  the  description  of  these  problems  is  not  intended  to  be  exhaustive,  and  more  specific 
details on these issues can be found in the 2001 Company Tax Study (see Annex 1)23. 

I. Additional compliance costs 

Tax compliance costs are the "hidden costs of taxation". The existence of a tax liability means that 
eventually a taxpayer will have to bear an overall tax burden consisting of the actual amount of tax 
and  the  costs  associated  with  its  calculation,  payment  and  collection.  Those  costs,  as  opposed  to 
taxes  that  accrue  to  the  public  budget  and  are  used  to  finance  potentially  welfare-increasing 
expenditures, are generally considered inherently wasted resources ("deadweight costs") that do not 
contribute to the general development of society or to the realization of public goals.  

the  corresponding 

A  number  of  studies  have  been  conducted  around  the  world  on  the  issue  of  compliance  costs. 
Despite  potentially  different  methodologies,  country  samples  and  tax  systems  they  converge  on 
three  major  findings:  first,  compliance  costs  for  companies  are  high  and  significant  however 
measured –whether in absolute money terms or relative to tax yield or GDP (ie, the studies suggest 
that tax related compliance costs are typically anywhere between 2% and 10% of the revenue yield 
from 
thus  hitting  small  business 
disproportionately  more  heavily  than  large  businesses;  third,  they  are  not  reducing  over  time. 
Also, notably, two particular factors stand out as major, over-riding determinants of compliance 
costs: change and complexity of the tax system(s) (Lang et al., 2008). These latter findings point 
to a significant impact of the current arrangements for company taxation in the Internal market upon 
the compliance burden of companies operating cross-border. A summary of the existing quantitative 
evidence on compliance costs for company taxation in the EU is given in Box 1. 

they  are  regressive, 

tax);  second, 

Box 1: Company tax related compliance costs 

PricewaterhouseCoopers LLP (PWC) carries out since 2005 an annual Total Tax Contribution survey of the 
Hundred  Group  of  Finance  Directors  (ie  an  association  of  the  100  largest  listed  UK  companies,  which 
contribute nearly a quarter of the total corporation tax take in the UK) asking them to provide information on 
the time spent on compliance activities relating to their taxes borne and collected, as well as to provide data 
on  their  tax  payments.  The  results  of  the  2007  survey  showed  an  average  cost  of  tax  compliance  for 
corporate  income  taxation  of  2.2%  of  taxes  paid.  On  top  of  that,  around  15%  of  the  time  spent  on 
compliance activities relate to the international aspects of corporate taxation (of which, transfer pricing 
represented 36%, Controlled Foreign Corporations 23%, double tax relief 19%, withholding tax 6%, treasury 
consents  4%,  and  other  12%).  Furthermore,  the  results  of  the  2008  Survey  show  that  43%  of  the  total 
compliance time and 54% of the total compliance  costs relate to corporation tax. As it represents only 

23 

Although  the  three  types  of  tax  barriers  are  analysed  separately  for  presentational  purposes,  sometimes  the 
obstacles  are  intrinsically  intertwined:  e.g.  the  attempts  to  alleviate  double  taxation  involves  additional 
compliance costs, etc. Where available, quantitative and qualitative evidence of the existing problems is given, 
using data from existing studies and available models and feedback from experts and concerned stakeholders. 
On  top,  as  in  the  section  below  analysing  the  impacts,  the  alternative  policy  options  are  compared  to  the 
current baseline scenario, those outcomes can serve as an indication of the "opportunity costs" of the present 
situation. 

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16% of the total tax payments for the surveyed companies, the compliance burden appears disproportionately 
high for this tax, not the least when it comes to its international aspects. 

Research undertaken by the European Commission (European Tax Survey, 2004 – more details in Annex 4) 
confirms  both  the  significance  and  the  regressivity  of  compliance  costs  in  the  corporate  sector.  700 
companies  across  14  MS  of  the  EU  responded  to  the  survey  (carried  out  in  2003),  which  shows  that 
compliance costs for the large companies averaged € 1.5 million, which represented 2% of the taxes paid 
and  0.02%  of  sales.  By  contrast,  SMEs  incurred  compliance  costs,  on  average,  of  €  200,000,  which 
represented 31% of the taxes paid and 2.6% of sales. The study also indicates that cross-border activity 
(for  example,  establishing  a  subsidiary  in  another  Member  State)  is  likely  to  lead  to  higher  absolute  and 
relative  tax-related  compliance  costs,  as  are  transfer  pricing  issues.  Thus,  these  findings  corroborate  the 
view  that  cross-border  operations  make  it  more  difficult  for  companies  to  comply  with  the  administrative 
aspects of company taxation.  

According to estimates in the 2001 Company Tax Study based on information from business representatives, 
the  tax  compliance  costs  of  transfer  pricing  are  significant.  These  costs  result  from  the  obligation  on 
enterprises  to  determine  what  prices  could  be  regarded  as  arm's  length,  including  finding  comparables, 
assembling  the  related  documentation  and  defending  these  prices  in  audits.  Medium-sized  multinational 
enterprises are reported to spend approximately € 1 million to € 2 million a year on complying with transfer 
pricing  rules.  Large  multinational  enterprises  incur  compliance  costs  related  to  transfer  pricing  of 
approximately € 4 million to € 5.5 million a year24.  

The Ernst & Young Transfer Pricing Surveys show that transfer pricing has increased compliance burdens 
over  the  last  years,  due  to  two  main  factors:  (i)  more  demanding  documentation  requirements  from  tax 
authorities  accompanied  by  tax  authority  reviews;  (ii)  adjustments  and  changes  of  the  type  and  scope  of 
business  operations  around  the  world.  Particularly,  the  increased  documentation  demands  owing  to 
transfer  pricing  appear  to  be  stretching  tax  department  resources.  In  the  2007  Survey,  65%  of 
respondents  saw  an  increased  need  for  transfer  pricing  resources  over  the  former  three  years,  with  72% 
meeting  the  need  through  increased  reliance  on  external  advisors  and  34%  by  hiring  in-house  resources. 
Already in the 2005 Survey, many companies seemed to have expanded their internal resources dedicated to 
transfer pricing and task risk  management, increasing their average headcount by 1 full-time  equivalent to 
2.5. 

II. Double Taxation 

Double  taxation  is  one  of  the  most  onerous  obstacles  to  international  economic  activity,  with 
detrimental  effects  on  efficiency  and  growth.  At  present,  there  are  still  numerous  instances  of 
double  taxation  which  result  from  the  need  to  comply  with  different  national  tax  systems  when 
operating in the Internal market and from the SA system of profit allocation to taxing jurisdictions. 
In the absence of actual tax data provided by national administrations, it is very difficult to obtain 
reliable  estimates  of  the  size  of  the  monetary  costs  of  double  taxation.  However,  a  recent  public 
consultation  carried  out  by  DG  Taxation  and  Customs  Union  on  double  taxation  confirmed  that 
double taxation continues to be considered to be a significant problem by many EU enterprises and 
tax advisors. On the basis of qualitative evidence, some of the most significant instances are:  

i) Cross-border business restructuring operations 

Although  the  Merger  Directive  and  recent  case-law  have  improved  the  situation,  all  instances  of  double 
taxation  in  relation  with  cross-border  business  restructuring  have  not  been  eliminated.  For  instance,  the 
absence  of  clear  obligations  in  the  Directive  may  give  rise  to  different  interpretations  by  Member  States 
resulting  in  double  taxation  of  capital  gains.  Further  details  and  examples  on  why  cross-border 
restructuring operations may still result in double taxation and create significant compliance costs, including 

24 

These figures only refer to the compliance costs associated with transfer pricing and do not include the costs 
and risks of double taxation due to transfer pricing disputes. 

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the opportunity cost of accepting suboptimal structures can be found in the Company Tax Study (e.g. pgs. 
312-315). 

ii) Tax treatment of transfer pricing 

The allocation of tax revenues between Member States on the basis of the "arm's length principle", which lie 
at the heart of transfer pricing, is a source of double taxation for intra-group transactions25. Double taxation 
in transfer pricing occurs when the tax administration of one Member State unilaterally adjusts the price set 
by  a  company  on  a  cross-border  intra-group  transaction,  without  this  adjustment  being  offset  by  a 
corresponding  adjustment  in  the  other  Member  State/s  concerned.  According  to  the  biannual  surveys  on 
transfer pricing26 published by Ernst & Young, one of the reasons why business considers transfer pricing a 
priority  tax  issue  is  indeed  its  connection  with  double  taxation.  In  some  years,  ,e.g.  1999,  business  have 
reported that 42% of cases of adjustment gave rise to double taxation. This is primarily because firms do 
not generally refer cases to mutual agreement procedures, as they consider the procedures too lengthy and 
costly27. 

Importantly, EU Member States have developed a network of bilateral double taxation Treaties. 
These  treaties  do  not  provide  a  comprehensive  solution  for  all  cases  of  double  taxation,  though. 
Indeed, the Company Tax Study already recognised that the area of double taxation conventions is a 
potential  source  of  obstacles  and  distortions  for  cross-border  economic  activities  within  the  EU. 
Although  the  intra-EU  network  of  double  taxation  treaties  is  largely  complete,  nevertheless 
important gaps  remain.  First,  although they broadly  follow  the  OECD  model, the treaties are still 
significantly  heterogeneous.  Moreover,  their  provisions  are  prone  to  different,  and  sometimes 
divergent, interpretation and application by the treaty partners, which result in double taxation (e.g. 
in  case  of  triangular  situations  or  in  cases  of  different  interpretation  of  crucial  concepts  such  as 
"permanent establishment" within a territory) or non-taxation. Business representatives also refer to 
the  increasing  complexity  of  treaty  provisions  as  a  source  of  compliance  costs  and  uncertainty. 
Indeed, with increasingly complex group structures and cross-border transactions, the application of 
these  treaties  often  gives  rise  to  difficult  issues  of  interpretation,  leading  to  complex  dispute 
procedures  and  ultimately  failure  to  ensure  double  taxation  relief.  In  addition,  the  Company  Tax 
Study  also  showed  that  tax  treaty  provisions  based  on  the  OECD  model,  in  particular  non-
discrimination articles, are not adequate to ensure compliance with the EU law principle of equal 
treatment. Moreover, the lack of coordination in the treaty practice of Member States in relation to 
third  countries,  for  example  regarding  limitation  of  treaty  benefits,  is  liable  to  give  rise  to 
distortions and partitioning of the Internal market. 

25 

26 

27 

It should be noted that "transfer pricing" requirements can also create problems due to unduly high compliance 
costs  (see  infra).  Annex  1  gives  more  details  on  why  transfer  pricing  rules  affect  the  'double  taxation'  and 
'additional compliance costs' tax obstacles in the Internal market. 
The number of companies and countries covered by these surveys has varied through the years. For the last 
report (2007-2008 Global Transfer Pricing Survey available at 
interviews 
http://www.ey.com/global/content.nsf/International/2007-2008_Transfer_Pricing_Global_Survey) 
with 850 multinational companies across 24 countries (of which 11 EU Member States) were conducted. The 
biannual surveys are conducted by Consensus Research International, a London-based Research Agency, and 
include  interviews  with  the  persons  responsible  for  international  tax  matters  in  leading  multinational 
organisations.  These  surveys  represent  the  only  available  large-scale  work  in  this  area  and  its  findings  give 
valuable insights into business perception of the subject. 
The 2007-2008 survey also reveals that over half (52%) of respondents had been subject to a transfer pricing 
audit since 2003, with 27% of these examinations resulting in adjustments by the tax authorities. Intercompany 
services  transactions  were  the  most  susceptible  to  audit  by  tax  authorities.  In  audit  cases  resulting  in 
adjustments, parent respondents indicated that tax authorities threatened to impose penalties in 31% of cases, 
and penalties were actually imposed in 15% of cases. 78% of respondents believed a transfer pricing audit is 
likely in the next two years. 

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In addition it will be noted that there has been a year on year increase in the number of unresolved 
cases under the Arbitration Convention as illustrated in the table below. The increase in the number 
of  unresolved  cases  may  be  taken  as  evidence  of  the  continuing  problems  in  the  area  of  transfer 
pricing.  

Table 2: Total amount of pending MAPs under the EU Arbitration Convention as of 31/12/2008 
in relation to the year when the request was received by the tax administration 

Requests 
received 
prior to 
2000 

Requests 
received 
in 2000 

Requests 
received in 
2001 

Requests 
received 
in 2002 

Requests 
received 
in 2003 

Requests 
received in 
2004 

Requests 
received 
in 2005 

Requests 
received 
in 2006 

Requests 
received 
in 2007 

Request 
received 
in 2008 

Total pending 
cases* 

2008 
2007 
2006 
2005 
2004 

0 -3 
2 
2 - 5 
16 - 24 
24 

2 -3 
1 - 5 
3 - 6 
1 - 13 
8 

1 -3 
1 - 5 
0 - 4 
5 - 10 
12 

2 
4 - 6 
4 - 9 
10 - 18 
24 

2 -4 
3 - 8 
10 - 16 
12 - 23 
23 

4 - 8 
6 - 11 
8 - 20 
12 - 25 
16 

21 - 32 
29 - 42 
39 - 55 
42 - 68 
0 

36 -41 
45 - 66 
46 - 69 

56 - 60 
55 - 81 

54-62 

178 - 218 
146 - 226 
112 - 184 
98 - 181 
107 

* discrepancies in the number of pending cases reported by Member States result from differing criteria in 
deciding when a case is finally closed 

III. Over-taxation of cross-border economic activity 

Over-taxation can primarily occur due to the absence or limited availability of cross-border loss 
relief. The possibility to set off losses against profits in computing the tax liability of a taxpayer is a 
basic  feature  of  company  tax  systems.  However,  in  the  current  situation,  taxation  of  corporate 
income often does not properly reflect the overall EU-wide result of the business activity when 
foreign  investment  in  the  EU  is  involved.  Indeed,  while  most  Member  States  allow  for  domestic 
relief of losses within a group of companies, only a few Member States provide for some limited 
forms  of  cross-border  loss  compensation,  i.e.  allow  relief  for  the  losses  of  a  foreign  company 
belonging  to  the  same  group  of  a  domestic  corporate  taxpayer.  At  the  same  time,  cross-border 
losses  within  one  company,  i.e.  losses  of  a  foreign  branch  or  permanent  establishment,  may  be 
taken  into  account  at  the  level  of  the  head  office  in  most  Member  States28.  These  loss  offsetting 
arrangements entail a risk of over-taxation in international activities whenever cross-border losses 
cannot  be  compensated  immediately.  That  is,  since  domestic  losses  are  immediately  deductible, 
thus  reducing  the  current  tax  burden,  a  group  operating  cross-border  would  face  a  liquidity  cost 
compared to a domestic group. For the international group, the compensation of losses incurred by 
foreign subsidiaries will be at best deferred if the source country allows carry-forward of the losses 
(which creates significant interest cost) and in some cases, where losses cannot be absorbed locally, 
they will never be relieved, and will become permanent.  

As reported in section 5.1.2, evidence based on representative samples of EU multinational groups 
shows  that,  on  average,  every  year  approximately  50%  of  non-financial  and  17%  of  financial 
multinational  groups  could  benefit  from  immediate  cross-border  loss  compensation.  The 
additional  losses  that  could  be  compensated  cross-border  in  the  samples  amount  on  average  to 
3%  and  2.5%  of  the  net  taxable  profits  for  the  non-financial  and  financial  groups 
respectively. Overall, the losses that could be immediately compensated under the CCCTB scenario 
account  on  average  for  7%  and  20%  of  the  net  current  taxable  profits  for  non-financial  and 
financial groups, respectively. The current situation also translates into different tax treatment of 

28 

Only Austria, Italy, Denmark and France have some form of cross-border group loss relief. Belgium, Czech 
Republic, Greece, Lithuania, Hungary and Slovakia are the only Member States that do not provide any kind 
of domestic (or cross-border) group relief. 

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foreign  permanent  establishments  and  foreign  subsidiaries  by  Member  States,  which  may  affect 
business  decisions  on  the  form  of  establishment  in  the  Internal  market.  This  different  treatment, 
which could adversely impact on business decisions, might ultimately run against Art. 49 TFEU on 
freedom  of  establishment.  Other  instances  of  over-taxation  can  arise  in  cross-border  restructuring 
operations, and in cases of dividend taxation when different national tax systems are involved.  

2.3. 

Summary of the problems and the baseline scenario 

The  described  tax  barriers  discourage  cross-border  economic  activity  and  induce  firms  to  prefer 
domestic  over  cross-border  operations,  thereby  directly  hindering  the  achievement  of  the  Internal 
market  (Article  26  TFEU)  and  the  full  exploitation  of  the  benefits  of  market  integration.  This 
implies  a  lack  of  a  "level  playing  field",  barriers  to  a  more  efficient  allocation  of  resources  and 
foregone opportunities for growth and welfare gains across the EU. Moreover, in the framework of 
increased internationalization of economic activities, such company tax obstacles are now more and 
more  evident  and  detrimental.  The  simplification  of  the  corporate  taxation  setting  in  the  Internal 
market is therefore at the heart of this policy initiative. 

For  the  purpose  of  the  economic  analysis,  the  tax  barriers  faced  by  EU  firms  when  they  expand 
across  national  borders  can  be  defined  as  cost-increasing  barriers  resulting  in  market-entry 
restrictions. The removal of such barriers is akin to a liberalisation policy to be analysed within 
the framework of the freedom of establishment in the Internal market. According to article 115 
of  the  Treaty  on  the  Functioning  of  the  European  Union,  Member  States  can  unanimously  issue 
directives for the approximation of laws which directly affect the establishment or the functioning 
of  the  common  market.  Against  this  background,  economic  integration  at  the  global  level  is 
progressing steadily, with cross-border investment  on a clear  upward trend, as  figure 1 shows for 
the  EU.  In  a  framework  in  which  the  geography  of  production  is  changing  significantly,  the 
fragmented corporate tax landscape is likely to put the EU at a disadvantage in comparison with its 
main economic partners.  

Figure 1. Foreign Direct Investment in the EU27 

Foreign Direct Investment in the EU27
(billion euros)

800

700

600

500

400

300

200

100

0

6000

5000

4000

3000

2000

1000

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

Intra-EU FDI flows (left scale)

Inward FDI stocks from EU27 (right scale)

Inward FDI stocks from extra-EU27 (right scale)

Source: Eurostat.  

At  the  microeconomic  level,  the  internationalisation  of  production  increasingly  involves  vertical 
trading  chains  between  groups  of  firms  over  a  number  of  countries.  Ultimately,  this  is  going  to 

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contribute significantly to both increasing the scale of world trade, and to changing its nature, with 
the  share  of  intra-firm  trade  gaining  even  more  importance.  A  survey  on  international  sourcing 
carried  out  by  Eurostat  in  12  EU  countries  shows  that  insourcing,  i.e.  moving  business  functions 
abroad within the same enterprise group is by far the most common type of international sourcing. 
At  the  aggregated  level,  over  the  period  2001-2006,  insourcing  of  support  and  core  business 
functions  is  used  respectively  by  about  80  and  70%  of  enterprises  with  international  sourcing 
(roughly 16% of all enterprises surveyed). At the same time, 40% of enterprises who have moved 
certain business functions abroad source within the EU. In perspective, 4% of all the companies not 
having sourced internationally between 2001 and 2006 had plans to do so in the period 2007-2009. 
The  percentage  almost  doubles  (reaching  7%)  when  only  the  manufacturing  sector  is  considered. 
While,  not  surprisingly,  the  most  relevant  barriers  for  international  sourcing  are  linked  to  the 
production process (proximity to clients and producers, etc), taxation issues are considered a very 
important disincentive for expanding abroad by a significant number of enterprises (see figure 2). 
This  suggests  that  the  observed  and  perspective  international  activity  might  still  be  below  the 
potential levels reachable in the absence of the identified barriers.  

All in all, taking into account the depicted evolution of the baseline scenario, tax related compliance 
costs are likely to increase. At the aggregate level, more resources will be devoted to compliance as 
a  consequence  of  the  increasing  cross-border  expansion  of  firms.  At  the  margin,  the  rising 
complexity  in  the  organisation  of  production  processes  will  be  likely  reflected  into  more 
cumbersome, and hence costly, transfer pricing requirements.  

2.4. 

Subsidiarity and proportionality 

The right for the Community to act in the field of direct taxation is set out in article 115 of TFEU, 
which provides that "[t]he Council shall, acting unanimously on a proposal from the Commission 
and  after  consulting  the  European  Parliament  and  the  Economic  and  Social  Committee,  issue 
directives  for  the  approximation  of  such  laws,  regulations  or  administrative  provisions  of  the 
Member  States  as  directly  affect  the  establishment  and  functioning  of  the  common  market". 
Moreover, the envisaged policy options are compatible with the EU Charter of Fundamental Rights. 

As pointed out in the previous sections, the current framework with 27 different national corporate 
tax systems impedes the proper functioning of the Internal market. Member States cannot provide a 
comprehensive solution to this problem. Non-coordinated action, planned and implemented by each 
Member  State  individually,  would  replicate  the  current  situation,  as  taxpayers  would  still  need  to 
deal with as many tax administrations as the number of jurisdictions in which they are liable to tax. 

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Community action is necessary in view of establishing a juridical framework with common rules. 
The  Commission  has  taken  initiative  having  in  mind  that,  under  the  principle  of  subsidiarity, 
Member States are free to determine the size and the composition of their tax revenues.  

The measures to be taken under the present initiative are both suitable and necessary for achieving 
the desired end (i.e. proportionate). The comprehensive proposals examined in this document do not 
imply a harmonisation of corporate tax rates in the EU and, therefore, they do not restrict Member 
States' capability to influence their desired amount of corporate tax revenues. They do not interfere 
with  national  choices  in  terms  of  the  size  of  public  sector's  intervention  and  composition  of  tax 
revenues. They propose a more efficient way to collectively manage the problems arising from the 
segmentation of national corporate tax systems in view of a more efficient Internal market. In line 
with the general understanding of the subsidiarity principle, they offer solutions allowing managing 
collectively the market failures resulting from the separate working of 27 national tax systems.  

3. 

OBJECTIVES 

3.1. 

General objectives 

The general objectives are to improve the simplicity and efficiency of the corporate income tax 
systems in the EU and thus contribute to the better functioning of the Internal market. This would 
lend support to the objectives of the Europe 2020 strategy by means of reduced tax distortions to 
investment decisions and increased opportunities for cross-border investments. As a result the 
EU  will  be  a  more  attractive  place  to  operating  a  business  and  fair  competition  in  the  Internal 
market will be enhanced. This will contribute to the overall objective of exploiting the full potential 
of  an  integrated  EU  economy  advocated  in  the  Single  Market  Act.  Engaging  in  international 
activities  typically  also  has  a  positive  impact  on  the  competitiveness  and  performance  of 
enterprises. Therefore, an improvement of the overall macroeconomic performance, that is, of 
employment, economic growth and welfare in the EU can be expected, particularly in the medium 
and longer term.  

It  should  be  stressed  that  the  effects  on  the  size  and  the  distribution  of  corporate  taxable  bases 
across  the  EU  (see  section  5)  are  not  an  intended  aim  of  the  policy  initiatives.  No  objectives  are 
therefore defined in terms of revenue distribution or revenue neutrality for MS.  

3.2. 

Specific objectives 

The  general  objectives  spelled  out  above  will  be  achieved  by  meeting  the  following  specific 
objectives aimed at removing the remaining corporate tax barriers faced by companies operating in 
the Internal market (see section 2.2): 

1. Reduction of additional corporate tax related compliance costs for companies  

2. Elimination of double taxation for companies operating in the EU Internal Market  

3. Elimination of the over-taxation on cross-border economic activity, mainly stemming from the 
absence or limited availability of cross-border loss relief.  

The elimination or reduction of these obstacles will help minimise the tax-induced distortions and 
inefficiencies in the Internal market.  

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4. 

POLICY OPTIONS 

4.1. 

Description of the options 

The  extensive  public  debate  on  corporate  tax  reforms  in  the  EU  launched  by  the  Commission  in 
2001  revealed  that,  with  a  view  to  removing  the  tax  obstacles  in  the  Internal  market,  a  series  of 
targeted actions could be envisaged as short-term measures, but alternatives for a comprehensive 
solution  based  on  the  provision  of  common  rules  for  the  corporate  tax  base  should  be 
considered as the long-term solution. Thus, only comprehensive solutions are retained for analysis 
and  comparison  to  the  baseline  current  situation.  In  any  case,  harmonisation  would  involve  the 
base and not extend to the tax rates. Each MS will be applying its own rate to the taxable base of 
the  companies.  The  five  possible  options  (status  quo  and  four  comprehensive  alternative 
solutions)  envisaged  as  possible  corporate  taxation  policies,  which  will  be  assessed  and  weighed 
against the above-mentioned objectives are the following. 

Option 1 – No further EU action 

The  baseline  scenario  will  be  the  likely  evolution  of  the  current  situation  as  described  before 
(sections  2.1-2.3),  i.e.  with  no  further  EU  action.  All  in  all,  from  the  general  economic  trends 
pointing to increasing internationalisation of production it can be inferred that the current problems 
deriving  from  the  fragmented  EU  landscape  when  it  comes  to  corporate  taxation  are  likely  to 
aggravate in the absence of policy intervention.  

Option 2 – Optional Common Corporate Tax Base 

The second policy option to be evaluated is an optional Common Corporate Tax Base (CCTB). This 
alternative would affect the calculation of the corporate tax bases for the relevant companies in the 
EU.  It  would  replace,  for  the  relevant  companies  (tax  resident  in  the  EU  and  of  EU-located 
branches29 of third-country companies), the current 27 different company tax codes by a single set 
of tax rules to establish the common tax base: the CCTB rules. Harmonisation will only involve 
the  computation  of  the  tax  base  and  not  interfere  with  financial  accounts.  Therefore,  MS  will 
maintain their national rules on financial accounting and, at a second stage, adjust the result of the 
Profit & Loss Account (P&L) in line with the common rules, to arrive at the taxable profits (see 
Annex 5 for more  details).  However,  as  the common tax base would not be consolidated, the SA 
mechanism  would  need  to  remain  in  place:  this  means  that  for  groups  operating  cross-border  all 
intra-group international transactions would continue to be priced at arm's length and there would 
be no automatic EU-wide consolidation of the tax base. Under this policy option, the CCTB will be 
considered optional for any company in the EU subject to corporate taxation that may wish to use 
this set of rules to compute its taxable profit within each Member State in which it operates. For the 
purposes  of  this  Impact  Assessment,  it  will  be  assumed  that  all  EU-based  multinational  groups 
would opt for it in this scenario30. 

Option 3 – Compulsory Common Corporate Tax Base 

The third policy option is a compulsory Common Corporate Tax Base. This alternative would affect 
the calculation of the corporate tax bases for all EU-based companies. It would replace the current 

29 

30 

Branches create a taxable presence in their country of location; the term commonly used for such presence is 
'permanent establishment' (PE). 
Although companies will likely have to devote time and resources to decide whether or not to adopt the new 
system, a quantitative assessment is not attempted here due to lack of reliable evidence.  

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27  different  company  tax  codes  by  a  common  EU-wide  tax  base.  In  this  case  the  CCTB  will  be 
considered compulsory for all EU-based companies subject to corporate taxation. Thus, this option 
would  be  applied  both  to  multinational  companies  and  to  purely  domestic  companies  which,  by 
definition, currently do not face any cross-border tax obstacles. 

Option 4 – Optional Common Consolidated Corporate Tax Base  

The fourth policy option to be evaluated is an optional Common Consolidated Corporate Tax Base 
(CCCTB). This option would replace, for the relevant companies, the current 27 different company 
tax codes and the SA mechanism by the taxation of a common (eg, calculated under one single set 
of  tax  rules:  the  CCCTB  rules)  EU-wide  consolidated  tax  base.  The  CCCTB  is  a  system  of 
common rules for computing the tax base of companies which are tax resident in the EU and of 
EU-located  branches31  of  third-country  companies.  Specifically  the  common  fiscal  framework 
provides for rules to compute each company’s (or branch's) individual tax results, the consolidation 
of those results, when there are other group members, and the apportionment of the consolidated 
tax  base  to  the  different  jurisdictions  in  which  the  group  entities  operate.  The  tax  base  is 
apportioned based on a formula which consists of 3 equally-weighted factors (i.e. assets, payroll 
and  sales).  Member  States  can  then  apply  the  national  corporation  tax  rates  to  their  respective 
shares  of  taxable  bases.  As  another  important  element  of  this  alternative  scenario,  it  is  also 
envisaged  to  simplify  the  administrative  framework  that  could  facilitate  the  tax-related 
administrative requirements for companies operating cross-border (i.e. ‘one-stop shop’ approach to 
administration  and  other  reforms  introducing  common  tax-related  administrative  processes32). 
Annex 5 provides more details on the main features of the option.  

Different  policy  choices  can  be  envisaged  for  this  alternative.  In  particular,  the  design  of  some 
elements of the tax base and of the apportionment mechanism will be subject to analysis.33 

31 

32 

33 

Branches create a taxable presence in their country of location; the term commonly used for such presence is 
'permanent establishment' (PE). 
A full description of the main features of the CCCTB policy option is included in Annex 5: the definition of the 
taxable  base  (and  its  relationship  with  IAS/IFRS),  water’s  edge,  definition  of  the  group,  apportionment 
mechanism,  administrative  framework,  anti-abuse  rules,  etc.  The  CCTB  policy  (which  just  entails  common 
rules to define the tax base) is also implicitly described in that Annex, since CCTB is a narrower concept than 
CCCTB, which on top takes into account consolidation, cross-border loss compensation and allocation of the 
tax bases to different Member States. 
Regarding  the latter  aspect,  in-depth  discussion during  the  consultation process  led  to considering  the  three-
factor formula based on company-specific data the most promising mechanism for sharing the tax base among 
Member  States.  See  for  example  CCCTB/WP/47,  CCCTB/WP/52,  CCCTB/WP/56,  CCCTB/WP/60,  DG 
TAXUD  Taxation  Papers  nº8  and  nº9.  Different  alternatives  were  considered  through  the  way:  from 
apportionment based on macro-factors, a Value Added key (to be retrieved from VAT returns of companies), 
firm-specific  factors  defined  in  several  ways,  etc.  The  experiences  in  countries  that  use  formulary 
apportionment to split the income of multi-jurisdictional companies were analysed in detail (ie Canadian and 
US  practices).  Thus  the  consolidated  tax  bases  under  this  policy  option  –common  for  all  Member  States, 
though with certain specificities for certain industries –would be based on labour (consisting of equal weighted 
payroll  and  number  of  employees),  assets  (without  intangibles,  financial  assets  or  inventory)  and  sales 
(measured 'at destination'). Stakeholders and experts in the field have agreed that this three-factor formula best 
fulfils the principles that have guided the design of the sharing mechanism, i.e. the formula should: (i) be as 
simple as possible for taxpayers and tax administrations to apply and easy for tax administrations to audit; (ii) 
be  difficult  for  taxpayers  to  manipulate,  that  is,  it  should  not  rely  on  factors  that  can  be  easily  relocated  to 
exploit tax rate differentials across the EU; (iii) distribute the tax base among the various entities concerned in 
a  way  that  can  be  considered  fair  and  equitable;  and  (iv)  not  lead  to  undesirable  effects  in  terms  of  tax 
competition. Therefore, this three-factor formula will be the main sharing mechanism subject to analysis in this 
Impact Assessment.  

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Under  this  option  the  CCCTB  system  will  be  considered  optional  for  any  company  in  the  EU 
subject to corporate taxation that may wish to use this set of rules to compute its EU-wide taxable 
profits.  For  the  purposes  of  this  Impact  Assessment  it  will  be  assumed  that  all  EU-based 
multinational groups would opt for it in this scenario34.  

Option 5 – Compulsory Common Consolidated Corporate Tax Base 

The fifth policy option to be evaluated is a compulsory Common Consolidated Corporate Tax Base. 
This alternative would affect the calculation of the corporate tax bases for all EU-based companies. 
It  would  replace  the  current  27  different  company  tax  codes  by  a common  EU-wide  consolidated 
tax  base.  In  this  case  the  CCCTB  will  be  considered  compulsory  for  all  EU-based  companies 
subject to corporate taxation. Thus, this option would be applied both to multinational companies 
and to purely domestic companies which, by definition, currently do not face any cross-border tax 
obstacles. 

4.2. 

The choice of the legal instrument 

The choice of the legal instrument may have an effect on: (i) legal certainty; (ii) proportionality (i.e. 
whether  the  instrument  chosen  is  the  least  interventionist  to  achieve  the  objectives,  e.g.  directive 
should be preferred over the regulation); (iii) adequacy of the instrument with regard to the content 
of the proposal. 

4.2.1. 

Recommendation and soft law 

Recommendations  or  agreements  such  as  a  "Code  of  Conduct"  among  Member  States  have  been 
used with a certain degree of success in some limited areas of taxation. However, such instruments 
would  not  be  appropriate  in  view  of  the  nature  of  the  tax  obstacles  and  identified  substantive 
solutions involved. In fact, in the framework of company law, the definition of the taxable base is 
part of the legislation of each State. By its very nature, the taxable base is defined by law in order to 
secure  the  adequate  level  of  legal  certainty  both  for  taxpayers  and  tax  administrations.  The 
recommendation  or  another  instrument  based  on  soft  law  would  not  secure  the  adequate  level  of 
legal certainty. While a soft law instrument could in principle be envisaged for the approximation of 
certain types of national tax legislation, it would be an inadequate solution for the issues at hand. 
Firstly,  a  certain  degree  of  approximation  would  not  lead  to  uniformity.  Thus,  the  issue  of 
compliance  costs  would  not  be  adequately  addressed.  Secondly,  national  corporation  tax  systems 
have to be seen as a coherent set of interdependent rules. For example, the need for a loss carry-
back  depends  on  the  generosity  of  the  rules  for  provisions.  Approximating  certain  rules  would 
therefore not be a feasible solution. Thirdly, in view of the fact that cross-border consolidation is an 
important element for overcoming tax obstacles, any such system requires a specific administrative 
and legal framework that has to be laid down in community law. 

4.2.2.  Directive 

The  directive  is  an  instrument  best  suited  to  guarantee  basic  common  rules,  applicable  in  all 
Member  States.  In  particular,  the  need  for  a  directive  to  ensure  legal  certainty  both  for  the 
application and in case of litigation is the normal way to deal with company law, not only in the tax 
area. A directive is the most adequate way to achieve the objectives set out in section 3 and it fully 
respects the proportionality principle. 

34 

Although companies will likely have to devote time and resources to decide whether or not to adopt the new 
system, a quantitative assessment is not attempted here due to lack of reliable evidence. 

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4.2.3. 

Regulation 

As far as direct taxation is concerned, art. 115 of TFEU only provides for the use of directives. 

4.3.  Main design elements of the tax base 

In line with the approach taken in the CCCTB Working Group of examining individual elements of 
each  "block"  of  the  tax  base,  the  Working  Group  also  examined  the  specific  approach  taken  by 
individual Member States in detail. The working papers of the Group are listed in Annex I and can 
be found on the TAXUD website35. The papers contain information on the different MS approaches 
to  the  construction  of  their  corporate  tax  bases.  While  the  technical  approach  and  detail  of  the 
Member  States  approaches  would  differ,  from  a  policy  perspective  there  was  only  a  material 
difference  in  relation  to  the  treatment  of  depreciation36.  As  a  result  of  the  substantive  differences 
among  MS  with  regard  to  the  treatment  of  depreciation  the  focus  of  the  work  of  the  Group 
concentrated on the rates of depreciation. This impact assessment examins two rates; 20% and 25%. 

Following on from the work of the CCCTB Working Group and from working paper 57 the table 
below  summarises  the  main  elements  of  the  CCCTB,  more  detailed  information  on  the  elements 
and the construction of the tax base can be found in Annex V. 

Main elements of the CCCTB 

1. The ‘tax base’ (i.e. the individual tax results of each group member) 

•  all  revenues  are  taxable  except  if  expressly  listed  as  exempt;  in  addition,  taxable  revenues  are 

reduced by deductible (business) expenses and certain other items treated as deductible. 

•  Exempt items include: received distributions of dividends; proceeds from the disposal of shares; 
and income from a branch in a third country. Deductible business expenses commonly involve 
all  costs  relating  to  sales  and  expenses  linked  to  the  production,  maintenance  and  securing  of 
income. The CCCTB extends deductibility to costs for research and development (R&D) and for 
raising equity or debt for the purposes of the business. 

•  fixed  assets  are  depreciable  for  tax  purposes  subject  to  certain  exceptions.  Depreciable  assets 
are distinguished between those subject to depreciation individually and those placed in a pool. 
Long-life  tangible  and  intangible  fixed  assets  are  individually  depreciated  whilst  the 
remaining assets go into a pool. 

•  Losses may be carried forward indefinitely. No loss carry-back is allowed. 

2. Consolidation 

A 2-part test determines the entitlement to participation in the group. The deciding factors are control 
(>50% of voting rights) and either ownership (>75% of capital) or rights to profits (>75% of rights 
giving  entitlement  to  profit).  EC-located  branches  (of  third-country  companies)  are  eligible.  The  2 
thresholds have to be met throughout the year. Otherwise, the company has to leave the group. There 
is also a 9-month minimum requirement for being a group member. 

•  Intra-group transactions are eliminated,  

35 
36 

http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm  
Annex XI is the CCCTB WG working paper 4 and annex on tax and depreciation summarises how assets are 
depreciated differently across Member States. 

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•  Business reorganisations:  

A. Companies entering the group 

The  underlying  rationale  is  to  create  a  bridge  between  the  national  tax  system  and  the 
CCCTB scheme. The aim is to strike a balance between MS individual taxing rights and 
the concept of a consolidated shared tax base. 

(i)  Pre-consolidation  trading  losses  are  ring-fenced  and  carried  forward  to  be  set  off 
against the taxpayer’s apportioned share. The idea behind this is that the MS participating in 
the consolidated group do not have to bear the cost of losses already incurred; 

(ii) Unrealised gains: the capital gains are taxable upon realisation and shared across the 
group; 

B. Companies leaving the group 

(i)  Group  trading  losses:  nothing  is  attributed  to  the  leaving  company;  losses  produced 
during the period of consolidation remain at group level; 

(ii)  Unrealised  gains:  capital  gains  are  taxable  upon  realisation  at  the  level  of  the 
company leaving the group; 

C. Reorganisation within a group 

(i) Trading losses incurred during consolidation: no impact; 

(ii) Pre-consolidation losses remaining unrelieved continue to be ring-fenced; 

(iii) Unrealised gains: tax neutrality is the overarching principle  

3. Transactions between the group and entities outside the group 

•  Tax Treaties with third countries will override conflicting rules of the Directive, meaning that a 

MS will not be hampered from fulfilling its commitments vis-à-vis a third country. 

•  Relief  by  exemption  will  be  given  for  third-country  located  branch  income;  inbound  dividend 
distributions; and the proceeds from the disposal of shares held in a company outside the group. 

•  Relief by credit for inbound interest and royalty payments; the credit is shared among the group 

members according to the formula (without inclusion in the consolidated base). 

•  Withholding taxes charged on outbound interest and royalties will be shared among the group 
members  according  to  the  formula  (without  inclusion  in  the  consolidated  base);  in  the  case  of 
dividends, the withholding tax will not be shared Transactions between associated enterprises 
will be subject to pricing adjustments in line with the 'arm's length' principle. 

4. Anti-Abuse 

•  A  General  Anti-Abuse  Rule  (GAAR)  is  supplemented  by  measures  designed  to  curb  abusive 

practices of a cross-border nature:  

(i) Limitations apply to the deductibility of interest paid to associated enterprises in a low-
tax third country which does not exchange information with the Member State of the payer; 

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specific rules define the concept of a 'low-tax third country'; 

(ii) Controlled Foreign Companies (CFCs) legislation requires that the CFC, resident in a 
low-tax third country, is controlled at 50% of its voting rights, owned at 50% of its capital 
and gives 50% profit entitlement to the taxpayer. In addition, 30% of CFC income should 
be tainted. 

5. Formulary Apportionment (FA) 

•  The FA comprises 3 equally-weighted factors (i.e. assets, payroll and sales): 

(i)  Labour  is  computed  based  on  both  payroll  and  the  number  of  employees  (each  item 
counts for half); 

(ii) Assets consist of all fixed tangible assets, meaning that intangibles and financial assets 
are excluded from the FA;  

(iii) Sales are taken into account to increase the taxing entitlement of the MS of destination. 

6. Administration 

•  The 'one-stop-shop' practice will allow groups with a taxable presence in more than one MS to deal 
with a single tax authority across the EU (i.e. principal tax authority (PTA)), being that of the EU 
parent  of  the  group  termed  'principal  taxpayer'.  A  consolidated  tax  return  will  be  filed  with  that 
authority. 

•  The Directive contains procedural rules on various matters: 

(i) How taxpayers should submit their notice to opt into the CCCTB and subsequently their 
annual tax returns; 

(ii)  A  ruling  mechanism,  coupled  with  an  interpretation  panel  and  a  scheme  for  the 
exchange of information, will be operated by the competent authority (CA) in each group 
member; 

(iii) Audits will be initiated and coordinated by the PTA;  

(iv)  In  terms  of  dispute  settlement,  disputes  between  MS  will  be  referred  to  Arbitration 
whilst those between taxpayers and MS will be dealt with by an Administrative Appeals 
Body  at  a  1st  instance  and,  at  a  2nd  instance,  will  have  to  be  brought  before  the  national 
courts of the principal taxpayer. 

5. 

ANALYSIS OF IMPACTS OF THE RETAINED OPTIONS 

This section analyses the different impacts of the tax reforms under analysis. First, specific impacts 
of  the  main  elements  of  the  concerned  policy  options37  and,  subsequently,  general  economy-wide 

37 

As specific elements vary across the policy options, not all alternative policy options under scrutiny have an 
impact  in  all  the  aspects  analysed:  for  example,  the  CCTB  option  has  no  effect  on  cross-border  loss 

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effects of the various options are addressed using the different methodologies summarised in Box 2. 
Thus, hereafter, the impact of each policy option on the following aspects will be outlined: 

1) 

2) 

3) 

impact  on  the  size  of  the  taxable  bases,  and  on  the  distribution  of  the  corporate  tax 
bases  among  the  EU  Member  States,  stemming  from  both  the  new  corporate  tax  base 
provisions and the possibility of loss consolidation;  

impact on the costs for tax administrations and on the compliance costs for taxpayers;  

the main economy-wide impacts.  

A  qualitative  discussion  of  the  expected  dynamic  long  term  effects,  as  well  as  of  the  social  or 
environmental impacts, is also provided.  

Box 2: Methodologies used to quantify the impacts of the alternative policy options.  

1. The European Tax Analyzer (ETA): a methodology that simulates the development of a 'model' company 
over a 10-year period, taking into account the relevant provisions of the tax system in place. The model is 
used to measure the size of the tax base as defined by current national tax provisions (baseline scenario) in 
each of the 27 EU Member States, and then to compare the results with the tax base that would result from 
the application of an EU common tax base, but cannot address consolidation and allocation of the tax base, 
and therefore does not measure the final tax base size for the CCCTB options. See Annex 6 for more details. 

2. ORBIS and Amadeus databases: the databases provide balance sheets and profits and loss accounts for 
representative samples of about 6700 EU multinational groups in the financial and about 2000 groups in the 
non-financial  sectors,  respectively,  over  the  2002-2005  period.  The  data  have  been  used  to  calculate  the 
effect of loss consolidation and, with particular reference to ORBIS, to calibrate the CORTAX model. Annex 
3 provides a detailed description of the different ways in which the data have been used.  

3.  CORTAX  model:  an  applied  computable  general  equilibrium  (CGE)  model  that  describes  the  27 
countries of the European Union, plus the US and Japan. It is designed to simulate the economic implications 
of unilateral and multilateral corporate tax policies as well as the harmonisation of these policies. The model 
is calibrated using data from the ORBIS database. Importantly, the simulations in CORTAX are run under 
the working assumption that any changes in the corporate tax base would be compensated by changes in the 
national tax rates to guarantee ex-ante budget neutrality. See Annex 10 for more details. 

4.  PricewaterhouseCoopers  case  study:  a  survey  launched  in  2008  among  multinational  companies 
located in the EU. Of the 21 EU multinational companies surveyed, 17 replied to the questionnaire on the 
quantitative and qualitative views on compliance under the current national systems for corporate income tax 
and in the two hypothetical scenarios of CCTB and CCCTB. Annex 7 gives more details on this exercise. 

5. Deloitte Tax Experts survey: a survey among tax experts of Deloitte's European network was carried 
out  in  2009  to  evaluate  the  additional  recurrent  compliance  time  and  cost  that  would  be  needed  if  a 
multinational group would set up a new subsidiary in another EU Member State. See Annex 8.  

5.1. 

Impact of the policy options on the size of taxable bases 

Modifying the size of the corporate tax bases is not an objective per se of the company tax reforms 
under  analysis.  However,  all  the  alternative  policy  options  imply  new  tax  rules  for  defining  the 
common tax base. Hence, it is important to assess the changes in the size of the corporate tax bases 

consolidation or  apportionment  of  tax  bases  across  Member States.  Thus, only  the concerned  policy  options 
are assessed for each of the impacts analysed. 

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of  the  EU  companies  concerned  with  reference  to  the  status-quo.  This  analysis  should  allow 
answering  the  question  of  whether  the  EU  common  tax  base  under  consideration  would  be  in 
general  broader  or  narrower  than  the  current  corporate  tax  bases  (for  individual  companies 
and at the national level). Thus, no conclusions should be drawn on the final impact on overall tax 
revenues,  as  those  will  depend  on  Member  States'  own  policy  choices  with  regard  to  possible 
adaptations of the mix of different tax instruments or applied tax rates. 

The change of the tax base can be due to two sets of elements: (i) the establishment of new tax base 
provisions unrelated to consolidation or loss compensation (CCTB and CCCTB options); or (ii) the 
new  possibilities  for  loss  offsetting  (only  CCCTB  options).  The  analysis  in  the  following  two 
sections  focuses  on  the  two  elements  described.  In  the  absence  of  actual  data  from  national  tax 
administrations, several alternative methodologies have been employed in this exercise (see Box 2). 

5.1.1. 

The impact of the common tax base provisions unrelated to consolidation  

The aim of this section is to assess the impact on the size of the relevant companies' tax bases of 
moving  to  an  EU-wide  harmonization  of  the  major  structural  elements  of  the  corporate  tax 
bases  unrelated  to  consolidation:  depreciation  allowances,  inventories  valuation,  etc.  Hence,  the 
purpose is to compare the initial corporate tax bases, as defined by current national tax provisions in 
place  in  each  country  (benchmark  case)  with  the  size  of  the  tax  bases  that  would  result  from  the 
application of common EU-wide tax base provisions (before loss compensation or apportionment in 
the  scenarios  with  a  CCCTB).  At  the  policy  level,  tax  base  broadening  measures  are  generally 
deemed  an  efficiency-improving  strategy  to  sustain  revenues  in  the  globalised  economy38.  In  the 
context of revenue-neutral reforms, low statutory rates not only make countries less vulnerable to 
international profit shifting through transfer-pricing and thin capitalization, since mobile profits are 
particularly  sensitive  to  tax  rates,  but  are  also  particularly  attractive  to  high-yielding  companies, 
often  multinationals  earning  firm-specific  mobile  rents  from  the  exploitation  of  special 
technologies,  brand  names,  etc  (Dischinger,  2007).  Promoting  inward  investment  from  those 
companies  can  generate  positive  spillovers  to  the  host  economies,  although  the  success  of  such 
policies  might  depend  on  whether  the  reforms  are  undertaken  unilaterally  by  one  country  or 
multilaterally by a group of countries like the EU39. 

Using the ETA model (based on simulations for a standardized company) it is possible, for each of 
the  two  types  of  representative  company  (large  vs.  SME),  to  calculate  the  future  value  of  the  tax 
base – i.e. the sum of all yearly tax bases evaluated at the end of the simulation period of 10 years - 
in case of application of the national tax rules as they stood in 2006, alongside the % change when 
all  provisions  of  the  common  tax  base  (CCTB)  are  implemented  simultaneously,  under  two 
different  rates  applicable  for  pool  depreciation  on  machinery  and  equipment,  namely  20%  and 

38 

39 

This  approach  finds  support  in  the  recent  economic  literature,  such  as  Sørensen  (2006),  Haufler  and 
Schjelderup  (2000),  Devereux,  Griffith  and  Klemm  (2002)  In  fact,  the  incentives  to  lower  the  statutory  tax 
rates  in  a  globalising  economy,  together  with  the  need  to  raise  a  certain  amount  of  revenue  from  the 
corporation  tax,  explain  the  policy  of  rate-cut-cum-base-broadening  pursued  by  most  OECD  countries  in 
recent decades. 
While  for  individual  countries  the  policy  of  base  broadening  and  rate  reduction  may  be  optimal  in  order  to 
attract profits and investment, a coordinated policy at a European scale reduces the fiscal externalities within 
the EU and the beneficial effects of lower corporate tax rates are smaller (i.e. tax rate reduction attracts fewer 
investments/profits from within the EU if all other European countries pursue the same policy). In that case, a 
coordinated tax system featuring a narrower base and higher corporate tax rates that creates smaller investment 
distortions at the margin may be more attractive. Calibration based on actual data to measure the strength of 
the opposing effects is provided in Section 5.4. 

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24 

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25%40. The representative company in all Member States, except Cyprus and Ireland, would see the 
size of its taxable base increase after the introduction of a CCTB. The results of the calculations are 
very similar for the ‘model’ large company and the SME but they differ substantially between a rate 
for pool depreciation on machinery and equipment of 20% or 25%. On average, for a 20% rate for 
pool depreciation, the future value of tax base increases by 6.20% for the representative EU 
large company, and by 5.57% for the representative SME, while for a 25% rate it broadens 
by  1.09%  and  1.96%  respectively41  (see  Table  A.12  in  Annex  6).  The  ORBIS  database  can  be 
used to calculate the net value of depreciation allowances (and thereby on the tax bases’ size) of the 
current tax systems and the common tax base for both a 20% and 25% depreciation rate for plant 
and machinery. The overall findings are consistent with those from the ETA model: the net present 
value  of  depreciation  allowances  decreases  on  average  by  5.9  or  4.9  percentage  points  if  the 
20% or 25% depreciation rates hold, respectively. As expected, the variation across countries 
is substantially reduced by the common tax base: the standard deviation drops from an average 
of 8.9% to 3% (see Table A.10 in Annex 3 – section 3.3). This is an important result of the common 
tax base, as it may help to reduce the differences in effective taxation across EU Member States 
which could result in an improved allocation of capital within the EU. Finally, the results from 
the  PWC  case  study  show  again  a  'broadening  of  the  tax  base'  trend,  although  these  results 
should  be  taken  with  caution  given  the  limited  sample  coverage.  In  this  approach,  13  EU-based 
multinationals  have  'simulated'  their  taxable  bases  under  both  the  national  systems  of  the  EU 
countries  where  they  operate  and  the  common  tax  base  scenario  –  without  cross-border  loss 
consolidation. According to the simulations, a move towards a CCTB would increase the average 
tax base of MNEs) by 11% (abstracting from the size of the companies in the sample). The results 
give  a  less  strong  movement  in  the  aggregated  tax  base  (i.e.  summing  together  the  results  of  all 
companies in the sample, thus giving greater weighting to larger MNEs), which would increase by 
around 3% for the whole EU sample. The MNEs’ answers have been aggregated by MS where each 
company is established: for most individual countries the aggregate effects on the size of tax bases 
of a move towards CCTB42 seem to be rather limited or within the margins of statistical relevance 
(+/-2%) for this sample of firms (see table A.13 in Annex 7).  

To sum up, the findings of all the applied methodologies seem to indicate that the introduction of 
the common tax base provisions unrelated to consolidation (CCTB) could lead on average and 
for  most  EU-based  companies  to  tax  bases  broader  than  the  current  ones.  However,  the 
magnitude of this increase seems to depend essentially on the depreciation rules applied. The 
common  tax  base  would  also  reduce  the  substantial  variation  in  tax  bases  across  European 
countries that currently exist, partly due to differences in fiscal depreciation schemes and inventory 
valuations. 

40 

41 

42 

The  value  of  the  corporate  tax  bases  under  CCTB  still  differ  across  countries  even  if  the  rules  for  tax 
accounting are harmonised and even if the model company is supposed to be alike everywhere. The reason for 
this is that some Member States levy local taxes which in this model are assumed to be deductible from the 
corporate tax base as a business expense (e.g. real estate tax and other local taxes like business taxes) and the 
amount of such local taxes varies widely between the Member States: from no other than corporate income tax 
in Malta to other taxes that weigh up to almost 60% on the effective total tax burden of companies in Hungary. 
The liquidity effects of paying these taxes (which allow or not further investments) and their deductibility of 
the tax base have accumulative effects through the 10 years simulation period, thus giving rise to the spread in 
tax bases’ size even in the event of a CCTB. 
The difference is to be attributed to the fact that depreciation rules explain in isolation more than 70% of the 
tax  base  size  changes;  within  those,  the  provisions  for  machinery  and  equipment  account  for  90%  of  the 
variation.  
Depreciation rate of 20% for the pool assets was assumed in this study. 

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25 

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5.1.2. 

The impact of consolidation of profits and losses 

In  the  corporate  tax  regimes  in  Europe,  losses  can  be  carried  forward  and  offset  against  future 
profits  within  the  same  country.  This  leads  to  an  asymmetric  treatment  of  losses  compared  to 
profits, for a twofold reason: i) the possibility of loss offset can in fact be limited in time and in the 
amount  that  can  be  offset  per  year;  ii)  firms  can  only  carry  forward  nominal  losses  (i.e.  without 
indexation), whose value in real terms decreases with inflation. Loss carry backs are only possible 
in  very  few  cases43.  The  lack  of  cross-border  loss  compensation  leads  to  over-taxation  in  cross-
border  activities.  Besides  the  more  symmetric  treatment  of  profits  and  losses  mentioned  earlier, 
there are several further potentially important economic effects of (cross-border) loss consolidation: 
i)  improved  neutrality  between  domestic  and  cross-border  investment;  ii)  reduced  risk  of 
investment, as losses are better insured (Domar-Musgrave effect), which may stimulate risk taking 
and raise returns to capital in the economy; iii) increased efficiency in the international allocation of 
productive  capital;  iv)  enhanced  investment  ability  from  financially  constrained  firms  following 
higher  after-tax  profits  (see  e.g. Hubbard,  1997).  Hence,  allowing  the  immediate  consolidation  of 
profits and losses for computing the EU-wide taxable bases of multinational groups, would be a step 
towards  the  goal  of  achieving  the  specific  objective  of  reducing  over-taxation  in  cross-border 
situations and thereby towards improving the tax neutrality conditions between domestic and cross-
border  activities  to  better  exploit  the  potential  of  the  Internal  market.  This  would  contribute  to 
achieving the general objective of improving efficiency in the Internal market. 

The policy options involving a CCCTB allow for an EU-wide consolidated tax base with some form 
of  immediate  cross-border  loss  offsetting  within  the  same  business  group.  Therefore,  under 
consolidation,  the  present  value  of  the  EU-wide  corporate  tax  base  would  shrink  somewhat 
compared to the current situation. The analysis in this section tries to quantify the impact of EU-
wide loss offset on companies' tax bases in relative terms: what percentage do the losses that could 
be  compensated  cross-border  represent  in  terms  of  the  overall  tax  base  for  an  average  EU 
multinational? What is the quantitative macro-economic effect of EU-wide loss consolidation? The 
statistical  analysis  for  the  sample  of  EU-multinational  groups  based  on  the  Amadeus  and  ORBIS 
databases  shows  that,  on  average,  every  year  approximately  50%  of  non-financial  and  17%  of 
financial multinational groups could benefit from immediate cross-border loss compensation. 
The additional losses that could be compensated cross-border in the samples amount on average 
to 3% and 2.5% of the net current taxable profits for the non-financial and financial groups 
respectively. Overall, the losses that could be immediately compensated under the CCCTB scenario 
account  on  average  for  7%  and  20%  of  the  net  current  taxable  profits  for  non-financial  and 
financial  groups,  respectively.  As  a  result,  given  the  share  of  corporate  tax  revenues  of  the  non-
financial  and  financial  sectors,  on  average  for  the  groups  involved  the  taxable  base  under  the 
CCCTB scenario would be 2.8% lower than in the status-quo. According to the PWC case study of 
13  multinational  companies  on  average  in  the  2005-2006  period  immediate  loss  compensation 
would involve 10% of the current tax base44.  

The  welfare  implications  of  loss  consolidation  relative  to  loss  carry  forward  have  been  analysed 
using  the  CGE  model  CORTAX  using  the  average  loss  probability  calculated  from  the  ORBIS 
database and assuming that, in the baseline and CCTB scenarios, loss carry forward applies in all 
EU countries. The simulations show that, given the share of multinationals in the EU and the level 

43 

44 

EN 

treatment 

The MS that apply loss carry back are DE, FR, IE, NL and UK. See, the Commission staff working paper on 
tax 
VII. 
http://ec.europa.eu/taxation_customs/resources/documents/sec_2006_1690_en.pdf 
On average, losses compensated for this sample represent 5% of the as-is tax base under existing tax rules, but 
increase to 15% of the current tax base under CCCTB. 

situation, 

Annex 

border 

losses 

cross 

of 

in 

a 

26 

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of  rates,  consolidation  alone  would  reduce  the  corporate  tax  burden  by  15%,  a  value  in  line  with 
other  studies  (e.g.  Fuest,  Hemmelgarn  and  Ramb,  2006)45.  In  the  steady  state  equilibrium  of 
CORTAX, the reduction in the tax base is smaller because losses can be carried forward from the 
past. All in all, the decline in the aggregate total economy tax base in the steady state would be 
4.5%.  The  reduction  is  higher  for  countries  featuring  high  corporate  tax  rates  and  a  large 
multinational sector. Moreover, given the behavioural assumptions of CORTAX, loss consolidation 
would  require  a  1.9  percentage  point  increase  in  corporate  tax  rates  to  balance  the  government 
budget from the tax base reduction. The combination of loss consolidation and higher rates raises 
the  cost  of  capital,  which  results  in  slightly  lower  investment  and  hence  in  a  decrease  in  GDP. 
However, the net effect on welfare is negligible46. 

The analysis above shows that a CCTB policy option - with common tax base provisions but no 
cross-border  loss  consolidation  -  could  imply  broader  tax  bases  than  current  ones  for  most 
companies. For a similar assessment of the CCCTB option, the results of the two previous sections 
could be tentatively combined. All methodologies indicate that the combined effect 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)  would  result  in  aggregate 
tax bases of roughly similar size compared to the current ones (for the companies concerned). 
The MNEs case study yields a slightly positive net effect: over the companies sampled, the average 
tax base over the two year base period increased by 5% by moving from the current scenario to a 
CCCTB47. A further economic assessment of the implications of the changes of tax bases' sizes on 
macroeconomic  variables  for  the  different  policy  options  under  analysis  is  shown  in  Section  5.4 
below. 

5.2. 

Impact on the distribution of the tax bases between the EU Member States 

In  addition  to  'size  effects',  the  alternative  policy  options  imply  changes  in  the  distribution  of 
taxable profits across national jurisdictions. In particular, the CCCTB policy alternatives entail the 
introduction  of  an  EU  consolidated  tax  base  for  multi-jurisdictional  groups,  thus  raising  the 
question  of  how  the  overall  tax  base  should  be  divided  among  the  Member  States  in  which  the 
group  operates.  Hence,  the  CCCTB  alternatives  require  the  definition  of  a  system  to  allocate  tax 
bases  across  taxing  jurisdictions,  different  from  the  traditional  arm's  length  methodology48. 
Apportioning  mechanisms  imply  an  inter-jurisdictional  'redistribution'  of  tax  bases  that  is  worth 
quantifying, although such impact does not reflect any policy objectives but is an unavoidable side-

45 
46 

47 

48 

See Annex 10 for details.  
The  incentive  effects  of  loss  consolidation  on  investment  and  employment  are  subtle.  Despite  the  lower 
corporate tax burden due to consolidation, the CGE model shows that the cost of capital does not necessarily 
fall. Intuitively, marginal returns on investment can still be positive but taxed later or only partially under loss 
carry forward. Under loss consolidation such positive marginal returns are taxed immediately and always and 
therefore taxed at a higher effective rate. The smaller capital stock exerts a negative impact on the marginal 
product of labour and, therefore, on labour demand, which will ultimately lead – with a positive elasticity of 
labour supply – to a contraction in employment.  
The EU-wide aggregate tax base of all sampled MNEs shows however a small decrease by 2% of the move 
towards a CCCTB: this result is attributable to important losses incurred by a large company of the sample in 
the years of study and can be considered within the margin of error of the sample. 
The 'no policy change' scenario and the CCTB would still allocate tax bases across taxing jurisdictions 
according to traditional SA. Under the CCCTB, on the other hand, Consolidated profits for firm i are 
apportioned across countries according to a formula like 
wij = ∑k wk ( Xij / Xi )` 
where wk denotes the formula factors, with ∑k wk =1, and Xij denote the share of the multinational i’s factor Xi 
that is operational in country j. The profits apportioned to each country can then be taxed at the national 
corporate tax rates. 

EN 

27 

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effect of some of the options analysed. Importantly, no general conclusions should be drawn on the 
final  effect  on  revenues  or  on  the  budgetary  position  of  the  different  MS,  as  this  will  depend  on 
national policy choices with regard to possible adaptations of the mix of different tax instruments or 
applied tax rates.  

First of all, the 'full size of the new tax bases' before distribution (i.e. accounting for provisions to 
offset losses, and non-related to consolidation) has been assessed using the PWC case study of the 
sample of 13 EU multinational groups. This approach indeed allows for a quantification based on 
'actual  tax  data',  although  the  conclusions  should  be  taken  with  caution  given  the  limited  sample 
coverage.  In  this  sample  of  MNEs,  changing  the  weighting  of  the  CCCTB  apportionment  factors 
has little effect on the relative apportionment of the tax base between countries. This result can be 
attributed  to  the  fact  that  the  underlying  apportioning  factors  have  a  very  similar  distribution 
between countries (see Table A.14 in Annex 7). Data from the ORBIS and Amadeus databases – 
covering  representative  samples  of  EU  multinational  groups  operating  in  the  financial  and  non-
financial  sectors,  respectively  –  can  be  used  to  get  some  insights  on  the  distribution  of  tax  bases 
across  countries  under  apportionment  rules  versus  current  SA.  Two  limitations  of  this  analysis 
should be pointed out. First, the effects on the size of the taxable base cannot be fully accounted for 
since accounting profits are used as a rough proxy for taxable profits and the full impact of the tax 
base provisions on the size of taxable bases – as analysed above – is not captured by financial data. 
In turn, only 'consolidation of profits and losses' is adequately accounted for in the analysis. As a 
consequence,  for  the  results  in  section  5.1.2,  the  size  of  the  taxable  base  to  be  distributed  across 
countries  is  undoubtedly  underestimated  in  this  exercise.  Second,  missing  data  problems  have 
somewhat  reduced  the  sample  coverage49.  Therefore,  the  tax  bases  of  the  groups  for  which 
'consolidation  +  apportionment'  has  been  calculated  account  for  around  15%  of  (a  proxy  of)  total 
EU corporate tax bases for the year 200450. In this exercise, taxable profits in each country of the 
EU,  both  under  the  current  tax  conditions  and  under  alternative  scenarios  of  'consolidation  + 
apportionment', have been simulated for each of the selected multinational groups. (More details on 
the methodology are reported in Annex 3). Shifts in the national tax bases after apportionment can 
be  evaluated  comparing  the  formulary  apportionment-based  distribution  of  tax  bases  across 
countries  to  the  current  profits-based  distribution.  Table  3  reports  the  results  from  the  formula 
where  the  labour  factor  (split  into  payroll  and  number  of  employees),  assets  and  sales  by 
destination  are  equally  weighted,  whereas  the  effects  of  alternative  formulae  are  left  for  Table 
A.11  in  Annex  3  (section  3.3),  as a  sensitivity  check  .  The  results  for  non-financial  and  financial 
groups have been aggregated using as weights the respective shares of these sectors in the average 
corporate income tax revenues for the years 2002 to 2005 according to national accounts in order to 
get an indication for the economy wide tax base. Overall, the results point to an increase in the tax 
bases  mostly  in  the  MS  in  Central  and  Eastern  Europe,  as  well  as  in  Germany,  Spain,  France, 
Greece, Italy and the UK. As pointed out above, these results should not be taken as representing 
the overall effect on MS tax revenues. Clearly, for given corporate tax rates any change in the size 
of  the  base  translates  into  a  proportional  impact  on  revenues  from  corporate  income.  However, 
national  governments  might  optimally  respond  to  shifts  of  the  taxable  base  not  only  by  changing 

49 

50 

Out of the above 2000 multinational groups extracted from the Amadeus database (see Annex 3), just around 
750 groups had sufficient and appropriate data to run accurately all calculations involved in 'consolidation and 
apportionment'. Additionally, data from 2073 financial groups out of the total 6700 from the ORBIS database 
have been analysed. 
As  an  exact  figure  for  corporate  tax  bases  in  the  EU  countries  is  not  available  a  proxy  based  on  national 
accounts data was used. The approach followed is similar to the method for calculating the denominator for the 
implicit  tax  rate  on  corporate  income  published  in  the  'Taxation  trends'  (European  Commission  2009).  The 
denominator measures not the actual tax base but indicates on a comparable basis the profits of corporations 
that could potentially be taxed by national tax authorities. 

EN 

28 

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their corporate rates in the short term, but also by adapting the design of the tax mix in the medium 
and  longer  run.  Evaluating  the  ultimate  effects  on  the  national  fiscal  positions  is  therefore  very 
difficult51.  

51 

From a methodological point of view, sound predictions on the effects of the new rules on MS tax rates would 
require modelling national governments' reaction functions. Models currently available to simulate corporate 
tax reforms in the EU, like the CORTAX model, do not yet reach this degree of sophistication. Moreover, the 
economic literature does not offer a conclusive answer to the key question whether the switch from separate 
accounting  to  formula  apportionment  will  intensify  competitive  pressures  on  tax  rates.  Undeniably,  the 
common rules for the calculation of the tax base will make the system more transparent - to the benefit of firms 
when  it  comes  to  comparing  the  effective  tax  burden  across  different  jurisdictions.  In  addition,  having 
(destination based) sales in the formula reduces incentives for countries to cut taxes as the destination of sales 
cannot be easily shifted.  

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29 

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Table  3.  Comparison  of  tax  bases  under  the  'current'  scenario  and  with  'consolidation  + 
apportionment' 

1/6 ‘Cost of employees’ – 
1/6 ‘Number of 
Employees’ - 1/3 ‘Assets’ 
– 1/3 ‘Sales by 
destination’ 

Cross-country 
distribution 

Change  

Sample 
current 
tax base  
Cross-country 
distribution 

Country 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

4.00% 

5.60% 

0.00% 

: 

0.20% 

16.70% 

5.90% 

0.19% 

3.40% 

8.50% 

8.30% 

0.70% 

0.60% 

2.90% 

6.10% 

0.10% 

1.00% 

0.00% 

: 

6.40% 

2.00% 

1.20% 

0.10% 

5.90% 

0.10% 

0.00% 

2.90% 

3.90% 

: 

: 

0.40% 

19.50% 

3.90% 

0.20% 

4.60% 

5.50% 

10.00% 

1.30% 

0.40% 

2.50% 

7.90% 

0.20% 

: 

0.10% 

: 

4.20% 

1.80% 

1.20% 

0.30% 

4.90% 

0.10% 

0.10% 

20.30% 

20.50% 

Total EU 

100.00% 

97.30% 

-1.10 

-1.70 

0.20 

2.80 

-2.00 

0.01 

1.20 

-3.00 

1.70 

0.60 

-0.20 

-0.40 

1.80 

0.10 

0.10 

-2.20 

-0.20 

0.00 

0.20 

-1.00 

0.00 

0.10 

0.20 

-2.70 

Source: Own calculations based on Amadeus and ORBIS databases. 

As  in  the  previous  section,  the  statistical  analysis  is  complemented  by  the  approach  based  on  the 
CGE model CORTAX that captures firms' behavioural responses to the new tax system, allowing a 
quantification  of  welfare  effect  of  the  reforms.  In  CORTAX,  the  shift  from  SA  to  consolidation 
with formula apportionment has a number of effects that can be divided into three categories: i) an 
ex-ante  impact  on  the  distribution  of  corporate  tax  bases  across  countries;  ii)  a  removal  of  profit 
shifting within the EU; iii) a shift from current distortions in international capital allocation towards 
a new type of distortion associated with the formula factors. These are analysed in turn.  

(i)  The  ex-ante  impact  on  corporate  tax  revenue  occurs  because  the  sharing  mechanism  will  in 
general yield a different distribution of the tax base across countries than the current system of SA. 

EN 

30 

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Therefore,  formula  allocation  will  cause  an  ex-ante  reallocation  of  corporate  tax  bases  and,  for 
given rates, of corporate tax revenues52.  

(ii)  The  second  effect  of  consolidation  and  formula  apportionment  is  that  multinationals  and 
governments no longer need to determine arm's-length prices for intermediate deliveries within the 
EU. Accordingly, the opportunities for multinationals to shift profits are reduced. This affects the 
distribution of corporate tax bases between high-tax and low-tax EU countries. The elimination of 
profit shifting is not a zero-sum game in CORTAX. On the one hand, if tax planning opportunities 
are taken away, firms save resources that can be used more productively. This improves welfare. On 
the  other  hand,  the  opportunity  of  profit  shifting  under  SA  allows  multinationals  to  reduce  their 
overall  tax  burden.  Taking  away  this  opportunity  thus  raises  the  tax  burden,  which  discourages 
investment and hurts welfare (see a further discussion on this in Section 5.4 below).  

(iii)  In  the  current  system,  firms  have  an  incentive  to  locate  capital  (next  to  profits)  in  low-tax 
countries  since  generated  income  is  taxed  at  source.  The  resulting  distortion  in  the  international 
allocation  of  capital  harms  production  efficiency.  Under  formulary  apportionment,  this  distortion 
disappears  since  taxes  are  levied  on  consolidated  income.  Yet,  the  formula  may  introduce  a  new 
type  of  distortion  stemming  from  the  incentive  for  MNEs  to  reallocate  factors  to  low-tax 
jurisdictions  to  affect  the  final  result  of  the  formula.  In  fact,  statutory  corporate  tax  rates  become 
taxes  on  the  factors  used  in  the  formula.  This  generates  a  potential  distortion  to  the  international 
allocation of productive factors53.  

The welfare  effects under the CCCTB have been simulated  using  alternative  sharing  mechanisms 
(see Figure A.3 in Annex 10) 54. The switch to payroll instead of employment mainly benefits high-
wage  countries  (in  the  former  EU15)  at  the  expense  of  low-wage  countries  (like  Romania  and 
Bulgaria).  The  larger  weight  on  capital  benefits  capital-intensive  countries  like  Belgium,  Ireland 
and the Netherlands. On balance, CORTAX suggests that the isolated aggregate effect on welfare 
in the EU of any apportionment mechanism is very small.  

The  discussion  above  assumes  away  other  dynamic  effects  that  would  affect  the  size  and 
distribution of the cake of corporate taxable profits in the EU in the long-term. An analysis of the 
long-term effects on the size of the cake of each alternative policy option should take into account: 
i) the number of EU companies which are now purely domestic but may choose to operate cross-
border in the Internal Market as a result of the tax reform, thus becoming EU multinationals; ii) the 

52 

53 

54 

Devereux  and  Loretz  (2008)  and  Fuest,  Hemmelgarn  and  Ramb  (2007)  explore  the  ex-ante  revenue 
implications of formula allocation using micro data. In CORTAX, the reallocation of revenue is governed by 
national accounts data (which determine the shares in the formula for each country).  
The effects of FA on relocation have not been unambiguously confirmed by the existing empirical literature. 
For instance, Klassen and Shackelford (1998) find evidence that the formula matters for the location of sales in 
the  US,  but  not  for  decisions  about  factors  like  employment  and  property.  In  the  light  of  this  and  other 
evidence, Agundez-Garcia (2006, p.66) concludes that "the effects due just to the distortionary burden on the 
factors in the apportionment formula remain largely unknown". In fact, to evaluate the potential relocation of 
labour within Europe following FA one should take into account a number of factors other than the resulting 
overall  tax  burden,  such  as  labour  market  regulations,  existence  of  agglomeration  economies,  productivity 
levels, etc. Hence, if there are significant differences across countries in these areas, the impact of the fiscal 
factor as a driver for relocation might correspondingly decrease. Moreover, the overall effects are even more 
difficult  to  gauge  if  one  recognises  that  the  importance  of  the  economic  determinants  of  relocation  varies 
significantly across industries.  
These results are based on simulations considering the CCCTB-WG20 definition of the tax base, assuming that 
the CCCTB system is compulsory for all firms and for the basic version of CORTAX, which does not include 
tax  havens  and  discrete  location  choices.  Therefore,  they  are  not  readily  comparable  to  the  results  shown  in 
Section 5.4 (which include tax havens and discrete location choices).  

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foreign investments that may be attracted into the EU by the more favourable tax conditions due to 
the reforms, which may generate some additional corporate tax bases; iii) the increased economic 
activity following the positive growth effects from the improved functioning of the Internal Market, 
etc. A quantitative assessment of these issues is obviously very difficult. It can be connected to the 
more general analysis of dynamic effects of the tax reform discussed in section 5.5 below.  

5.3. 

Impact on costs to tax administrations and on compliance costs to firms 

The prominent objective of the tax reforms considered is the reduction of tax compliance costs for 
companies operating in the Internal market. Therefore, a careful evaluation of this issue is a key part 
of this Impact Assessment exercise. In addition, the reforms analysed will also have an impact on 
tax administrations' costs. 

5.3.1.  Member States tax administrations' costs 

A move to any of the alternative policy options from the current situation will entail some new costs 
for  Member  States'  tax  administrations.  These  include:  the  need  for  coordination  with  other 
administrations (for example, in the application of double taxation relief methods) and one-off costs 
like  the  need  of  personal  training,  upgrading  of  IT  systems,  etc.  Some  of  the  alternative  systems 
may save some of the current costs which tax administrations incur, such as the costs of resolving 
intra-EU  transfer-pricing  disputes  or  the  general  costs  of  monitoring  transfer-price  setting  by 
companies  (these  costs  would  be  saved  only  by  non-SA  based  systems  like  CCCTB,  but  would 
remain  in  place  under  the  SA-based  current  system  and  CCTB).  In  case  of  optional  policy 
alternatives, the costs associated with maintaining two different systems simultaneously should be 
estimated.  These  costs  would  be  saved  in  the  compulsory  versions  of  the  CCCTB,  where  this 
alternative tax scheme would replace all current national corporate tax systems.  

To  retrieve  information  on  current  and  perspective  tax-related  costs  incurred  by  national  tax 
administrations, Member States – through the CCCTB Working Group – have been asked to answer 
to  an  "ad  hoc  questionnaire"  prepared  by  the  Commission  Services  (see  Annex  9)55.  Only  four 
Member States gave information on the size of their present tax related outlays. Only two Member 
States  were  able  to  give  information  on  the  quantitative  foreseen  one-off  costs  in  case  one  of  the 
policy  options  should  be  implemented,  whereas  recurrent  administrative  costs  under  the  new 
scenarios were not estimated. Some Member States underline the difficulty to assess administrative 
costs for the policy alternatives while acknowledging that the implementation of a new system will 
entail one-off costs to training personnel, to adapt informatics systems and to familiarise firms with 
the  new  system  and  that  supplementary  costs  should  be  anticipated  in  case  the  national  tax 
administration had to simultaneously manage the "national" system and the "common" system. 

5.3.2.  Companies' tax related compliance costs 

This  section  aims  at  evaluating  the  savings  in  recurring  tax  related  compliance  costs  for 
companies  expected  under  the  different  policy  options.  It  should  be  emphasized  that  when  the 
adoption  of  the  new  system  is  made  optional  for  firms,  the  decision  process  will  most  likely  be 
based  on  a  cost-benefit  analysis  that  will  itself  take  time  and  resources.  Similarly,  learning  costs 
should  be  expected  from  the  compliance  to  the  new  rules.  Table  4  reports  the  areas  in  which  the 
surveyed multinationals expect costs from a changeover to arise according to the PWC study. The 
well-known methodological difficulties in estimating tax related compliance costs are exacerbated 

55 

The methodology used is in line with the model of 'assessment of administrative costs of legislation', in this 
case for public authorities, as described in Annex 10 of the Impact Assessment Guidelines. 

EN 

32 

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when  it  comes  to  estimating  costs  stemming  from  the  adoption  of  a  new  system.  However,  such 
costs  will  be  by  definition  one-off,  and  hence  expectedly  outweighed  by  the  savings  in  recurring 
outlays  that  companies  face  in  dealing  with  tax  administrations.Table  4:  One-off  costs  expected  to 
arise on a changeover from the current system 

Type of cost 

Training staff 

Calculations to decide on whether to opt into CCCTB/CCTB 

Calculations to set up asset pool for tax depreciation under CCCTB/CCTB 

Development of new processes and systems 

Consulting/advisory fees 

Software license fees 

Other HR costs/relocation of staff 

Outsourcing compliance cost obligations 

Source: PriceWaterhouseCoopers Survey on multinational firms.  

% of respondents  

100.0% 

92.9% 

85.7% 

85.7% 

85.7% 

64.3% 

28.6% 

28.6% 

Different  methodologies  have  been  used  to  quantify  recurring  compliance  costs.  In  particular, 
different surveys have been carried out among firms as well as among tax experts, and their results 
complemented  with  simulations  using  the  CGE  model  CORTAX  (see  Box  2).  The  results  of  the 
PWC  survey  of  17  multinationals  shows  that  the  respondents  predict,  on  average,  an  increase  of 
4% in time spent overall for corporate tax compliance activities in the event of a CCTB (see table 
5). Although somewhat puzzling, small increases are expected in the time spent on record keeping, 
on  the  preparation  of  tax  computation  and  on  dealing  with  tax  authorities.  The  qualitative  results 
show strong belief that the introduction of a CCTB will have little or no impact. An overwhelming 
majority  of  companies  see  the  CCTB  as  equally  burdensome  across  all  the  categories  covered. 
Regarding  the  shift  to  a  CCCTB  system,  participants  to  the  survey  predicted,  on  average,  a 
reduction of 8% in the time spent overall on corporate income tax compliance activities. The main 
areas where time savings are expected refer to transfer pricing documentation and to the preparation 
of tax computations. On the qualitative side, the CCCTB option is deemed by the majority of the 
respondents  less  burdensome  than  to  the  current  situation,  with  respect  to  the  following  areas: 
keeping  up  to  date  with  rules  and  regulations;  single  filing  of  the  tax  return  and  dealing  with  a 
single tax authority; applying for clearances and rulings. The tasks of keeping records and dealing 
with  formulary  apportionment  are  expected  more  burdensome.  Altogether,  the  qualitative  picture 
confirms,  on  average,  the  quantitative  estimation  of  an  overall  decrease  of  time  devoted  to  tax 
compliance activities in the event of a CCCTB.  

Table 5: Average changes in compliance time when moving from the current situation to CCTB and 
CCCTB 

Record keeping 

Transfer Pricing Documentation 

Preparation of tax computations 

Tax returns & payments 

Dealing with the tax authorities 

Mutual agreement procedures 

Securing clearances and rulings 

Learning and education 

Total 

CCTB 

CCCTB 

2% 

-1% 

1% 

0% 

1% 

-1% 

0% 

0% 

4% 

1% 

-4% 

-5% 

-1% 

2% 

-1% 

-1% 

0% 

-8% 

Notes:  

EN 

–  Changes are expressed as a percentage change to the total time spent compared to the base case. 

33 

   EN 

 
 
 
 
 
–  These data do not include the estimation of one-off variation due to the switching to another system. They relate to the 

permanent time spent associated with the new definition of the taxable base. 

–  The amount of compliance costs will depend on the wage level of employees in the different tax activities.  

Source: PriceWaterhouseCoopers Survey on multinational firms. 

Switching  the  focus  from  existing  companies  to  multinational  enterprises  that  set  up  a  new 
subsidiary  in  a  different  Member  States,  significantly  higher  compliance  time  and  cost  savings 
under  the  CCTB  and  most  notably  under  the  CCCTB  regime  can  be  expected.  Through  expert 
assessment,  Deloitte  estimated  that  under  the  current  situation  with  27  tax  codes  the  additional 
recurrent compliance costs for a large representative parent investing in a medium sized subsidiary 
amounts to 0.23% of turnover while for a medium parent this ratio more than doubles to 0.55% of 
turnover  (see  table  6)  These  figures  amount  to  roughly  Euros  141,000  and  128,000  respectively, 
calculated from the estimated compliance time.  

Table 6: Compliance time and cost for setting up a new subsidiary * 

Large Parent 

Current regime 

CCTB  

CCCTB 

Time 

Cost 

Time 

% Diff. 

Cost 

% Diff. 

Time 

% Diff. 

Cost 

% Diff. 

Record keeping for corporate tax purposes 

5,261 

3,740.60 

3,063 

-41.79% 

2,992.46 

-20.00% 

3,592 

-31.73% 

5,708.94 

52.62% 

Transfer pricing documentation 

22,255 

36,165.74 

22,162 

-0.42% 

36,143.08 

-0.06% 

0 

-100.00% 

0.00 

-100.00% 

Preparation of corporate tax computations 

4,049 

2,750.04 

1,976 

-51.19% 

2,190.86 

-20.33% 

4,256 

5.11% 

4,761.47 

73.14% 

Prepayments for corporate tax 

907 

965.56 

771 

-14.99% 

793.10 

-17.86% 

2,450 

170.18% 

2,662.13 

175.71% 

Corporate tax returns and payments 

1,080 

1,131.27 

987 

-8.58% 

1,005.12 

-11.15% 

3,085 

185.73% 

3,505.17 

209.84% 

Dealing with the tax authorities for corporate tax 

19,009 

37,365.70 

16,616 

-12.59% 

35,038.00 

-6.23% 

10,509 

-44.71% 

30,200.90 

-19.17% 

Mutual agreement procedures on transfer pricing  

8,823 

17,618.47 

8,841 

0.20% 

17,677.73 

0.34% 

0 

-100.00% 

0.00 

-100.00% 

Clearances and rulings for corporate tax 

14,430 

34,912.77 

14,541 

0.77% 

34,928.95 

0.05% 

1,288 

-91.08% 

3,996.90 

-88.55% 

Learning and education for corporate tax 

10,000 

5,220.08 

8,264 

-17.37% 

5,388.20 

3.22% 

1,469 

-85.31% 

2,104.33 

-59.69% 

Any other cross-border corporate tax compliance formality 

1,548 

733.76 

1,548 

0.00% 

733.02 

-0.10% 

0 

-100.00% 

0.00 

-100.00% 

Total estimated time spent/cost 

87,362 

140,603.97 

78,768 

-9.84% 

136,890.52 

-2.64% 

26,649 

-69.50% 

52,939.85 

-62.35% 

Total estimated cost (% turnover) 

0.23% 

0.22% 

0.09% 

Medium-sized Parent 

Current regime 

CCTB  

CCCTB  

Time 

Cost 

Time 

% Diff. 

Cost 

% Diff. 

Time 

% Diff. 

Cost 

% Diff. 

Record keeping for corporate tax purposes 

5,147 

3,653.23 

3,034 

-41.05% 

2,957.01 

-19.06% 

3,178 

-38.26% 

4,490.57 

22.92% 

Transfer pricing documentation 

19,962 

30,192.40 

19,337 

-3.13% 

30,625.38 

1.43% 

0 

-100.00% 

0.00 

-100.00% 

Preparation of corporate tax computations 

4,023 

2,253.53 

1,954 

-51.42% 

1,778.82 

-21.07% 

3,301 

-17.94% 

2,862.65 

27.03% 

Prepayments for corporate tax 

896 

636.81 

760 

-15.20% 

524.54 

-17.63% 

1,880 

109.73% 

1,497.66 

135.18% 

Corporate tax returns and payments 

1,075 

871.48 

987 

-8.15% 

790.31 

-9.31% 

2,433 

126.34% 

2,427.03 

178.50% 

Dealing with the tax authorities for corporate tax 

18,686 

32,968.18 

16,347 

-12.51% 

30,604.60 

-7.17% 

10,675 

-42.87% 

24,889.54 

-24.50% 

Mutual agreement procedures on transfer pricing  

8,609 

17,076.44 

8,434 

-2.03% 

17,115.31 

0.23% 

0 

-100.00% 

0.00 

-100.00% 

Clearances and rulings for corporate tax 

13,893 

34,175.02 

14,083 

1.37% 

34,188.34 

0.04% 

1,266 

-90.89% 

3,958.48 

-88.42% 

Learning and education for corporate tax 

9,997 

5,201.14 

8,422 

-15.75% 

5,579.09 

7.27% 

1,450 

-85.49% 

2,064.35 

-60.31% 

Any other cross-border corporate tax compliance formality 

1,459 

677.86 

1,395 

-4.42% 

674.05 

-0.56% 

0 

-100.00% 

0.00 

-100.00% 

Total estimated time spent/cost 

83,747 

127,706.09 

74,754 

-10.74% 

124,837.45 

-2.25% 

24,184 

-71.12% 

42,190.28 

-66.96% 

Total estimated cost (% turnover) 

0.55% 

0.54% 

0.18% 

* Time in minutes. Costs in Euros. Average of all investment flows 

Source: Deloitte Tax Experts survey.  

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34 

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According to the study, the introduction of the CCTB would on average save approximately 10% 
in compliance time and about 2.5% in compliance costs.56 This difference can be explained by 
the fact that higher savings in time are related to internal compliance activities (e.g. record keeping, 
preparation  of  tax  computations,  prepayments  and  tax  returns  and  payments)  estimated  as  less 
expensive compared to external advisors. Such savings are expected to occur because the CCTB tax 
provisions  are  simpler  and  more  stable  compared  to  the  current  frequently  changing  tax 
environment. However, the main corporate compliance cost drivers directly or indirectly related 
to transfer pricing (transfer pricing documentation, clearances and rulings and mutual agreement 
procedures), which account for about 60% of all compliance costs, remain unchanged (see figure 3). 
Due to the elimination or reduction of transfer pricing related compliance tasks, and of those related 
to  contacts  with  tax  authorities,  an  average  decrease  in  total  compliance  time  of  70%  can  be 
expected  if  the  additional  cross-border  investment  is  made  under  the  CCCTB  regime57.  This 
results in a reduction of compliance costs of 62% for a group with a large parent and of 67% for 
a  group  with  a  medium-sized  parent58.  The  corresponding  monetary  figures  are  about  Euros 
53,000 and 42,000 respectively. The high savings linked to the abolition of transfer pricing and the 
sharp  reduction  of  costs  in  dealing  with  tax  authorities  are  partly  counterbalanced  by  other 
activities: corporate tax computations, (pre)payments and tax returns will be most likely centralized 
at  the  level  of  the  principal  tax  payer,  normally  the  parent  company59.  However,  all  these  tasks 
account only for about 10% of all compliance costs. All in all, as the figures in table 6 suggest, the 
size of the parent seem to have only a minor impact on total additional compliance time and costs 
savings under the CCTB and the CCCTB regime.60  

Figure 3: Compliance time spent on setting up a new subsidiary  

56 

57 
58 

59 

60 

The  individual  investment  flow  results  by  country-pairs  range  between  4%  to  16%  savings  in  additional 
compliance time and between -3% and 9% in compliance costs. 
The individual results by country-pairs range between 11% to 91% savings in additional compliance time. 
Deloitte's tax experts expect that the group led by a medium parent can realise more savings on time spent by 
external advisors that generally have higher costs per hour than the internal workforce. 
The compliance time and cost savings would be even higher if it would be assumed that compliance activities 
would  be  centralized  at  the  level  of  the  subsidiary  ("CCCTB  Sub  lead"-scenario)  operating  in  a  low  wage 
country, rather than at the level of the EU parent ("CCCTB Parent lead"-scenario).  
The  results  are  fairly  robust  with  respect  to  the  sensitivity  analysis  performed.  First,  it  is  assumed  that  the 
parent  company  and  the  subsidiary  belong  to  different  sectors.  This  would  depict  a  situation  in  which  the 
central  taxpayer  lacks  sector-specific  and  tax-related  knowledge  for  its  subsidiary.  The  assumption  has  no 
impact  on  compliance  time  under  the  current  and  the  CCTB  regimes,  whereas  under  the  CCCTB  regime  an 
increase  of  8%  of  compliance  time  can  be  expected.  Accordingly,  the  savings  of  compliance  time  and  cost 
compared  to  the  current  situation  would  slightly  diminish  to  65%  and  50  %  respectively.  Second,  if  the 
investing  company  would  be  only  a  single  company  without  intra-group  transactions  significant  lower 
compliance time can be expected for the current and the CCTB regime whereas for the CCCTB, without the 
transfer pricing related task, compliance time remains the same compared to the baseline investment. Again, in 
this case the savings due to the CCCTB compared to the current regime would be smaller than in the baseline 
scenario.  

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Compliance time spent on setting up a new subsidiary 
- Large parent, average of all countries investigated -
Thousands of minutes 

TP MUTUAL AGRREEMENT
PROCEDURES

TP DOCUMENTATION

CLEARANCES AND RULINGS 

LEARNING AND EDUCATION 

DEALING WITH TAX AUTHORITIES

RECORD KEEPING 

PREPARATION OF COMPUTATIONS

PREPAYMENTS

TAX RETURNS AND PAYMENTS

ANY OTHER

100

90

80

70

60

50

40

30

20

10

0

Current 

CCTB

CCCTB 

Source: Deloitte Tax Experts Survey 

The  reduction  of  compliance  costs  is  one  of  the  most  significant  sources  of  welfare  gains  in  the 
CGE model. A  common  base (CCTB) could result  in lower  compliance costs in  the long  run as 
multinationals  no  longer  have  to  deal  with  27  different  tax  regimes,  but  only  one  common  set  of 
rules.  In  the  short  run,  companies  need  to  learn  the  new  rules  so  that  these  costs  may  actually 
increase. Once the learning process has been completed,  however,  one may expect a reduction in 
compliance costs. Thus, firms can benefit from economies of scale in tax compliance. Calibration in 
CORTAX assumes that compliance costs are currently around 4% of total corporate tax payments. 
These costs might fall for multinationals under a CCTB. The reduction in compliance costs relate to 
the  size  of  the  multinational  sector  in  each  country.  Simulations  of  this  scenario  are  carried  out 
assuming  that  compliance  costs  for  subsidiaries  due  to  the  CCTB  would  fall  by  30%  while 
compliance  costs  for  domestic  firms  and  headquarters  are  kept  at  their  current  level  in  the 
simulations.  On  average,  this  would  imply  a  reduction  in  compliance  costs  of  0.4%  of  the  total 
corporate  tax  revenue  in  Europe,  or  0.01%  of  GDP.  The  associated  welfare  gain  is  similar. 
Countries hosting more multinationals gain more than countries hosting few multinationals. Under 
the  CCCTB,  even  stronger  effects  can  be  expected  from  the  reduction  of  compliance  costs  since 
multinational  firms  would  save  time  and  resources  on  determining  transfer  prices  for  intra-group 
transactions. The positive effects could be magnified if a central administration became responsible 
for  the  tax  treatment  of  multinationals.  For  the  simulation  of  the  CCCTB  scenarios  CORTAX 
assumes that compliance costs of subsidiaries are reduced to zero, while compliance costs for the 
multinational  headquarter  and  for  domestic  firms  remain  unchanged.  It  implies  a  reduction  in 
compliance costs equivalent to 1.3% of the total corporate tax revenue in Europe or 0.04% of GDP. 
This translates into an aggregate welfare gain in Europe of approximately 0.06% of GDP. Due to 
the  specific  assumption  about  the  allocation  of  compliance  cost  savings  between  parents  and 
subsidiaries, countries hosting more foreign subsidiaries gain more than countries hosting relatively 
few subsidiaries. 

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5.4. 

Economy-wide impacts  

The  final  objective  of  the  proposed  company  tax  reforms  is  to  increase  cross-border  investments, 
competition in the Internal Market, productivity, economic growth  and consumers'  welfare61. It is 
therefore  essential  to  get  a  grasp  of  the  possible  impact  of  the  alternative  policy  options  under 
analysis.  The  economy-wide  effects  of  the  reforms  at  the  EU  level  are  analysed  using  the  CGE 
model  CORTAX.  The  main  features  of  the  model,  its  limitations,  as  well  as  the  working 
assumptions and their implications for the results are discussed in Annex 1062.  

Tables 7a-d summarise some of the key results of the four alternative policy options under analysis: 
optional  CCTB,  compulsory  CCTB,  optional  CCCTB  and  compulsory  CCCTB.  In  the  optional 
scenarios  it  is  assumed  that  only  MNEs  but  no  domestic  companies  opt  for  the  alternative  tax 
systems. The results are presented for three different definitions of the common tax base: 

•  The  CCTB-WG20,  which  assumes  20%  depreciation  of  plant  and  machinery  (depreciation 

scheme suggested by the CCCTB Working Group)63. 

•  The CCTB-WG25, with plant and machinery depreciated at 25 % (thus implying a narrower tax 

base than the WG20). 

•  The CCTB-EUav, which represents a definition of the common base entailing on average for the 
EU unchanged net present value of depreciation allowances, and is therefore a benchmark case 
(and is narrower than the two former ones given the more generous depreciation allowances)64. 

All simulations assume that the governments adjust corporate tax rates to keep revenue constant ex-
ante (before behavioural reactions take place). When the reforms apply only to multinationals, the 
corporate tax rates are adjusted only for them, but not for domestic firms. 

CCTB options: the key role of the broadness of the tax base for the results 

61 

62 

63 

64 

Welfare  is  measured  from  the  individual  utility  function.  As  such,  the  welfare  effects  of  a  tax  reform  differ 
from  the  impact  on  economic  aggregates  such  as  private  consumption  or  gross  domestic  product.  This  is 
because utility depends also on leisure. More employment may raise income, consumption and gross domestic 
product, but the decline in leisure reduces these benefits in terms of welfare. Moreover, an increase in gross 
domestic  product  may  be  accompanied  by an  inflow  of  foreign  capital,  the  return of which  flows  to  foreign 
owners,  rather  than  domestic  residents.  Welfare  may  also  be  affected  by  multinational  profit  shifting  which 
raises income but leaves the gross domestic product unchanged. 
The model is calibrated on tax data for 2005 and in the baseline scenario (representing the current situation) 
the corporate tax changes in 2006 and 2007 are incorporated. The reforms explored in the study are therefore 
imposed  relative  to  the  corporate  tax  systems  as  they  stood  in  Europe  in  2007.  Like  any  CGE  model, 
CORTAX ignores certain economic mechanisms, include specifications which are not undisputed and cannot 
take away the uncertainty about the strength of certain behavioural effects of tax policies. For these reasons, 
numerical outcomes should be taken with proper care, and interpreted in the light of the modelling assumptions 
(see Annex 10). 
The details of this scheme are as follows: 
- Industrial buildings are depreciated straight line over 40 years at 2.5% per year. 
- Plant and machinery is depreciated at 20% declining balance. 
- Intangibles are depreciated straight line over 15 years at 6.66% per year. 
There is a variety of combinations in depreciation rules that matches the CCTB-EUav. For instance, the 
following structure meets this requirement: 
- Industrial buildings are depreciated straight line over 30 years at 4% per year. 
- Plant and machinery is depreciated at 30% declining balance, with a switch to straight line at 15% after 3 
years. 
- Intangibles are depreciated straight line over 9 years at 11.11% per year. 

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The analysis of the CCTB options centres on the issue of base broadening versus rate reduction. In 
the  context  of  the  neoclassical  CGE  model,  it  emphasises  the  trade-off  between  a  low  effective 
marginal tax rate (result of a narrow base and high statutory tax rate), which minimises distortions 
in investment65, and a low statutory corporate tax rate (coupled with a broad base), which minimises 
multinational profit shifting to outside locations and improves the attractiveness of a location in the 
discrete choice of the place for investment. From Tables 7a-b it can be seen that CCTB-WG20 and 
CCTB-WG25 allow for a reduction in the corporate tax rates between 2.5 percentage points and 3.5 
percentage points. Despite lower rates, however, these reforms reduce investment, employment, and 
GDP (in both cases the optional and the compulsory cases). The CCTB-EUav (a base narrower than 
the former ones) in turn leaves the average corporate tax rate in the EU almost unchanged ex-ante, 
and  is  accompanied  by  small  positive  economic  impacts.  CORTAX  thus  reveals  that  a  policy  of 
base broadening and rate reduction at the EU level causes overall negative economic and welfare 
effects.  Why  is  that?  The  reason  is  that  the  cost  of  capital  increases.  Indeed,  less  generous 
depreciation allowances require a higher rate of return on marginal investment for the firms to break 
even. Although a lower corporate tax rate partly offsets this, it is insufficient to prevent an increase 
in the cost of capital. Intuitively, corporate tax allowances apply to the cost of investments at the 
margin, whereas corporate tax rates apply to both the marginal investment and economic rents. As a 
result,  a  revenue-neutral  reform  of  base  broadening  and  rate  reduction  shifts  the  tax  burden  from 
economic  rents  to  capital,  which  is  distortive.  Thus,  due  to  the  increase  in  the  cost  of  capital, 
investment  falls.  The  smaller  capital  stock  exerts  a  negative  impact  on  the  marginal  product  of 
labour and, therefore, on labour demand, which will ultimately lead – with a positive elasticity of 
labour supply – to a contraction in employment. At the European level, base broadening (implied 
by the new definition of the common tax base) coupled with rate reduction to balance national 
budgets reduces aggregate welfare in the EU. On the other hand, the reduction of compliance 
costs is the main positive effect of the CCTB reforms: they are estimated to be reduced by 0.4% of 
the  total  corporate  tax  revenue  in  Europe  or  0.01%  of  GDP  (see  section  5.3.2).  All  in  all,  a 
compulsory CCTB leaves welfare at a European level nearly constant while the introduction 
of a CCTB optional for multinationals renders slight welfare gains.  

Table 7: Macroeconomic effects  

65 

A policy of “broad base/low rates”, by raising the cost of capital, reduces marginal investment at the individual 
firm's level. On the contrary, having high rates raises the tax on pure rents earned above the 'normal' return to 
capital, which is non-distortionary, and allows narrowing the base, thus reducing the distortions to the marginal 
investment. 

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Table 7.a  Optional CCTB: only multinationals            

                                                                   CCTB-WG20      CCTB-WG25       CCTB-EUav 

Corporate tax rate 

Corporate tax revenues in %GDP (ex-post) 

Investment 

Wage 

Employment 

GDP 

Welfare   

Table 7.b  Compulsory CCTB: all firms 

Corporate tax rate 

Corporate tax revenues in %GDP (ex-post) 

Investment 

Wage 

Employment 

GDP 

Welfare   

-3.08 

 0.09 

-0.54 

-0.06 

-0.05 

-0.04 

 0.01 

-2.48 

 0.07 

-0.44 

-0.05 

-0.04 

-0.03 

 0.01 

-0.29 

 0.01 

 0.02 

 0.01 

 0.00 

 0.01 

 0.00 

          CCTB-WG20      CCTB-WG25       CCTB-EUav 

-3.42 

 0.15 

-1.25 

-0.22 

-0.13 

-0.25 

-0.01 

-2.80 

 0.12 

-0.97 

-0.16 

-0.10 

-0.18 

 0.00 

-0.50 

 0.00 

 0.14 

 0.07 

 0.00 

 0.08 

 0.03 

Table 7.c  Optional CCCTB: only multinationals 

                                                                                  CCCTB-WG20    CCCTB-WG25    CCCTB-EUav 

Corporate tax rate 

Corporate tax revenues in %GDP (ex-post) 

Investment 

Wage 

Employment 

GDP 

Welfare   

-0.57 

 0.03 

-0.88 

 0.02 

-0.01 

-0.17 

 0.02 

 0.12 

 0.00 

-0.74 

 0.05 

 0.00 

-0.15 

 0.02 

 2.44 

-0.12 

-0.11 

 0.19 

 0.09 

-0.04 

 0.03 

Table 7.d  Compulsory CCCTB: all firms                               

                                                                              CCCTB-WG20    CCCTB-WG25    CCCTB-EUav 

Corporate tax rate 

Corporate tax revenues in %GDP (ex-post) 

Investment 

Wage 

Employment 

GDP 

Welfare   

-2.21 

 0.10 

-1.55 

-0.12 

-0.08 

-0.32 

 0.00 

-1.56 

 0.06 

-1.25 

-0.05 

-0.05 

-0.25 

 0.02 

 0.91 

-0.10 

-0.04 

 0.24 

 0.09 

 0.04 

 0.06 

CCCTB options: the positive economic effects of consolidation and apportionment 

The CCCTB reforms are assessed in CORTAX adding consolidation and formula apportionment to 
the  three  definitions  of  the  common  tax  base  previously  used  (WG20,  WG25  and  EUav).  The 

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additional economic effects of consolidation and apportionment can be divided into three different 
categories:  (i)  the  effect  on  compliance  costs;  (ii)  a  shift  from  separate  accounting  to  formula 
allocation; and (iii) the shift from loss carry forward to loss consolidation. Since these three effects 
have  been  analysed  separately  in  the  previous  sections,  here  only  the  net  aggregate  effects  of  the 
CCCTB  reform  are  discussed.  Tables  7.c  and  7.d  suggest  that  the  CCCTB-WG20  and  CCCTB-
WG25 reforms imply limited broadening of the base. The CCCTB-WG20 would thus allow for a 
reduction of the rate by 0.57 or 2.21 percentage points in the optional and compulsory application 
respectively. The reason is that loss consolidation narrows the corporate tax base for multinationals, 
thus  partly  offsetting  the  effect  of  the  new  depreciation  rules.  Under  the  CCCTB-WG25  applied 
only  to  multinationals,  revenues  remain  virtually  unchanged  so  that  rates  need  not  be  reduced  on 
average.  In  turn,  under  the  CCCTB-EUav,  the  corporate  tax  base  is  eventually  narrower  than  the 
current EU average bases. Compared to the CCTB, the welfare effects of the CCCTB options 
are more favourable under all of the analysed scenarios, thus suggesting that consolidation and 
formula  apportionment  exert  a  positive  welfare  effect.  In  particular,  the  CORTAX  analysis 
highlights that:  

(i) 

(ii) 

(iii) 

the  lion's  share  of  the  positive  economic  impact  of  consolidation  and  formula 
apportionment is due to lower compliance costs. This effect is responsible for an aggregate 
welfare gain in Europe of approximately 0.06% of GDP (see section 5.3.2).  

Moving from SA to formula apportionment exerts a negligible effect on GDP and welfare, 
as a result of different offsetting effects: fewer incentives to shift profits and capital from 
high  to  low-tax  countries  but  renewed  distortions  in  the  allocation  of  formula  factors  to 
low-tax  countries.  CORTAX  suggests  that  the  aggregate  effect  on  welfare  in  the  EU  is 
very  small.  However,  the  results  for  individual  countries,  and  depending  on  the  specific 
apportioning mechanisms, can be different. Thus, for example, low tax countries lose from 
the  elimination  of  transfer-pricing,  but  may  benefit,  however,  from  new  tax  planning 
possibilities in the allocation of the formula factors.  

Finally, in the model, loss consolidation, reducing the tax base, may require an increase in 
corporate  tax  rates  to  balance  the  government  budget.  The  effect  on  the  cost  of  capital, 
however, is not certain a priori, given the different treatment of positive marginal returns 
under  the  consolidation  and  the  carry  forward  regimes.  In  addition,  loss  consolidation 
decreases  effective  labour  costs,  which  translates  into  positive  employment  effects.  On 
balance, investment and GDP slightly fall but the net effect on welfare is positive66.  

Overall, the CCCTB implies a welfare gain of about 0.02% to 0.06% of GDP in aggregated terms 
for the EU as a whole67. Interestingly, alternative available simulations with CORTAX suggest that 

66 

67 

It  is  important  to  note  that  often  the  welfare  effects  of  the  tax  reforms  differ  from  the  impact  on  economic 
aggregates  such  as  private  consumption  or  gross  domestic  product.  This  is  because  utility  depends  also  on 
leisure.  More  employment  may  raise  income,  consumption  and  gross  domestic  product,  but  the  decline  in 
leisure  reduces  these  benefits  in  terms  of  welfare.  Moreover,  an  increase  in  gross  domestic  product  may  be 
accompanied by an inflow of foreign capital, the return of which flows to foreign owners, rather than domestic 
residents. Furthermore, welfare may also be affected by multinational profit shifting which raises income but 
leaves the gross domestic product unchanged. 
These results correspond to the apportioning mechanism based on equal weighting for employment, capital and 
turnover. The aggregate welfare results of other mechanisms are: 
SM 2: employment (1/6), payroll (1/6), capital (1/3), output (1/3) : + 0.03% GDP; 
SM 3: : payroll (1/4), employment (1/4), capital (1/2): + 0.02% GDP;  
SM 4: payroll (1/3), capital (1/3) and output (1/3): + 0.03% GDP; 
SM 5: payroll (1/2), capital (1/2): + 0.04% GDP.  

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under  the  CCCTB-EUav  scenario,  adjusting  lump-sum  transfers,  i.e.  subsidies  in  fixed  amount, 
instead  of  increasing  corporate  tax  rates  would  generate  an  additional  welfare  gain  of  0.06%  of 
GDP68.  

“All firms” (compulsory) versus “only multinationals” (optional) 

Both the CCTB and CCCTB scenarios are simulated for two possible cases: a general application to 
all  firms  and  a  selective  application  only  to  the  multinational  firms  in  the  economy.  In  the  latter 
case, domestic firms in EU countries would still be subject to the current national tax regimes. To 
balance the government budget, the corporate tax rates are adjusted only for multinationals, but not 
for domestic firms. 

Hence,  the  hypothesized  selective  application  of  the  CCTB  or  CCCTB  implies  that  marginal 
effective tax rates for multinationals will differ from those of domestic firms. Indeed, the two types 
of firms face different rules for fiscal depreciation. Especially in countries where the national rules 
differ much from the rules under the common tax base, there can be sizable discrepancies in the cost 
of capital for the different firms. In this situation, resource allocation within countries is distorted, 
with a subsequent distortion in production efficiency. Indeed, the tax system favours investment in 
the sector where the effective marginal tax rate is lower at the expense of the other sector. This in 
turn  reduces  welfare.  The  negative  welfare  effects  are,  however,  more  than  offset  by  the  smaller 
coverage of the broader tax base, which mitigates the rise in the cost of capital under CCTB-WG20 
and CCTB-WG25, compared to the scenario with compulsory application. Accordingly, under the 
base broadening regimes  of WG20  and  WG25, the  optional  application of CCTB and  CCCTB 
(Tables 7.a and 7.c) is more beneficial than the compulsory application (Tables 7.b and 7.d).69  

The role of profit shifting in the simulations  

In  Tables  7.a-d,  the  four  alternative  policy  options  have  been  compared  to  a  baseline  scenario 
capturing the current situation with profit shifting (appropriately calibrated). The baseline scenario 
however  only  captures  the  “beneficial”  effect  of  profit  shifting  i.e.  that  of  allowing  multinational 
firms  to  reduce  the  overall  tax  burden.  As  such,  profit  shifting  in  the  baseline  scenario  with  SA 
encourages investment, raises GDP and improves welfare. Hence, the abolition of profit shifting 
via consolidation and apportionment raises the tax burden on multinationals and discourages 
investment.  As  a  consequence  of  these  assumptions,  eliminating  profit  shifting  in  the  CCCTB 
scenarios affects negatively welfare compared to the current situation. It is plausible that, the actual 
welfare gains of the CCCTB options are underestimated by the simulations. In fact, taking into 
account  the  costs  of  profit  shifting  would  lower  the  initial  welfare  level  of  comparison,  thus 
resulting in higher relative gains of the CCCTB (at least a further 0.02% of GDP). A further source 
of downward bias in the estimated welfare gains arises under the optional CCCTB. It is reasonable 
to  assume  that  in  such  case  only  multinationals  benefitting  from  the  new  system  would  adopt  it, 
thus reducing their overall burden compared, in terms of tax liabilities and compliance costs, to the 
current scenario. As the simulations do not disentangle the choices of individual multinationals, the 
estimated  gains  from  consolidation  and  formula  apportionment  are  likely  underestimated.  In 
addition  to  issues  of  fairness  and  legitimacy,  profit  shifting  may  have  other  implications  for 
efficiency  that  are  not  captured  by  the  model.  For  instance,  enforcing  transfer  pricing  rules  is 
relatively  costly  for  tax  administrations.  Moreover,  the  possibility  of  profit  shifting  creates  an 

68 

69 

Bettendorf  L.,  Devereux  M.,  van  der  Horst  A.,  Loretz  S.  and  Ruud  A.  de  Mooij,  2009.  "Corporate  tax 
harmonization in the EU," Working Papers 0932, Oxford University Centre for Business Taxation. 
Under the EUav scenario without base broadening compared to the status-quo scenario the suppression of the 
distortion in production efficiency with compulsory CCCTB develops its full positive welfare impact.  

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advantage  for  multinationals  that  does  not  apply  to  purely  domestic  firms.  By  discriminating 
between firms, it creates a distortion in production efficiency. 

5.5. 

Dynamic effects and impact on SMEs 

In  the  previous  sections  the  effects  of  the  different  policy  options  have  been  quantified  using 
statistical  analysis  and  economic  modeling.  The  quantification  is  based  on  ad  hoc  statistical  and 
survey data on European multinationals; likewise, firms' behavioral responses to the new tax policy 
concern adjustment to the amount of capital and labor employed in the new steady state, but do not 
involve other decisions such as entry into new markets. Thus, the different approaches are static in 
nature.  For  this  reason,  they  do  not  capture  important  dynamic  effects  potentially  associated  with 
the  reforms  under  analysis.  Obtaining  a  reliable  quantification  of  such  impacts  is  extremely 
difficult. Nonetheless, providing at least a qualitative assessment is crucial in order to better gauge 
the long term effects of the different policy options. The reduction in uncertainty and in the costs 
(actual  and  perceived)  that  firms  incur  when  they  operate  in  international  markets  is  the  main 
channel through which these effects are expected to materialize. Ultimately, this will translate into 
increased  cross  border  investment  within  the  EU,  stemming  both  from  further  expansion  of 
European  and  foreign  multinationals  and  from  de  novo  investment  of  purely  domestic  firms  into 
other  Member  States.  By  the  same  token,  as  argued  below,  SMEs  might  be  particularly 
advantaged by the level playing field created by the reforms under analysis.  

First of all, the introduction of common rules to calculate the tax base will decrease the complexity 
and  the  uncertainty  that  firms  active  in  multiple  jurisdictions  have  to  face  under  the  current 
system of SA. On the one hand, standardization of tax rules implies a simplified learning process 
for firms getting exposed to different and often complex tax systems. On the other, multinationals 
will not have to deal with frequently changing national tax environments. Both these elements are 
indeed perceived as major tax obstacle by the business sector70.  Secondly,  the reduction in actual 
and  perceived  compliance  costs  is  expected  to  exert  a  substantial  influence  on  firms'  ability  and 
willingness to expand abroad in the long term. In section 5.3.2 it has been shown that isolating the 
reduction  in  compliance  costs  currently  incurred  by  multinationals  (quantified  at  4%  of  total 
corporate  tax  payments)  translates  into  a  welfare  gain  of  0.01%  of  GDP  under  the  CCTB  and  of 
approximately  0.06%  of  GDP  in  the  case  of  CCCTB.  Moreover,  the  survey  evidence  reported  in 
section 5.3.2 points to a substantial reduction in compliance costs (>60%) in the case of new cross-
border investment, i.e. when a new subsidiary is established abroad. Overall, these findings suggest 
that the dynamic effects of lower compliance costs might be sizable. Available evidence points to 
the same conclusion. The European Commission's European Tax Survey (2004) reports estimates of 
compliance costs by firms. These outlays include those required for company taxation (and VAT) 
as well as the costs voluntarily incurred to minimize tax payments. According to the survey, SMEs 
are  disproportionately  penalized  compared  to  large  companies:  compliance  costs  are  estimated  at 
1.9% and 30.9% of taxes paid by large firms and SMEs, respectively. Weighing more on SMEs, 
such costs may de facto represent a significant deterrent to invest into international markets 
for  this  type  of  firms.  Dismantling  these  barriers,  as  both  in  the  CCTB  and  CCCTB  scenarios,  is 
likely to encourage significantly cross border expansion of SMEs. The internationalisation process 

70 

In the annual PricewaterhouseCoopers global survey of Chief Executive Officers (CEO) published in January 
2009 (PwC 12th Annual Global CEO Survey), CEOs worldwide were asked which aspects of the tax regime 
were  most  important  in  influencing  investment  decisions.  The  top  choice  was  clarity  and  stability  of  the  tax 
rules. The second most important aspect was the total amount of taxes that companies pay. The Ernst &Young 
European Attractiveness Survey 2010 as well highlights the importance for business of "policy certainty and 
consistency, and the confidence that taxes, for example, are not going to change without notice".  

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would be further facilitated as the 'one-stop shop' principle limits the exposure of firms to foreign 
(less known) tax systems71.  

In  addition,  according  to  the  European  Tax  Survey,  cross-border  activities  have  a  substantial 
influence on the size of compliance costs. First of all, compliance costs are found to be higher for 
companies  with  at  least  one  subsidiary  in  another  EU  Member  State  compared  to  companies 
operating  only  in  the  domestic  market.  Secondly,  such  outlays  increase  with  the  number  of 
subsidiaries  abroad.  A  possible  explanation  relates  to  transfer  pricing  obligations,  which  are 
growing considerably complex due to both the difficulty of identifying comparable transactions for 
establishing  the  arm's  length  price  in  the  presence  of  new  technologies  and  business  structures 
(which imply, for instance, more emphasis on intangibles) and the tendency among Member States, 
fearing manipulation, to impose increasingly onerous documentation requirements72. Moreover, the 
same  survey  shows  that  audits  and  litigations  are  particularly  onerous  for  firms  already  operating 
across  the  borders.  Taken  together,  this  qualitative  evidence  suggests  that  the  CCCTB  options, 
which eliminate transfer pricing-related obligations within the EU, might indeed positively affect 
MNEs  willingness  to  expand  further  in  other  EU  Member  States.  The  effect  would  be 
reinforced  once  the  further  savings  stemming  from  cross  border  loss  compensation  are  taken  into 
account.  By  the  same  token,  these  arguments  apply  to  SMEs,  who  might  perceive  conducting 
business abroad as particularly onerous due to the current transfer pricing obligations.  

All in all, the proposed standardisation and simplification arrangements are expected to bring about 
important dynamic impacts in terms of enhanced attractiveness of the EU as a whole for productive 
investment.  Second  order  positive  effects  on  productivity  and  employment  are  also  expected  to 
materialize once more firms will be operating into international markets.  

5.6. 

Social and environmental impacts  

A  comprehensive  solution  for  the  definition  of  the  corporate  tax  base  in  the  EU  could  also  have 
some  limited  social  effects,  notably  linked  to  the  impacts  on  employment.  Evidence  on 
anticompetitive regulation in the product market (OECD, 2001; Cincera and Galgau, 2005) suggests 
that positive effects on the labour market, not only in terms of the number of persons employed, can 
be expected from the reduction of compliance costs for cross-border companies. First, MNEs seem 
to  pay  higher  wages  than  domestic  companies  (Driffield  and  Girma,  2003;  Feliciano  and  Lipsey, 
1999;  Navaretti  and  Venables,  2004).  Secondly,  skilled  workers  appear  to  be  concentrated  in 
multinational companies. Finally, MNEs appear to adjust employment relatively quickly compared 
to  domestic  companies.  In  addition,  to  the  extent  that  dynamics  would  translate  into  increased 
investment  abroad  also  by  SMEs  that  are  currently  operating  only  in  national  markets,  further 
employment gains are expected in the long term. Given the characteristics of employment in SMEs, 
these  gains  might  be  substantial  in  size,  as  SMEs  currently  contribute  for  two  thirds  of  total 
employment in non-financial sectors in the EU, and would not be limited to the highest tale of the 
skill (and income) distribution.  

Given the nature of the proposed measures, no direct environmental impacts are expected. Indirect 
impacts  might  materialize  as  a  consequence  of  increased  economic  activity,  particularly  in  some 
sectors, if efficiency gains are achieved in the medium and long term.  

71 

72 

The one-shop principle means that the tax payer has to introduce one tax declaration in their mother tongue 
according to procedures they know, and the tax declaration is processed by one tax administration. At the same 
time, there is of course the possibility that other tax administrations have questions or initiate an audit. 
Transfer pricing is an important issue for 82.8% of large companies, in particular, when it comes to dealing 
with documentation requirements, which are a difficulty for 81.9% of large companies.  

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6. 

COMPARISON OF THE OPTIONS  

In this section the alternative policy options described in section 4 will be assessed by reference to 
the objectives described in section 3 and by comparison with the status quo scenario. In order to put 
the size of the impacts in perspective, it is important to bear in mind that the reforms under analysis 
apply to corporate taxation. Corporate tax revenues amount to roughly 3% of the EU GDP, whereas 
total tax revenues – including social security contributions – stand at about 40% of GDP. The order 
of magnitude of the quantification provided above have to be judged also in the light of the static 
nature of the analyses performed. Once dynamic behavioural changes are brought into the picture, 
further  gains  from  increased  cross  border  investment  in  the  EU  can  be  expected,  although  they 
prove very difficult to measure ex ante.  

The changes in  the macroeconomic framework resulting from the implementation  of  the different 
alternative options are assessed by comparing their effects on real investment, employment, growth, 
and welfare, as obtained from the CGE model CORTAX discussed in section 5.4. Table 8 shows 
the effects of the different options under analysis (variation with respect to the option 1 ('baseline 
scenario')  under  different  size  of  the  bases.  In  particular  the,  columns  EUav  report  the  results 
obtained in the ceteris paribus case, that is, considering that the new definition of the common tax 
base  (before  consolidation)  leaves  the  size  of  the  EU  tax  base  unchanged  on  average.  The 
columns  WG-20  and  WG-25  show  the  macro-economic  effects  of  the  reforms  under  analysis 
when they are associated to a base broadening policy, i.e. the definition of the common tax base 
corresponds to that of WG20 and WG25 described earlier73. 

Compared  to  the  "status  quo"  scenario,  all  the  different  policy  scenarios  analysed  result  in  a 
slight improvement of aggregate welfare. Overall, positive economic effects can be expected by 
the removal of the corporate tax obstacles described in section 2 under the unchanged tax base 
scenario (EUav columns). These effects result from:  

a) the efficiency gains for the EU internal market stemming from the lower dispersion of tax bases 
due to the common definition of the corporate taxable base. This can be seen in the positive overall 
effects of options 2 and 3, which capture the effects of the common tax base. 

b) the reduction of the corporate tax compliance costs for companies, and the elimination of over-
taxation  of  cross-border  economic  activity  and  of  double  taxation  for  companies  operating  in  the 
internal market. This can be seen in the positive overall effects of options 4 and 5, which represent 
the  common  consolidated  corporate  tax  base,  and  therefore  feature  the  effects  associated  to 
consolidation and apportionment. 

73 

These  results  are  based  on  two  possible  definitions  of  the  Common  Tax  Base  following  the  discussions 
between  the  Commission  and  the  Member  States  Tax  Authorities  in  the  context  of  a  joint  Working  Group 
(20% or 25% depreciation rate for pooled assets). According to these definitions the Common Tax Base would 
be broader than the present EU average corporate tax base (the 25%-based definition being narrower than the 
20%). In the economic modelling, in order to keep total tax revenues constant, corporate tax rates are lowered 
ex-ante to compensate for changes in the size of the tax bases. 

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Table 8: Macroeconomic effects: change compared to baseline scenario (in percentage) 

Option 2: 
Optional CCTB 

Option 3: 
Compulsory CCTB 

Option 4: 
Optional CCCTB 

Option 5: 
Compulsory CCCTB 

EUav 

WG-
20 

WG-
25 

EUav 

WG-
20 

WG-
25 

EUav 

WG-
20 

WG-
25 

EUav 

WG-
20 

WG-
25 

Investment  

0.02 

-0.54 

-0.44 

Employment 

0.00 

-0.05 

-0.04 

GDP 

0.01 

-0.04 

-0.03 

0.14 

0.00 

0.08 

-1.25 

-0.97 

-0.11 

-0.88 

-0.74 

-0.04 

-1.55 

-1.25 

-0.13 

-0.10 

0.09 

-0.01 

0.00 

-0.25 

-0.18 

-0.04 

-0.17 

-0.15 

0.09 

0.04 

-0.08 

-0.05 

-0.32 

-0.25 

Welfare (% 
of GDP) 

0.00 

0.01 

0.01 

0.03 

-0.01 

0.00 

0.03 

0.02 

0.02 

0.06 

0.00 

0.02 

Source: Simulations with CGE CORTAX model 

The introduction of a broader tax base with lower rates would have in general negative investment 
effects. As explained in section 5.4, this outcome is the consequence of the specific features of the 
general equilibrium models available for this kind of analysis. In fact, according to the CORTAX 
model a policy of base broadening cum rate cutting in order to keep revenues constant is associated 
with  an  increase  in  the  cost  of  capital  and  hence  decreasing  investment.  As  a  consequence,  in 
general, the macro-economic effects of simulations with broader bases are less positive than in the 
case when the size of the EU average tax base was left unchanged. The overall effect of any of the 
reforms, however, continues to be small net welfare gains compared to the current situation. That 
is,  once  the  positive  effects  of  rate  reduction  are  also  modelled  -  in  terms  of  reduced  profiting 
shifting  and  increased  attractiveness  for  investment  location  vis-à-vis  the  rest  of  the  world  -  the 
policy of base broadening/rate reduction does not take out so much of the positive effects owing to 
the elimination of tax barriers achieved by the reforms74. Comparing the results from options 4 and 
5  shows  that  under  the  base  broadening  scenarios  an  optional  CCCTB  give  better  results  than  a 
compulsory one. While the yield in term of welfare gains is the same under WG25, a compulsory 
reform  under  WG20  leaves  welfare  unaffected.  At  the  same  time,  employment  drops  by  0.08 
percentage points, and the negative effects on the other variables are roughly twice as large as in the 
optional  scenario.  Similarly,  notwithstanding  the  same  impact  on  welfare,  under  the  compulsory 
WG25  case  employment,  GDP  and  investment  worsen  compared  to  the  corresponding  optional 
scenario.  

It is worth stressing that the macroeconomic effects presented in table 8 can be obtained leaving the 
total  amount  of  corporate  tax  revenues  in  the  EU  unaffected  ex-ante,  i.e.  before  behavioural 
reactions by economic agents. This is achieved by assuming that national corporate tax rates in the 
CGE  model  be  modified  to  compensate  for  any  changes  in  the  taxable  bases  following  the 
introduction  of  the  policy  options  under  analysis.  Clearly,  alternative  adjustments  could  be 
hypothesized75.  Abstracting  from  the  stylized  modelling  environment,  it  should  be  kept  in  mind 
that,  in  practice,  governments  can  resort  to  alternative  tax  instruments  to  balance  their  budget.  In 
this  respect,  the  economic  literature  has  emphasized  that  taxes  on  different  bases  have  dissimilar 
implications for economic growth (OECD, 2009).  

74 

75 

It  has  to  be  underlined  that  the  size  of  the  taxable  base,  as  such,  is  not  an  objective  of  the  reforms  under 
analysis. In this context, changes in the size of the taxable base have to be considered as a side effect of the 
elimination of tax barriers, which are the objectives underlying the different policy options. 
In particular, available simulations for the case of unchanged corporate tax base before consolidation suggest 
that using lump sum transfers to balance the budget following reduced revenues would result in an additional 
0.06 % welfare gain in terms of GDP. 

EN 

45 

   EN 

 
 
 
 
 
 
                                                 
The reduction of compliance costs related to corporate taxation stands out as particularly relevant 
for  the  estimated  economy-wide  effects.  Disentangling  the  macroeconomic  effects  of  reduced 
compliance costs isolates welfare gains in the terms of GDP in the range of 0.01% of GDP in the 
case of CCTB and approximately 0.06% under the CCCTB options. Moreover, the survey evidence 
summarized in table 9 points to significant implications at the microeconomic level, particularly in 
the case of new investment flows. The CCCTB could result in compliance cost savings in the range 
of 60% for a large parent entering a new MS by setting up a subsidiary. Based on this evidence, the 
reduction in compliance costs is the main channel through which the proposed policy options are 
expected  to  exert  dynamic  effects  in  the  long  term.  Although  reliable  quantification  proves 
extremely  difficult,  available  qualitative  evidence  suggests  that  lower  tax  obstacles  are  likely  to 
translate into further expansion of existing multinationals in the EU. Likewise, eliminating the costs 
associated  to  the  learning  process  of  different  tax  systems  and  establishing  the  'one-stop  shop' 
principle for tax administration would particularly benefit SMEs' capacity to enter into international 
markets. The overall implication is increased cross-border investments in the EU as a whole. The 
effect  is  expected  again  particularly  pronounced  in  the  case  of  CCCTB,  given  the  importance  of 
transfer pricing requirements on total compliance costs.  

Table 9: Change in compliance time and cost* 

Large parent investing in a new subsidiary  

(Deloitte case study) 

Established multinationals  

(PWC survey) 

* In percentage (compared to the current regime).  

CCTB 

CCCTB 

-9.84 

-2.64 

4 

3 

-69.5 

-62.3 

-8 

-1 

Time 

Cost 

Time 

Cost 

Even if it is difficult to quantitatively disentangle the specific contribution of each objective taken 
separately  to  the  overall  outcome,  the  analysis  presented  in  this  document  has  allowed  for  some 
insights.  All  in  all,  the  economic  results  of  this  Impact  Assessment  show  that  the  removal  of  the 
three  types  of  identified  corporate  tax  obstacles  would  allow  business  to  make  sounder  economic 
choices  thus  improving  the  overall  efficiency  of  the  economy.  On  the  basis  of  the  quantified 
economic impacts, the optional CCCTB and the compulsory CCCTB are preferred to the alternative 
options  given  the  savings  in  compliance  costs  they  generate.  However,  the  macroeconomic 
evidence points to the optional CCCTB as the overall preferred policy option of the scenarios 
analysed (table 10). In absolute terms, as explained above, the actual welfare gains, particularly in 
the  case  of  CCCTB,  are  likely  to  be  underestimated.  By  the  same  token,  larger  gains  might  be 
expected once dynamic effects are brought into the picture. The reduction in uncertainty and in the 
costs (actual and perceived) that firms incur when they operate in international markets is the main 
channel through which these effects are expected to materialize. Ultimately, this will translate into 
increased  cross  border  investment  within  the  EU,  stemming  both  from  further  expansion  of 
European  and  foreign  multinationals  and  from  de  novo  investment  of  purely  domestic  firms  into 
other Member States. Similarly, SMEs might be particularly advantaged by the level playing field 
created by the reforms under analysis. 

This  Impact  Assessment  shows  that  there  are  quantifiable  economic  benefits  arising  from  the 
completion of the Internal market in the corporate tax area that can be obtained without limiting the 
capacity of Member States to influence the size of their corporate tax revenues. These results are in 
line with the expected effects from a liberalisation policy and represent the contribution that a more 
efficient corporate tax system can offer to the Europe 2020 strategy. 

EN 

46 

   EN 

 
  
 
  
 
Table 10: Ranking of policy-options (1 = best option) 

Option 1: 
status-quo 

Option 2: 
Optional 
CCTB 

Option 3: 
Compulsory 
CCTB 

Option 4: 
Optional 
CCCTB 

Option 5: 
Compulsory 
CCCTB 

PWC study (compliance costs) 

Deloitte study (compliance costs) 

CORTAX study (macroeconomic variables) 

2 

3 

4 

3 

2 

1 

1 

3 

5 

1(2) 

2(1) 

7. 

MONITORING AND EVALUATION 

The main objectives of the proposed policy Directive are the elimination of the risk of double and 
over-taxation, as well as the reduction of compliance costs for firms having operations in multiple 
jurisdictions.  Ultimately,  reducing  these  distortions  would  enhance  the  functioning  of  the  Internal 
market.  The  Commission  services  will  offer  assistance  for  the  implementation  of  the  legislative 
changes. In order to achieve uniformity of interpretation and reduction in legal uncertainty, further 
discussion and guidance in respect of key concepts may prove necessary. 

The  proposed  policy  intervention  will  exert  effects  on  a  number  of  variables  that  should  be 
monitored.  At  the  microeconomic  level,  the  effects  of  the  policy  options  on  firms'  tax  related 
compliance costs and on their investment behaviour across national borders should be assessed. To 
overcome  the  well  known  difficulties  in  obtaining  reliable  estimates  of  actual  and  perceived 
compliance  costs,  ad  hoc  surveys  should  be  designed,  and  particular  attention  devoted  to  the 
representativeness  of  the  selected  samples.  Propensity  to  expand  abroad  by  SMEs  might  be 
particularly revealing on the expected long term impacts of the policy options. Such effects can be 
gauged both by means of surveys among the relevant companies and by analysing observed changes 
in actual investment choices. At the macroeconomic level, consistent with the general objectives of 
improving  the  allocation  of  productive  capital  in  the  EU,  evidence  should  be  gathered  on  foreign 
direct investment flows directed to the EU and among EU countries.  

In line with the Commission work on the reduction of administrative costs, further indicators could 
be  envisaged  to  measure  the  changes  in  the  burden  for  tax  administrations  following  the 
implementation  of  the  new  system  and  the  elimination  in  outlays  related  to  transfer  pricing 
requirements and related disputes.  

The evaluation of the consequences of the application 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 
functioning of the Directive. The content of such a report would vary according to the scope of the 
Directive as finally agreed in the Council.  

EN 

47 

   EN 

 
 
Annex 1. Further details on the consultation process  

The origin of the present initiative goes back to early studies on company taxation in the European 
Union.  Already  in  1990,  a  Committee  of  Independent  Experts  in  Company  Taxation  (Ruding 
Committee)  was  asked  by  the  Commission  to  determine  whether  the  co-existence  of  different 
national  corporate  tax  systems  lead  to  major  distortions  affecting  the  functioning  of  the  single 
market and to examine all possible remedial measures. This Committee confirmed the existence of 
such  distortions  and  proposed  recommendations76.  The  findings  of  the  "Ruding  report"  were  not 
followed  by  comprehensive  policy  action  at  the  time,  and  10  years  later  the  Council  asked  the 
Commission  to  re-examine  the  situation,  considering  that  the  overall  economic  framework  had 
changed significantly since the early 1990's.  

The Council of Ministers in 1999 invited the Commission to undertake a study on company taxation 
in the European Union with the following formal mandate:  

"The  Commission  is  invited  to  present  an  analytical  study  on  company  taxation  in  the  European 
Community. This study will be undertaken in the general context of the Vienna European Council 
conclusions emphasising the need to combat harmful tax competition whilst taking into account that 
cooperation in the tax policy area is not aiming at uniform tax rates and is not inconsistent with fair 
tax competition but is called for to reduce the continuing distortions in the single market also with a 
view  to  stimulating  economic  growth  and  enhancing  the  international  competitiveness  of  the 
Community, to prevent excessive losses of tax revenue or to get tax structures to develop in a more 
employment-friendly  way.  This  study  will  also  be  undertaken  on  the  basis  of  the  Ecofin  Council 
conclusions  asking  to  illuminate  existing  differences  in  effective  corporate  taxation  in  the 
Community  and  the  policy  issues  that  such  differences  may  give  rise  to.  This  study  should  also 
highlight  remaining  tax  obstacles  to  cross-border  economic  activity  in  the  Internal  Market.  The 
study  will  analyse  differences  in  effective  levels  of  corporate  tax  in  Member  States,  taking  into 
account,  inter  alia,  the  results  of  the  report  of  the  Ruding  Committee  (1992).  Attention  should  be 
given  to  the  influence  of  corporate  tax  bases  on  effective  levels  of  taxation.  Moreover,  the  study 
should also identify the main tax provisions which may hamper cross-border economic activity in 
the single market. On this basis, an assessment should be undertaken of the effects on the location 
of  economic  activity  and  investment.  The  Commission  should  highlight  the  tax  policy  issues 
involved in reducing tax-induced distortions and examine possible remedial measures, taking into 
account of the respective spheres of competence of the Member States and the Community". 

The results of the study were published in 2001 in the so-called Company Tax Study77 and a related 
Communication78. 

* The Company Tax Study 

In  preparing  the  2001  Company  tax  study,  following  the  Council  mandate,  the  Commission  was 
assisted  by  two  specifically  created  panels  of  experts.  The  task  of  the  first  panel,  composed  of 
academics and experts, was to advise the Commission  services on the choice  of methodology for 
the  evaluation  of  the  effective  tax  rates  in  Member  States  as  well  as  the  interpretation  of  the 
qualitative and quantitative results of the analysis. The task of the second panel was to advise the 

76 
77 
78 

Report of the Committee of Independent Experts on Company Taxation ("Ruding report”), 1992, Brussels. 
‘Company Taxation in the Single Market’. SEC (2001) 582 final. 
‘Towards an Internal Market without tax obstacles: A strategy for providing companies with a consolidated 
corporate tax base for their EU-wide activities’, COM(2001)582. 

EN 

48 

   EN 

 
                                                 
Commission services on the remaining company tax obstacles to the proper functioning of the 
Single  Market  and  to  analyse  these  taxation  obstacles  from  the  point  of  view  of  the  European 
business community and social partners79. 

Thus, Part III of the Study reflects the results of the work of the 2nd panel. It dealt with "burdens 
which  companies  incur  as  a  result  of  doing  business  in  more  than  one  Member  State  and  which 
therefore represent a barrier to cross-border trade, establishment and investment".  

The main burdens identified can be classified in three broad categories: 

•  Income flows between associated companies 

•  Transfer pricing 

•  Double taxation treaties 

First, concerning income flows, by 2001, the Parent-Subsidiary Directive has abolished withholding 
taxes  on  payments  of  dividends  between  associated  companies  of  different  Member  States. 
However, its effectiveness was found to be reduced by the fact that it did not cover all companies 
subject to corporation tax and applied solely to direct holdings of 25% or more (at the moment of 
the study). Payments of interest and royalties between associated companies of different Member 
States  were  often  still  subject  to  withholding  taxes  that  effectively  created  situations  of  double 
taxation.  Restructuring  operations  were  found  to  incur  one-off  costs  –  the  tax-cost  induced  by 
cross-border  mergers,  acquisitions  and  internal  reorganisations  being  often  excessively  high  and 
forcing  companies  to  choose  economically  sub-optimal  structures.  The  study  identified  particular 
difficulties in relation to cross-border loss-compensation. 

All these obstacles together with specific features of certain tax systems lead to an in-built bias in 
favour of domestic investment.80 

Second, the study identified growing problems in the area of transfer pricing, mainly in the form 
of high compliance costs and potential double taxation for intra-group transactions. The application 
of  the  various  methods  for  determining  the  "correct"  (i.e.  "arm's  length")  transfer  price  for  a 
determined intra-group transaction has become increasingly complex and costly. According to the 
study, EU businesses faced uncertainty as to whether their transfer prices would be accepted by the 
tax administrations upon an audit. The cost and time relating to the dispute settlement procedures 
were often too high for enterprises with the result that it was often less costly to accept the double 
taxation. 

Third, double taxation conventions (DTCs) were identified as a potential source of obstacles and 
distortions  for  cross-border  economic  activities  within  the  EU.  Although  the  intra-EU  network  of 

79 

80 

The Commission services contacted a variety of leading business associations, trade unions and accountancy 
associations.  The  associations  represented  were:  CEEP  (European  Centre  of  Enterprises  with  Public 
Participation), CFE (Conféderation Fiscale Européenne), EFFEI (European Federation of Financial Executives 
Institutes),  Eurochambres  (Association  of  European  Chambers  of  Commerce  and  Industry),  Eurocommerce, 
ERT  (European  Round  Table  of  Industrialists),  IFA  (International  Fiscal  Association),  TEPSA  (Trans 
European  Policy  Study  Association),  UEAPME  (European  Association  of  Craft,  Small-  and  Medium-Sized 
Enterprises),  UNICE  (Union  of  Industrial  and  Employer’s  Confederations  of  Europe)  and  ETUC  (European 
Trade Union Confederation). 
For example, under imputation systems, foreign investors cannot benefit from tax credits available to domestic 
ones 

EN 

49 

   EN 

 
                                                 
DTCs  was  largely  complete  by  2001,  some  gaps  remained.  Even  though  treaties  within  the  EU 
followed  the  OECD  Model,  the  study  finds  significant  differences  in  the  terms  of  the  various 
treaties and their interpretation. Instances of divergent application of treaties by the treaty partners, 
leading to double taxation or non-taxation, were also recorded. Business representatives referred to 
the  increasing  complexity  of  treaty  provisions  as  a  source  of  compliance  costs  and  uncertainty. 
What is more, the study shows that DTC provisions based on the OECD Model, in particular non-
discrimination articles, were not adequate to ensure compliance with the EU law principle of equal 
treatment.  

Apart  from  these  specific  obstacles,  the  study  maintains  that  "[t]he  need  to  comply  with  a 
multiplicity  of  different  rules  entails  a  considerable  compliance  cost  and  represents  in  itself  a 
significant barrier to cross-border economic activity." 

Part  IV  of  the  Study  presented  a  framework  for  possible  remedies  and  put  forward  targeted 
solutions to the above problems as well as comprehensive measures to tackle tax obstacles in the 
Internal market.  

Why transfer pricing rules affect the 'double taxation' and 'additional compliance costs' tax obstacles in 
the Internal market 

In the area of transfer pricing, the tax problems for cross-border economic activity in the Internal market 
have  increased  over  the  past  few  years  and  are  still  growing.  The  problems  consist  essentially  in  high 
compliance costs and potential double taxation for intra-group transactions as explained below. 

Goods  and  services  are  often  transferred  within  a  Multi-National  Enterprise  (MNE)  before  they  generate 
actual profits by being sold to third parties. According to WTO estimates, approximately 60% of total world 
trade consists of dealings between related parties. Within the EU, this figure is closer to 70%. This means 
that  the  majority  of  international  trade  is  carried  out  between  different  parts  of  the  same  group:  between 
parents and subsidiaries or between subsidiaries under the control of the same parent. 

Successful  MNEs are organised to target their third party customers most  effectively and in their external 
activities they generally operate as a single entity. However, for tax purposes the MNE must "draw down the 
corporate veil" and pay tax based on accounts in each state where it operates. This means that some way 
must be found of pricing the goods and services that have been transferred between the different parts of the 
same  MNE.  A  price  must  be  established  but  since  the  parties  to  such  dealings  are  associated  the  price  is 
open  to  manipulation.  The  high  share  of  international  trade  conducted  within  MNEs  leads  tax 
administrations to fear that they are losing out on their fair share of tax on any profit, either because MNEs 
are inadvertently using incorrect transfer pricing or because they are deliberately exploiting opportunities to 
artificially shift profits to low taxing jurisdictions. 

In order to deal with this problem most countries have transfer pricing rules. All such rules broadly follow 
the  same  principle:  dealings  between  parts  of  the  same  MNE  must  be  priced  as  they  would  have  been 
between  independent  enterprises.  This  is  known  as  the  arm's  length  principle  because  independent 
enterprises are described as dealing at "arm's length". 

Why are transfer pricing rules so difficult to apply? When goods or services are bought and sold between 
independent traders on the open market the buyer and seller agree a market price. But different parts of an 
MNE are under the control of the same shareholders – there is no open market price. Since companies and 
tax  administrations  have  to  imagine  a  hypothetical  situation  –  what  price  would  have  been  charged  if  the 
transaction  had  taken  place  between  independent  traders?  –  transfer  pricing  rules  are  genuinely  very 
difficult to apply. Not to let alone the potential scope for manipulation. 

Nearly all transfer pricing rules follow the arm's length principle and are interpreted in accordance with the 
OECD  transfer  pricing  guidelines.  But  these  guidelines  only  provide  indications  of  how  transfer  prices 
should be set – they do not say what the transfer price should be. Transfer pricing is no exact science as it is 
often  difficult  if  not  impossible  to  find  comparable  market  prices.  There  is  also  the  problem  of  finding 

EN 

50 

   EN 

 
comparable  independent  companies  and  proving  how  they  would  have  acted.  The  need  to  comply  with 
transfer pricing rules is therefore a major inconvenience for businesses. 

There is an international consensus that businesses should pay tax only once on the same profit: there should 
be  no  double  taxation.  However,  when  one  tax  authority  imposes  a  transfer  pricing  adjustment,  double 
taxation is created unless and until another tax authority gives a corresponding adjustment downwards. In 
practice, tax administrations may also disagree on the appropriate transfer prices. Resolving such disputes 
between  tax  administrations  on  highly  complex  matters  takes  time.  The  company  has  to  wait  while  these 
disputes between the two tax administrations are resolved, living with the uncertainty of the final outcome 
and possibly financing the cost of paying the tax twice while the dispute is pending. 

Hence  transfer  pricing  rules  give  rise  to  disputes  between  tax  administrations  and  taxpayers  and  also 
between tax administrations. Resolving such disputes can take many years. Applying transfer pricing rules 
and  documenting  transfer  prices  are  both  costly  and  time-consuming  for  taxpayers.  Auditing  a  taxpayer's 
transfer pricing is time consuming and resource intensive for both tax administrations and taxpayers. 

* Targeted actions: 

Income flows between related companies 

Responding  to  the  shortcomings  identified  in  the  Merger  and  Parent-Subsidiary  Directive,  the 
study identifies the need for amendments to those directives: 

•  To broaden their scope to specific transfer taxes; 

•  To make it clear that instances of economic double taxation should be avoided;  

•  To extend the scope of the Merger Directive for the purpose of deferring tax charges, 
until  the  gain  is  realised,  where  assets  are  moved  to  another  Member  State  while 
preserving the departing State's tax claims. 

It  was  also  suggested  to  amend  the  Parent-Subsidiary,  so  that  it  covers  both  direct  and  indirect 
shareholdings or, alternatively, provide for a lower minimum holding threshold. 

Finally, the study proposed to make technical amendments for the purpose of revitalising a proposal 
for a Directive of 1990 in the field of cross-border losses.81  

Transfer pricing 

The study identified several remedial measures in the field of transfer pricing:  

•  The  practical  application  of  the  Arbitration  Convention  could  be  improved  and  its 

provisions made subject to interpretation by the Court.  

•  To  tackle  uncertainty,  Member  States  could  be  encouraged  to  introduce  or  expand 

bilateral or multilateral Advance Price Agreement programmes. 

81 

‘Proposal  for  a  Council  Directive  Concerning  Arrangements  for  Taking  into  Account  by  Enterprises  of  the 
Losses of their Permanent Establishments and Subsidiaries Situated in Other Member States’ COM (90) 595 
final, 28 November 1990. 

EN 

51 

   EN 

 
                                                 
•  Subject  to  safeguards  to  prevent  aggressive  tax  planning,  a  framework  for  prior 
transfer  pricing 

tax  administrations  enforce 

agreement  or  consultation  before 
adjustments could also be considered.  

Double Taxation Conventions 

Proposed remedies in the field of DTCs include:  

The filling of the few remaining gaps in the existing network of double taxation treaties within the 
EU, 

•  Current  DTCs  of  Member  States  could  be  adjusted,  in  order  to  comply  with  the 

principles of the single market, in particular in relation to access to treaty benefits, 

•  Better co-ordination of treaty policy in relation to third countries, 

•  Binding  arbitration  where  conflicts  arise  between  treaty  partners  in  the  interpretation 

and application of a treaty. 

The most complete solution to such problems would be the conclusion of a multilateral tax treaty 
between  Member  States,  conferring  interpretative  jurisdiction  on  the  Court.  Another  possibility, 
leaving  intact  the  existing  bilateral  system,  would  be  to  elaborate  an  EU  version  of  the  OECD 
model  convention  and  commentary  (or  of  certain  articles)  which  would  meet  the  specific 
requirements of the acquis communautaire.  

In addition, according to the study, various problems relating to the divergent application of (both 
the  existing  and  future)  EU  Tax  Directives  by  the  Member  States  could  be  tackled  via  a  regular 
exchange of best practices or some form of peer review. 

* Comprehensive approaches  

The  solutions  targeted  at  solving  specifically  identified  problems  cannot  fully  tackle  the 
impediments  to  cross-border  commercial  activity  that  companies  face  in  dealing  with  up  to  27 
different  tax  systems.  Namely,  compliance  costs would remain high  and complications caused by 
disparities  and  mismatches  among  national  corporate  tax  systems  would  not  allow  companies  to 
enjoy the full benefits of the single market. This led the Commission to conclude that, in the longer 
term, a more comprehensive approach for a European company tax system was the most promising 
way forward.  

The study discussed four such options for comprehensive approaches:  

•  "Home  State  Taxation",  implying  that  all,  or  a  group  of,  Member  States  agree  that 
certain  groups  of  companies  with  operations  in  a  number  of  Member  States  may 
compute  their  taxable  base  according  to  the  tax  code  of  a  single  Member  State  (i.e. 
Home State), instead of following all the different tax codes of the respective Member 
States  where  they  have  operations  (principle  of  mutual  recognition).  Only  the  method 
for calculating the base would change, as each Member State would continue to set the 
tax rate applicable to its share of the group’s profits.  

•  A  Common  Consolidated  Corporate  Tax  Base  is  a  system  of  common  rules  for 
establishing  the  corporate  tax  base.  Groups  of  companies  of  which  the  parent  is  tax 
resident in a Member State would have the option to adopt a set of common rules for 

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52 

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computing the tax base of each individual group member (i.e. subsidiary or permanent 
establishment  (PE))  in  the  EU.  The  scheme  would  involve  consolidating  the  tax-
adjusted results of each group member and then, allocating the consolidated tax base to 
the  eligible  group  members  by  apportionment.  Companies  would  be  entitled  to  opt  in 
the system individually if they did not fulfil the tests for consolidation. 

•  The European Union Company Income Tax (EUCIT) would require the drafting of a 
new  corporate  tax  code  to  apply  across  the  EU.  In  its  purest  form,  it  would  be 
administered  by  a  single  tax  authority,  provide  for  a  single  EU-wide  tax  rate  and  the 
revenues  would  be  used  to  fund  the  EU  institutions  and  activities  whilst  any  excess 
would be allocated to Member States according to an agreed formula. However, it could 
also  be  administered  by  individual  Member  States  in  much  the  same  way  as  Value 
Added  Tax.  In  such  case,  each  Member  State  could  apply  its  own  tax  rate  to  its 
allocated share of the tax base.  

•  A compulsory harmonised tax base in the EU would require that a single corporate 
tax code applies to all companies across the EU and replaces the existing domestic tax 
codes. 

The  study  identified  the  fundamental  advantages  of  providing  EU  businesses  with  a  common 
consolidated corporate tax base for their EU-wide activities as follows:  

•  The  compliance  cost  resulting  from  the  need  to  deal  with  27  tax  systems  within  the 

single market would be significantly reduced; 

•  Transfer pricing problems within the group of companies would disappear; 

•  Profits and losses would, in principle, be automatically consolidated on an EU basis; 

•  Many international restructuring operations would be fiscally simpler and less costly. 

The  business  representatives  of  the  expert  panel  assisting  the  Commission  emphasised  the 
fundamental  advantages  of  comprehensive  proposals  under  which  compliance  costs  would  be 
reduced, many situations of double taxation would be avoided and many discriminatory situations 
and  restrictions  would  be  removed.  The  study  furthermore  highlights  that  the  introduction  of  a 
comprehensive  option  would  contribute  to  the  reduction  of  administrative  costs  and  that  many 
remedial measures would make the fight against tax evasion and avoidance more efficient. 

* Additional Consultation and the CCCTB Working Group 

As  early  as  2003,  the  Commission  services  carried  out  a  formal  public  consultation  on  the 
possibility of using IFRS/IAS as a starting point for arriving at a common set of corporate tax rules. 

External consultation intensified after an informal ECOFIN Council in September 2004 led to the 
establishment of a Working Group on the CCCTB. The group consisting of technical experts from 
all Member States and met quarterly between November 2004 and April 2008 and went through the 
elements of the scheme in detail. It also met annually in extended format three times (i.e. December 
2005, 2006 and 2007) to allow all key experts and stakeholders from the business, the professions 
and the academia to express their views. TAXUD had initialy proposed that the Working Group be 
Member States’ experts and external stakeholders but Member States objected and the compromise 
solution  was  an  annual  extended  meeting,  quarterly  meetings  with  Member  States  and  frequent 

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separate ad hoc meetings between TAXUD and stakeholders. In addition, six separate sub-groups 
were  established,  which  met  three  or  four  times  each;  five  chaired  by  Member  States  (Germany, 
Italy,  France,  Spain,  and  Denmark)  and  one  by  TAXUD.  To  support  the  work  of  the  group,  the 
Commission services produced 66 technical documents for discussion covering every aspect of the 
CCCTB system. 

The work on the CCCTB rapidly gained considerable visibility and the Commission services started 
to receive a fast growing number of invitations for meetings and presentations. Since then, around 
15  front-line  European  and  national  business  associations  and  think-tanks  have  sent  in  technical 
documents setting out their views on specific features of a CCCTB for the single market. Business 
Europe, in particular, has furnished the Commission with separate contributions containing detailed 
comments  on  the  technical  elements  of  almost  every  document  submitted  to  the  Working  Group. 
The  list  of  stakeholders82  who  took  part  in  the  extended-format  meeting  of  the  group  on  10-11 
December  2007  illustrates  the  extent  of  the  consultation.  Over  the  years  the  CCCTB  has  been 
discussed with a broad range of stakeholders. It is also noteworthy that, regardless of the fact that 
the project was less exposed to the public eye between Autumn  2008  and  the  beginning  of  2010, 
contributions dealing  with  specific  technical aspects (e.g. insurance) continued to be submitted to 
TAXUD. 

Although  the  CCCTB  Working  Group  forms  the  core  of  the  work  in  order  to  widen  the  debate, 
particularly  within  the  academic  and  business  world,  the  Commission  services  also  organised 
conferences in Brussels (April 2002) and Rome (December 2003). Another event, co-sponsored by 
the Commission and an academic institution, took place in Vienna in February 2008 and discussed 
in  detail  several  highly  technical  items  relevant  to  the  CCCTB.  The  articles  submitted  to  the 
conference  were  subsequently  published  in  book  form.  Further,  the  literature  in  all  high-tier 
international  tax  journals  has  covered  almost  every  aspect  of  the  issues  emerging  from  the  last 
official outline of the CCCTB83. 

From  the  establishment  of  the  Working  Group  a  specific  CCCTB  section  of  the  website  of  DG 
TAXUD  has  been  dedicated  to  the  CCCTB  and  has  all  the  key  documentation  in  the  field.  In 
addition to the main policy documents, it includes all 66 papers produced for the Working Group 
coupled with summary records of the meetings. It also contains links to most of the technical input 
given by stakeholders on various technical aspects of the tax base. 

The  latest  consultation  session  on  the  CCCTB  took  place  on  20  October  2010  when  the 
Commission Services held a CCCTB Workshop. The Workshop which included representatives of 
all  27  Member  States,  business  associations,  academics  and  think  tanks84  focused  on  four  papers 
that the Commission services put on the table as a basis for discussion: 

82 

83 

84 

EU  AMCHAM  (American  Chamber  of  Commerce),  CEA  (Comité  européen  des  assurances),  CEPS  (Centre 
for European Policy Studies), CFE (Confédération Fiscale Européenne), EATLP (European Association of Tax 
Law  Professors),  EBIT  (European  Business  Initiative  on  taxation),  EUROCHAMBRES  (Association  of 
European  Chambers  of  Commerce),  FBE  (European  Banking  Federation),  FEE  (Fédération  des  Experts 
Comptables  Européens),  UEAPME  (European  Association  of  craft  &  small  and  medium  sized  enterprises), 
BUSINESSEUROPE and the OECD Secretariat. 
(EC), 
Commission 
CCCTB\WP\057\doc, 26 July 2007 
AMCHAM  (American  Chamber  of  Commerce),  Business  Europe,  CEA  (Comité  européen  des  assurances), 
CEPS  (Centre  for  European  Policy  Studies),  CFE  (Confédération  fiscale  européenne),  EATLP  (European 
Association  of  Tax  Law  Professors),  EBIT  (European  Business  Initiative  on  Taxation),  ETUC  (European 
Trade  Union  Confederation),  EUROCHAMBRES  (Association  of  European  Chambers  of  Commerce),  FBE 
(European  Banking  Federation),  FEE  (Fédération  des  experts  comptables  européens),  UEAPME  (European 

‘CCCTB:  possible  elements  of  a 

(Working  Document) 

technical  outline’ 

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1. Eligibility Tests for Companies and Definition of a CCCTB Group; 

2. Business Reorganisations; 

3. Transactions and dealings between the Group and entities outside the Group; 

4. Anti-Abuse Rules in the CCCTB. 

The  workshop  allowed  for  constructive  discussions  about  the  policy  initiatives.  In  particular, 
practical  solutions  to  technical  aspects  on  the  application  of  the  new  rules  were  found. 

Association  of  Craft  &  Small-  and  Medium-Sized  Enterprises),  OECD  Secretariat  and  EESC  (European 
Economic and Social Committee). 

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CCCTB Working Group Working Papers 

http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm  

CCCTB/WP/001 

General Tax Principles (1.2) 

CCCTB/WP/001/Rev1 

General Tax Principles Revised (1.2) 

CCCTB/WP/002 

Draft Terms of Reference & Rules of Procedure (1.2) 

CCCTB/WP/003 

Draft Work Programme (1.2) 

CCCTB/WP/004 

Assets and Tax Depreciation (1) 

Annex CCCTB/WP/004 

Assets and Tax Depreciation - Annex (Table) (1) 

CCCTB/WP/005a 

Summary Record of Nov 2004 Meeting (1) 

CCCTB/WP/005) 

Intangible assets (2 

Annex1 CCCTB/WP/005 

Intangible assets Annex Table (2) 

Annex2 CCCTB/WP/005 

Annex – Potential Structure (2) 

CCCTB/WP/006 

Reserves, Provisions and Liabilities (2) 

CCCTB/WP/007 

Overview of SG1 January Meeting (2) 

CCCTB/WP/008 

CCCTB/WP/009 

Summary Record of March 2005 Meeting (2) 

CCCTB/WP/010 

Capital Gains (3) 

CCCTB/WP/011 

Overview of SG2 April Meeting (3) 

CCCTB/WP/012 

Overview of SG1 – Two meetings (3) 

CCCTB/WP/013) 

Summary Record of June 2005 Meeting (3 

CCCTB/WP/014 

Overview of SG1 July Meeting (4) 

CCCTB/WP/015 

Overview of SG2 June meeting (4) 

CCCTB/WP/016 

Concept of Tax balance Sheet (4) 

CCCTB/WP/017 

Taxable income (4) 

CCCTB/WP/018 

Summary Record of September 2005 Meeting (4) 

CCCTB/WP/019 

International aspects (5) 

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CCCTB/WP/020 

Progress and future plan (5) 

CCCTB/WP/021 

Overview of SG2 October meeting (5) 

CCCTB/WP/022 

Overview of SG3 November meeting (5) 

CCCTB/WP/023 

Financial assets (5) 

Annex CCCTB/WP/023 

Annex 1 – Table (5) 

Annex CCCTB/WP/023 

Annex 2 – Table (5) 

CCCTB/WP/024 

Chair Record of 071205 Meeting (5) 

CCCTB/WP/025 

Summary Record of 081205 Meeting (5) 

CCCTB/WP/026 

Territorial scope of the CCCTB (6) 

CCCTB/WP/027 

Financial Institutions (6) 

CCCTB/WP/028 

Overview of SG3 February meeting (6) 

CCCTB/WP/029 

Overview of SG4 February meeting (6) 

CCCTB/WP/030 

Administrative and legal framework (questionnaire) (6) 

CCCTB/WP/031 

Summary Record of March 2006 Meeting (6) 

CCCTB/WP/032 

Overview of SG1 April 2006 meeting (7) 

CCCTB/WP/033 

Overview of SG4 April 2006 meeting (7) 

CCCTB/WP/034 

Overview of SG3 May 2006 meeting (7) 

CCCTB/WP/035 

Group Taxation (7) 

CCCTB/WP/036 

Point for discussion Administrative and Legal Framework (7) 

CCCTB/WP/037 

Summary Record of 1 June 2006 Meeting (7) 

CCCTB/WP/038 

Chair Record of 2 June 2006 Meeting (8) 

CCCTB/WP/039 

Business reorganisations (9) 

CCCTB/WP/040 

Scope of the CCCTB (9) 

CCCTB/WP/041 

Related parties in CCCTB (10) 

CCCTB/WP/042 

Dividends (9) 

CCCTB/WP/043 

Overview of SG3 June 2006 meeting (9) 

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CCCTB/WP/044 

Overview of SG5 June 2006 meeting (9) 

CCCTB/WP/045 

Summary Record of 12 September 2006 Meeting (9) 

CCCTB/WP/046 

Progress and future plan (10) 

CCCTB/WP/047 

Formulary apportionment (10) 

CCCTB/WP/048 

Overview Copenhagen (10) 

CCCTB/WP/049 

Overview Madrid (10) 

CCCTB/WP/050 

Chair Record of 12 December 2006 Meeting (10) 

CCCTB/WP/051 

Summary Record of 13 December 2006 Meeting (10) 

CCCTB/WP/052 

Overview SG6 1-2 February 2007 (11) 

CCCTB/WP/053 

Overview Copenhagen 5-6 February 2007 (11) 

CCCTB/WP/054 

Summary on foreign passive income (11) 

CCCTB/WP/055 

Summary Record of 13 March 2007 Meeting (11) 

CCCTB/WP/056 

Overview SG6 4 June 2007 (12) 

CCCTB/WP/057 

CCCTB: Possible elements of a technical outline (12) 

CCCTB/WP/057 

ANNOTATED CCCTB: Possible elements of a technical outline 
(13) 

CCCTB/WP/058 

Input from national tax administrations (12) 

CCCTB/WP/059 

Summary Record of 27-28 September 2007 Meeting (12) 

CCCTB/WP/060 

CCCTB/WP/061 

Sharing mechanism: Possible elements of a technical outline 
(13) 

Administrative Framework: Possible elements of a technical 
outline (13) 

CCCTB/WP/062 

Explanatory note on the comitology procedure 

CCCTB/WP/063 

Summary Record of 12 December 2007 Meeting 

CCCTB/WP/064 

Summary Record of 10-11 December 2007 Meeting 

CCCTB/WP/065 

Anti-abuse rules 

CCCTB/WP/066 

Various detailed aspects of the CCCTB 

CCCTB/WP/067 

Request of input from national tax administrations for the 

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Impact Assessment of the reforms at the EU level of corporate 
tax systems 

CCCTB/WP/068 

Summary Record of 14-15 April 2008 Meeting (13) 

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Annex  2.  The  framework  of  the  acquis  communautaire  in  the  field  of  corporate  income 

taxation 

The framework of the acquis communautaire in the area of corporate income taxation is composed 
of legislation, the ECJ jurisprudence and other acts in the area of company taxation. 

* EU legislative acts in the field of corporate income taxation 

Secondary legislation in the area of direct taxation is not extensive. Legislative acts take the form of 
Directives  as  prescribed  by  the  Treaties  (i.e.  Article  115  of  the  Treaty  on  the  Functioning  of  the 
European  Union  (TFEU)  which  replaced  Article  94  of  the  Treaty  on  the  European  Community 
(TEC)).  Two  “packages”  of  EC  legislation,  adopted  in  1990  and  2003,  address  some  of  the  tax 
obstacles that place barriers to the achievement of the single market. Concerning company taxation, 
the Council has so far adopted three directives: 

The  Merger  Directive85  aims  at  mitigating  the  tax  burden  arising  from  cross-border  restructuring 
operations of companies within the EU. 

The  Parent-Subsidiary  Directive86  ensures  that  certain  cross-border  payments  of  dividends  do  not 
suffer economic double taxation within the EU. 

The  Interest  and  Royalties  Directive87  provides  for  the  elimination  of  double  taxation  of  certain 
interest  and  royalty  payments  between  associated  companies  which  are  resident  in  different 
Member States, by exempting such payments from withholding tax in the State of source. 

These  three  Directives  are  supplemented  by  the  Arbitration  Convention88  which  addresses  the 
problems  of  transfer  pricing  in  transactions  that  involve  goods,  services  and  intangibles  between 
associated  companies.  This  instrument  has  not  yet  yielded  significant  results,  although  several 
recent  Communications  containing  guidelines  should  render  its  application  more  effective  (see 
infra). 

* Case-law of the Court of Justice of the European Union 

The  number  of  cases  in  the  area  of  company  taxation  referred  to  the  Court  of  Justice  of  the 
European Union (ECJ) has grown considerably over the last 10 years. After some 150 decisions in 

85 

86 

87 

88 

Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, 
divisions,  partial  divisions,  transfers  of  assets  and  exchanges  of  shares  concerning  companies  of  different 
Member States and to the transfer of the registered office of an SE or SCE between Member States (codified 
version, OJ L 310, 25.11.2009, p 34). 
Council  Directive  90/435/EEC  of  23  July  1990  on  the  common  system  of  taxation  applicable  in  the  case  of 
parent companies and subsidiaries of different Member States (OJ L 225, 20.8.1990, p. 6–9). 
Council  Directive  2003/49/EC  of  3  June  2003  on  a  common  system  of  taxation  applicable  to  interest  and 
royalty  payments  made  between  associated  companies  of  different  Member  States  (OJ  L  157,  26.6.2003,  p. 
49–54). 
Convention  90/436/EEC  of  23  July  1990  on  the  elimination  of  double  taxation  in  connection  with  the 
adjustment of profits of associated enterprises – Final Act – Joint Declarations – Unilateral Declarations (OJ 
L225, 20.8.1990, p. 10–24). 

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this  area89,  there  can  be  no  doubt  that  the  case-law  of  the  ECJ  has  significantly influenced the 
shaping of company tax policy in the EU. 

Some of the cases that the ECJ has ruled on in this area concerned the application and interpretation 
of the direct tax directives (i.e. Parent-Subsidiary or Merger Directives). However, the vast majority 
of  cases  deal  with  the  compatibility  of  corporate  tax  provisions  of  the  Member  States  with  the 
fundamental  freedoms  of  the  EC  Treaty,  in  particular  the  freedom  of  establishment  (the  right  of 
companies to establish themselves by setting up branches, subsidiaries or agencies in other Member 
States  (Art.  49  TFEU)),  the  free  movement  of  services  and  free  movement  of  capital.  Regarding 
multinational groups of companies, the Court has issued landmark judgments on the tax treatment 
of branches and subsidiaries, cross-border losses, the application of anti-abuse rules in the EU and 
the taxation of outbound and inbound dividends. 

Case-law developments can contribute to the completion of the single market. The judicial process 
however  has  its  limitations,  as  it  is  rather  time-consuming,  expensive  and  focuses  on  individual 
situations. It thus does not produce generally applicable solutions. As a result, taxpayers often face 
considerable uncertainty as to how to interpret the principles of the jurisprudence of the ECJ when 
structuring  cross-border  activities  within  the  EU.  Furthermore,  since  the  Court  only  rules  on  the 
specific  questions  it  has  been  addressed  to,  its  jurisprudence  cannot  offer  a  systematic  tool  for 
tackling features of the Member States’ corporate tax systems which are in breach of EU law90. 

It follows that it would not be advisable to rely solely on the judicial process to secure compliance 
with  EU  law.  It  is  necessary  to  work  in  parallel  and  try  to  resolve  problems  through  legislation, 
particularly where those are common to a number of Member States. 

* Other EU acts and initiatives in the field of corporate income taxation 

Besides EU hard law and the jurisprudence of the ECJ, several other initiatives have been taken by 
the  Commission  in  recent  years  to  remove  obstacles  to  the  freedom  of  movement.  As  part  of  the 
framework  of  the  two-track  strategy  launched  in  2001,  the  Commission  announced  a  series  of 
targeted  measures  in  the  area  of  corporate  taxation,  aimed  at  removing  specific  corporate  tax 
barriers in the short term. Most of these targeted measures have since been adopted: 

- a proposal for a Code of Conduct on transfer pricing documentation for associated enterprises in 
the EU91; 

-  a  proposal  for  a  Code  of  Conduct  for  the  effective  implementation  of  the  EU  Arbitration 
Convention92; 

-  a  proposal  for  a  revised  Code  of  Conduct  for  the  effective  implementation  of  the  Arbitration 
Convention93; 

89 

90 

91 
92 

93 

See  the  2008  study  "The  Impact  of  the  Rulings  of  the  European  Court  of  Justice  in  the  area  of  Direct 
Taxation", Policy Department - Economic and Scientific Policy, European Parliament (IP/A/ECON/ST/2007-
27). 
In 2004, a Price Waterhouse Coopers study concluded that possible violations of EC freedoms existed in all 
(then 25) Member States. See Press Release, PWC LLP, 14 October 2004. 
COM(2005)543. 
Code  of  conduct  COM(2004)297  for  the  effective  implementation  of  the  Convention  on  the  elimination  of 
double taxation in connection with the adjustment of profits of associated enterprises (OJ C 176, 28.7.2006, p. 
8–12). 
COM (2009)472. 

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- guidelines for the use of Advance Pricing Agreements (APAs) in the EU94; 

- a Communication for a possible Home State Taxation pilot scheme for SMEs95; 

- a Communication on cross-border loss relief96; this issue has also been the object of a Parliament 
resolution97; 

- a Communication on exit taxation and the need for co-ordination of Member Sates’ tax policies98; 

- a Communication on the application of anti-abuse measures in the area of direct taxation – within 
the EU and in relation to third countries99; 

- The fight against tax fraud and tax evasion in the area of direct taxation has also been the object of 
recent initiatives100. 

Some of these initiatives have been more successful than others but many of them have so far not 
led  to  any  action  by  Member  States.  Indeed,  even  being  part  of  the  status  quo,  they  have  had  no 
practical  impact.  The  effective  implementation  by  Member  States  is  a  long-term  exercise. 
Considering  that  these  instruments  are  of  a  non-binding  legal  nature,  the  results  currently  remain 
uncertain.  Therefore,  their  overall  practical  impact  on  removing  remaining tax obstacles has been 
insufficient.

94 
95 
96 
97 

98 
99 
100 

COM(2007)71. 
COM(2005)702, accompanied by the corresponding Impact Assessment (SEC(2005) 1785). 
COM(2006)824. 
European  Parliament,  Resolution  of  13  December  2007  on  Tax  Treatment  of  Losses  in  Cross-Border 
Situations, Report of 30 November 2007, Committee of Economic and Monetary Affairs. 
COM (2006)825. 
COM (2007) 785. 
See among others, COM (2010)156/01. 

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Annex  3.  The  samples  of  EU-based  multinational  groups  from  the  Amadeus  and  ORBIS 

databases  

3.1 

Description  of  EU-based  multinational  groups  operating  in  the  non-financial  sector 
based on the Amadeus database 

The  Amadeus  database  has  been  used  for  some  of  the  quantitative  analysis  in  this  Impact 
Assessment  (February  2006  version).  Amadeus  contains  standardized  annual  accounts  of 
approximately  8  million  companies  in  38  countries,  including  all  EU  Member  States.  It  also 
contains  information  on  (domestic  and  cross-border)  linkages  between  companies  in  its  so-called 
“ownership”  database.  These  features  imply  that  this  dataset  is  useful  for  cross-border  company 
analysis. As an indicative figure, it can be said that Amadeus reports information on about 14000 
'EU-based multinational groups' (as defined below). This doesn’t prevent from raising, however, the 
difficult  question  of  how  representative  the  results  of  such  an  analysis  will  be  for  the  total  actual 
population of companies with cross-border linkages in the EU, since data collection reported in this 
dataset sometimes is biased, as it differs between countries and depends on the institutional settings 
in each country. Unfortunately, a database with information on all EU multinational companies (or 
a  geography-wise  'representative'  sample  of  them)  and  their  foreign  affiliates  does  not  exist  in 
Europe. 

The Amadeus database has been first used to gain some insight into the EU-based companies that 
will most likely be affected by the alternative tax systems under scrutiny in this Impact Assessment: 
EU-based multinational groups101. Internal research in DG TAXUD has dealt with the database in 
order to extract the relevant data to obtain a picture of EU-based multinational groups. For the 
purpose  of  this  study,  an  EU  multinational  group  exists  when  an  EU-based  company  owns  (at 
different possible ownership thresholds – see below) at least one subsidiary in a Member State other 
than that of the parent company. A first objective of this analysis has been to provide a thorough 
description of the existing 'EU-based multinational groups'. For example, it has been of interest to 
know: how many such EU multinational groups exist, their break-down across Member States (ie 
the geographical distribution of parent companies with foreign subsidiaries, the main destination of 
foreign direct investment of parent companies in the form of majority-owned affiliates across EU 
MS…),  the  average  number  of  Member  States  in  which  an  EU  multinational  group  operates,  the 
average  number  of  subsidiaries  of  EU  multinationals  (domestic  and  foreign  -  both  EU-based  and 
non-EU), main sectors of economic activities in which the EU multinational groups operate, etc.  

Thus,  using  the  ‘ownership’  database  of  Amadeus,  the  information  has  been  arranged  by  ‘EU 
multinational  groups’  (ie  matching  companies  that  belong  to  the  same  multinational  group).  For 
each of the companies that is a member of a multinational group, the particular data extracted from 
the database has been: country of residence, ownership percentage, cost and number of employees 
per company and financial data for the years 2002, 2003, 2004: profit (loss) before tax, operating 
revenue/turnover, export turnover, fixed assets (tangible and intangible), added value, etc (the data 
extracted for each group has been used for further quantitative assessments based on this dataset, as 
explained in this report). 

101 

Obviously, in the cases where the policy alternatives under scrutiny are 'compulsory' all EU-based companies 
subject  to  corporate  taxation  will  be  affected  by  the  relevant  tax  system:  that  is,  not  only  EU-based 
multinational  groups,  but  also  EU-based  domestic  (national)  companies/groups  will  be  concerned.  This  has 
been  taken  into  account  when  evaluating  the  relevant  options.  Anyhow,  the  EU-based  multinational  groups 
require  special  attention  because  they  are  affected  by  all  (optional  and  compulsory)  policy  alternatives 
analysed and because they are the economic agents most directly concerned by the various alternative policy 
options. 

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Two  samples  of  such  EU  multinational  groups  in  the  27  Member  States  have  been  selected  from 
Amadeus: (i) a sample of multinational groups whose parents are large size enterprises (i.e. LSEs 
with  more  than  250  employees)  and  (ii)  a  sample  of  multinational  groups  whose  parents  are 
small/medium-sized enterprises (SMEs) (i.e. with less than 250 employees). 

For the first category (EU multinational groups whose parents are large companies) different sub-
samples have been analyzed by varying the ownership threshold from 50% to 75% and 100% (in all 
subsidiary  levels  of  the  parent)  in  order  to  test  how  the  composition  of  the  groups  changes  when 
ownership thresholds are increased or decreased (See Table A1 in this Annex). 

These results show that by increasing the ownership thresholds the sample size does not decrease 
enormously, that is, most subsidiaries of EU multinational groups are owned at very high levels of 
ownership (e.g. 85% of the sample remains when changing the ownership threshold from 50% to 
100%). 

The picture of the main characteristics of EU-based multinational groups with 75% ownership 
has been analysed in greater detail (See Table 2 in this Annex), since this is the proposed ownership 
threshold  for  consolidation.  For  this  sample  with  2060  groups  in  the  27  Member  States,  the 
average number of subsidiaries per parent is 25.95, of which 11.11 (43%) on average are domestic 
subsidiaries (established in the same country as the parent company), 10.06 (38.5%) on average are 
subsidiaries  in  an  EU  Member  State  other  than  that  of  the  parent  company  and  4.78  (18.5%)  are 
subsidiaries  established  in  a  non-EU  country.  A  further  analysis  of  these  figures  has  been  carried 
out, in order to get a better idea of the frequency distribution of the number of subsidiaries/parent. 
When  compared  to  the  average  of  the  distribution  (25.95  subsidiaries/parent)  this  analysis  shows 
that most EU multinational groups have a 'small' number of subsidiaries (6 or less), but at the same 
time  there  are  a  few  groups  that  have  a  very  large  number  of  subsidiaries  biasing  the  average 
upwards. 

Further  investigation  has  been  done  on  other  issues  to  complete  the  picture  of  EU-based 
multinational  groups  (75%  ownership  threshold).  For  example,  the  following  features  can  be 
highlighted: 

- 48.67% of the subsidiaries of the EU-based multinational groups are owned directly by the parent 
company at the first level. 

- On average, parent companies have subsidiaries in four EU Member States (other than that of 
the parent home State), thus, they have to deal with as many corporate tax rules. Some parents reach 
the maximum number of EU foreign destinations which is 26. 

- In most cases, neighbouring countries are the main destination of foreign investment of parents in 
form of majority owned subsidiaries. 

-  The  so-called  sandwich  situations  (i.e.  situations  when  an  EU  parent/subsidiary  owns  a  non-EU 
company,  which  in  turn  owns  an  EU-based  subsidiary)  have  also  been  investigated.  Within  the 
sample  of  2.060  parents  only  48  parents  in  11  Member  States  (a  total  of  59  situations)  held  EU-
based subsidiaries through non-EU companies. 

-  The  main  activities  of  all  parents  per  country  in  the  selected  75%  ownership  sample  have  also 
been  examined  and  grouped  in  62  sectors  according  to  the  NACE  international  classification 
system. 24.9% of the parents operate in ‘Other business activities’, and after that the sector with the 
largest number of parents is ‘Wholesale trade and commission trade, except of motor vehicles and 

EN 

64 

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motorcycles’  (7.33%).  The  Amadeus  database  does  not  contain  any  information  on  companies 
working in the financial and insurance field (thus the analysis in this part is restricted to the non-
financial sector). 

The other sample of EU multinational groups analysed is that of parent companies which have less 
than 250 employees, i.e. parents are small and medium-sized enterprises. Ownership threshold is set 
at  75%  ownership.  The  total  sample  of  SMEs  parents  meeting  the  above  criteria  in  the  Amadeus 
database is 18096, out of which a sample of 471 parents and groups has been extracted and analysed 
(See Table 3 in this Annex). This sample shows that the average number of subsidiaries per parent 
in  these  groups  is  5.41,  which  is  considerably  less  than  the  average  for  the  MNEs.  Of  these,  on 
average, 1.62 are domestic companies (in the same Member State as the parent), 2.25 are foreign 
subsidiaries in other EU Member States and 1,54 are subsidiaries in non-EU countries. 

EN 

65 

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Table A1. Total LSE parents and subsidiaries in varying ownership thresholds (Amadeus database)

Table A1.1.
Total 50% in AMADEUS

( 1 )
Count
ry of 
LSE 
Paren
1
AT
2 BE
3 BG
4 CY
5 CZ
6 DK
7 EE
FI
8
FR
9
10 DE
11 GR
12 HU
IE
13
IT
14
LV
15
LT
16
LU
17
18 MT
19 NL
20 PL
21 PT
22 RO
23 SK
24
SI
25 ES
26 SE
27 UK

( 4 )

( 2 )
Total 
Total 
LSE 
Parent
Parent
s+Subs
s
1774
168
4992
373
4
1
52
7
152
43
6193
317
79
8
2705
171
53037
864
26805
1168
364
33
78
12
1405
98
8528
851
11
3
7
2
591
35
0
0
14398
802
227
31
1137
54
30
6
34
6
91
20
4808
485
11164
433
984 135778 136762

( 3 )
Total 
Subs of 
the LSE 
Parent 
1606
4619
3
45
109
5876
71
2534
52173
25637
331
66
1307
7677
8
5
556
0
13596
196
1083
24
28
71
4323
10731

( 1 )
Count
ry of 
LSE 
Paren
AT
BE
BG
CY
CZ
DK
EE
FI
FR
DE
GR
HU
IE
IT
LV
LT
LU
MT
NL
PL
PT
RO
SK
SI
ES
SE
UK

( 4 )
Total 
Parent
s+Sub
s

Table A1.2.
Sample 50% 
( 2 )
( 3 )
Total 
Total 
Subs of 
LSE 
the LSE 
Parent
Parent 
s
1608
168
2901
150
2
1
45
7
108
43
5842
317
71
8
2534
171
150
150
33
12
98
150
3
2
35
0
150
31
54
6
6
20
150
150
150

1776
3051
3
52
151
6159
79
2705
15416 15566
8096
366
79
1405
3747
11
7
594
0
7719
227
1130
24
34
91
4804
5048
8951

7946
333
67
1307
3597
8
5
559
0
7569
196
1076
18
28
71
4654
4898
8801

Table A1.3.
Sample 75% 

( 2 )
Total 
LSE 
Parent
s
146
135
1
7
36
307
8
161
141
137
29
11
92
139
3
1
33
0
144
27
47
4
5
19
143
148
136

( 3 )
Total 
Subs of 
the LSE 
Parent 
1181
2246
2
37
76
5015
55
2132
11274
5889
239
47
1056
2423
7
2
478
0
5946
143
774
11
20
63
2825
4363
7153

( 4 )

Total 
Parents
+Subs
1327
2381
3
44
112
5322
63
2293
11415
6026
268
58
1148
2562
10
3
511
0
6090
170
821
15
25
82
2968
4511
7289

( 1 )
Count
ry of 
LSE 
Paren
AT
BE
BG
CY
CZ
DK
EE
FI
FR
DE
GR
HU
IE
IT
LV
LT
LU
MT
NL
PL
PT
RO
SK
SI
ES
SE
UK

Table A1.4.
Sample 100%
( 2 )
Total 
LSE 
Parent
s
135
104
1
6
31
300
6
150
120
130
26
6
90
114
2
1
33
0
136
26
41
4
4
18
111
145
122

( 3 )
Total 
Subs of 
the LSE 
Parent 
881
1212
1
26
48
4610
40
1807
6106
4844
137
29
819
1588
4
2
386
0
4945
83
512
8
16
45
1375
3996
6285

( 4 )

Total 
Parent
s+Subs
1016
1316
2
32
79
4910
46
1957
6226
4974
163
35
909
1702
6
3
419
0
5081
109
553
12
20
63
1486
4141
6407

( 1 )
Countr
y of 
LSE 
Parent
AT
BE
BG
CY
CZ
DK
EE
FI
FR
DE
GR
HU
IE
IT
LV
LT
LU
MT
NL
PL
PT
RO
SK
SI
ES
SE
UK

Total:

6975

268453 275428 Total: 2215

69660 71875 Total: 2060

53457

55517

Total:

1862

39805

41667

N.B.: P=Parents ; S=Subs idiaries

EN 

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Table A2. Total LSE parents and subsidiaries and their averages for 75% ownership threshold (Amadeus database)

( 1 )

( 2 )

( 3 )

( 4 )

( 5 )

( 6 )

( 7 )

( 8 )

( 9 )

( 10 )

Total 
LSE 
Parents + 
Subs 
Sample

Average 
N° of 
Subs per 
Parent 
(5/4)

N° of 
Domestic 
Subs

LSE Subs in 
Sample

1181
2246
2
37
76
5015
55
2132
11274
5889
239
47
1056
2423
7
2
478
0
5946
143
774
11
20
63
2825
4363
7153

1327
2381
3
44
112
5322
63
2293
11415
6026
268
58
1148
2562
10
3
511
0
6090
170
821
15
25
82
2968
4511
7289

8.09
16.64
2.00
5.29
2.11
16.34
6.88
13.24
79.96
42.99
8.24
4.27
11.48
17.43
2.33
2.00
14.48
0.00
41.29
5.30
16.47
2.75
4.00
3.32
19.76
29.48
52.60

484
601
0
11
27
1180
33
827
4612
2502
106
10
354
869
3
0
48
0
1493
101
490
4
12
18
1560
1689
5846

Average N° 
of Domestic 
Subs per 
Parent (8/4)
3.32
4.45
0.00
1.57
0.75
3.84
4.13
5.14
32.71
18.26
3.66
0.91
3.85
6.25
1.00
0.00
1.45
0.00
10.37
3.74
10.43
1.00
2.40
0.95
10.91
11.41
42.99

EU Foreign 
Subs (Total 
EU Subs - 
Domestic 
Subs)

606
1189
2
25
49
2717
21
1045
4396
1955
104
34
617
989
4
2
301
0
2649
39
215
7
7
29
692
2019
1019

LSE  
Parents 
Sample
146
135
1
7
36
307
8
161
141
137
29
11
92
139
3
1
33
0
144
27
47
4
5
19
143
148
136

( 11 )
Average 
N° of EU 
Foreign 
Subs per 
Parent 
(10/4)

( 12 )

Non EU 
Subs

( 13 )
Average 
N° of Non-
EU Subs 
per 
Parent 
(12/4)

4.15
8.81
2.00
3.57
1.36
8.85
2.63
6.49
31.18
14.27
3.59
3.09
6.71
7.12
1.33
2.00
9.12
0.00
18.40
1.44
4.57
1.75
1.40
1.53
4.84
13.64
7.49

91
456
0
1
0
1118
1
260
2266
1432
29
3
85
565
0
0
129
0
1804
3
69
0
1
16
573
655
288

0.62
3.38
0.00
0.14
0.00
3.64
0.13
1.61
16.07
10.45
1.00
0.27
0.92
4.06
0.00
0.00
3.91
0.00
12.53
0.11
1.47
0.00
0.20
0.84
4.01
4.43
2.12

2060

53457

55517

25.95

22880

11.11

20732

10.06

9845

4.78

Country 
of LSE 
parent

Total 
Parents in 
AMADEUS Abb.

1 Austria
2 Belgium
3 Bulgaria
4 Cyprus
5 Czech Repu
6 Denmark
7 Estonia
8 Finland
9 France
10 Germany
11 Greece
12 Hungary
13 Ireland
14 Italy
15 Latvia
16 Lithuania
17 Luxembourg
18 Malta
19 Nehterlands
20 Poland
21 Portugal
22 Romania
23 Slovakia
24 Slovenia
25 Spain
26 Sweden
27 United King

168 AT
373 BE
1 BG
7 CY
43 CZ
317 DK
8 EE

171 FI
864 FR
1168 DE
33 GR
12 HU
98 IE
851 IT
3 LV
2 LT
35 LU
0 MT
802 NL
31 PL
54 PT
6 RO
6 SK
20 SI
485 ES
433 SE
984 UK

Total in 
Amadeus:

Sample
:

6975

N.B.: Subs = Subsidiaries

EN 

67 

EN 

 
  
 
( 1 )

( 2 )

( 3 )

Total EU 
SME 
Parents 
in 
Amadeus
555
2640
7
3
42
1467
54
195
1684
2267
34
7
621
1118
6
13
66
0
2433
24
48
10
6
7
1042
1761
1986

Country 
of the 
SME 

parent Abb.

1 Austria
AT
2 Belgium BE
3 Bulgaria BG
4 Cyprus CY
5 Czech Re CZ
6 Denmark DK
7 Estonia EE
8 Finland
9 France

FI
FR
10 Germany DE
11 Greece GR
12 Hungary HU
IE
13 Ireland
IT
14 Italy
15 Latvia
LV
16 Lithuania LT
17 LuxembouLU
18 Malta
MT
19 NehterlandNL
PL
20 Poland
21 Portugal PT
22 Romania RO
23 Slovakia SK
24 Slovenia SI
ES
25 Spain
26 Sweden SE
27 United KinUK/GB
Total 
EU27:

Table A3. Total parents and subsidiaries for SMEs (Amadeus database)

( 4 )
Total SME 
Subs (to 
these EU 
SME 
Parents) in 
Amadeus
1604
7793
16
3
47
5295
67
404
9738
9265
53
8
1373
1507
11
20
679
0
9156
65
97
8
4
13
1921
8092
12769

( 5 )
Total EU 
SME 
Parents + 
respectiv
e Subs in 
Amadeus
2159
10433
23
6
89
6762
121
599
11422
11532
87
15
1994
2625
17
33
745
0
11589
89
145
18
10
20
2963
9853
14755

( 6 )

( 7 )

( 8 )

Sample 
EU SME 
Parents
10
10
7
3
42
10
54
10
20
20
34
7
20
20
6
13
10
0
20
24
48
10
6
7
20
20
20

Sample 
SME 
Subs

25
94
16
7
55
124
72
39
249
270
75
9
65
122
11
20
547
0
156
69
142
10
6
13
72
224
55

Total 
sample 
Parents 
+ Subs
35
104
23
10
97
134
126
49
269
290
109
16
85
142
17
33
557
0
176
93
190
20
12
20
92
244
75

( 9 )
Aver N° 
of subs 
per 
parent in 
the 
sample

2.50
9.40
2.29
2.33
1.31
12.40
1.33
3.90
12.45
13.50
2.21
1.29
3.25
6.10
1.83
1.54
54.70
0.00
7.80
2.88
2.96
1.00
1.00
1.86
3.60
11.20
2.75

( 10 )

( 11 )

Average 
N° of 
Domestic 
Subs per 
Parent 

1.10
1.20
1.43
0.67
0.10
6.00
0.30
0.30
4.20
6.60
0.85
0.14
0.50
0.85
0.67
0.31
0.00
0.00
2.20
1.38
1.65
0.00
0.00
0.14
1.50
7.65
1.25

N° of 
Domesti
c Subs
11
12
10
2
4
60
16
3
84
132
29
1
10
17
4
4
0
0
44
33
79
0
0
1
30
153
25

( 12 )
Foreign 
Subs 
(Total EU 
Subs - 
Domestic 
Subs)

14
77
6
5
50
54
56
32
105
124
46
8
49
65
7
15
25
0
81
36
62
10
6
10
33
56
28

( 13 )
Average 
N° of EU 
Foreign 
Subs 
per 
Parent 
1.40
7.70
0.86
1.67
1.19
5.40
1.04
3.20
5.25
6.20
1.35
1.14
2.45
3.25
1.17
1.15
2.50
0.00
4.05
1.50
1.29
1.00
1.00
1.43
1.65
2.80
1.40

( 14 )

Non 
EU 
Subs
0
5
0
0
1
10
0
4
60
14
0
0
6
40
0
1
522
0
31
0
1
0
0
2
9
15
2

( 15 )
Average 
N° of 
Non-EU 
Subs 
per 
Parent 
0.00
0.50
0.00
0.00
0.02
1.00
0.00
0.40
3.00
0.70
0.00
0.00
0.30
2.00
0.00
0.08
52.20
0.00
1.55
0.00
0.02
0.00
0.00
0.29
0.45
0.75
0.10

18096

70008

88104

471

2547

3018

5.41

764

1.62

1060

2.25

723

1.54

EN 

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3.2 

Description of EU-based multinational groups operating in the financial sector based 
on the Orbis database 

The analysis of EU-based multinational groups operating in the financial sector has been done using 
the  commercial  Orbis  database.  Orbis  is  a  global  database  which  contains  standardized  annual 
accounts  of  over  50  million  companies  worldwide.  It  also  contains  information  on  domestic  and 
cross-border linkages between companies in its so-called “ownership” database which is useful for 
cross-border company analysis. All EU-based multinational groups operating in the financial sector 
that have met initially set criteria and that have provided financial information have been extracted 
from the database for analysis. The financial data in the Orbis database has been collected directly 
from the companies, from official bodies or from associated information providers. 

The  initially  set  criteria  are  related  to  the  definition  of  an  EU-multinational  group.  An  ‘EU-
multinational  group  operating  in  the  financial  sector’  is  defined  as  a  group  of  related  companies 
(with a direct ownership threshold of 75%– as specified by the CCCTB proposal) whose members 
are established and operate in at least two different Member States (MSs) of the EU and such that 
either the parent of the group or/and some of its subsidiaries are financial companies102 (while the 
rest of the companies in the group may be non-financial companies). The dataset used for analysis 
contains only those subsidiaries that operate in an EU MS – as opposed to the industrial company 
database [see first part of this annex] which contains third country companies, as well. 

Two samples of 'EU groups operating in the financial sector' have been compiled using the original 
'ownership' information from the database. These samples correspond to: 

(i) a sample of EU multinational groups of which the parents are large-sized enterprises (LSEs), i.e. 
with  more  than  250  employee.  This  sample  will  be  referred  to  as  'EU  large  multinational  groups 
operating in the financial sector' or 'LSE groups' from here onwards. 

(ii) a sample of EU multinational groups of which the parents are small/medium-sized enterprises 
(SMEs),  i.e.  with  less  than  250  employees.  This  sample  will  be  referred  to  as  'EU  small 
multinational groups operating in the financial sector' or 'SME groups' from here onwards. 

The  companies  have  been  arranged  on  a  group-by-group  basis,  following  the  exact  'ownership' 
structure of the groups. For each of the companies that is a member of a multinational group, the 
particular data extracted from the database has been:  

•  country of residence,  

•  ownership percentage,  

•  cost and number of employees per company, 

•  financial  data  for  the  years  2002,  2003,  2004:  profit  (loss)  before  tax,  operating 
revenue/turnover,  tangible  fixed  assets,  total  investment,  gross  premium  income,  net 
investment income, etc.  

An  important  objective  of  the  analysis  has  been  to  provide  a  thorough  description  of  the  existing 
'EU-based  multinational  groups  operating  in  the  financial  sector'.  For  example,  it  has  been  of 

102 

Financial institutions cover insurance companies and banks. 

EN 

69 

   EN 

 
                                                 
interest to know: how many such EU multinational groups exist, their break-down across Member 
States (i.e. the geographical distribution of parent companies with foreign subsidiaries), the average 
number of subsidiaries in EU multinational groups, share of financial and non-financial companies, 
etc.  

The dataset contains 6771 groups (5102 LSE and 1669 SME groups) and 107113 companies (89251 
of  them  in  LSE  groups  and  17862  in  SME  groups).  Financial  and  non-financial  companies' 
variables are presented by three accounting schedules – for banks usually a banking schedule, for 
insurance  companies  usually  an  insurance  schedule  and  for  non-financial  companies  an  industrial 
schedule. (More than 80% of companies have an industrial accounting schedule.)  

The current datasets comprise a potential ca. 7.7 million entries (107113 companies x 18 financial 
variables  [the  average  for  the  three  accounting  schedules]  x  4  years)  including  missing  data. 
Financial data missing from the Orbis database has been imputed for the purpose of analysis. In the 
case of individual data points missing among the financial variables of companies, a new value was 
imputed  by  deductive  imputation,  using  auxiliary  variables,  a  regression  method  or  'donor 
imputation'. When all financial data of a particular company were missing, representativeness of the 
sample was maintained by re-weighting existing data.  

The total number of financial companies in the sample is 24060 of which 19517 are in LSE groups 
and 4543 (19%) are in SME groups. This means that the average number of financial companies per 
LSE group is 3,83 and 2,72per SME group. The total number of banks is 1118 and the number of 
insurance companies is 1132 , more than 90% of them belonging to LSE groups.  

The number of parents that are themselves financial companies is 2533 among LSEs (49,6% of all 
parents) and 1147 among SMEs (70,3%). 4,7% of the groups contain only financial companies and 
3,8% of groups have only 1 financial company. 

In LSE groups the average number of subsidiaries is 16.49, while in SME groups this figure is 9.70. 
It  is  noteworthy  that  for  LSE  financial  groups,  the  number  of  subsidiaries  is  much  less  than  the 
figure found among LSE groups in the industrial company database (25.95 – see first part of this 
annex); whereas among SME groups, the financial database has a much higher figure (being only 
5.41 for industrial SME groups) .  

Similarly  to  the  industrial  database,  most  groups  have  only  a  small  number  of  subsidiaries.  The 
median is 3 with 31% of groups having 1 subsidiary and only a quarter of them having at least 10. 
The  share  of  subsidiaries  that  are  in  countries  different  from  the  parent  is  42  %.  36%  of  foreign 
subsidiaries are located in countries neighbouring the country of the parent. 30 % of the subsidiaries 
are owned directly by the parent company of the group. 

On  average,  parent  companies  have  subsidiaries  in  2.07  Member  States  apart  from  the  Member 
State of the parent, thus they have to deal with more than 3 tax codes. 

EN 

70 

   EN 

 
Table A.4 Large-size financial groups and their averages for 75% ownership threshold (ORBIS database)

( 1 )

( 3 )

( 4 )

( 5 )

( 6 )

( 7 )

( 8 )

( 9 )

Country 
of LSE 
parent

Abb.

LSE  
Parents 
Sample

LSE 
Subs in 
Sample

Total 
LSE 
Parents 
+ Subs 
Sample

Average 
N° of 
Subs per 
Parent 
(5/4)

N° of 
Domestic 
Subs

Average 
N° of 
Domestic 
Subs per 
Parent 
(8/4)

( 10 )
EU 
Foreign 
Subs 
(Total EU 
Subs - 
Domestic 
Subs)

( 11 )

Average 
N° of EU 
Foreign 
Subs per 
Parent 
(10/4)

AT
1 Austria
2 Belgium BE
3 Bulgaria BG
4 Cyprus
CY
5 Czech RepCZ
6 Germany DE
7 Denmark DK
EE
8 Estonia
ES
9 Spain
FI
10 Finland
FR
11 France
GB
12 UK
13 Greece
GR
14 Hungary HU
IE
15 Ireland
16 Italy
IT
17 Lithuania LT
18 LuxembourLU
LV
19 Latvia
20 Malta
MT
21 Nehterland NL
22 Poland
PL
23 Portugal PT
24 Romania RO
25 Sweden
SE
26 Slovenia SI
27 Slovakia SK

Total

114
803
3
196
9
330
243
2
110
44
274
549
32
13
147
239
6
359
5
16
1327
3
35
2
233
5
3
5102

1351
4297
9
1211
37
10847
2132
2
2850
1368
10142
18390
332
78
1935
3883
31
2550
12
41
16172
25
425
9
5985
30
5
84149

1465
5100
12
1407
46
11177
2375
4
2960
1412
10416
18939
364
91
2082
4122
37
2909
17
57
17499
28
460
11
6218
35
8
89251

11.85
5.35
3.00
6.18
4.11
32.87
8.77
1.00
25.91
31.09
37.01
33.50
10.38
6.00
13.16
16.25
5.17
7.10
2.40
2.56
12.19
8.33
12.14
4.50
25.69
6.00
1.67
16.49

4.90
1.23
2.00
0.19
2.44
20.77
3.13
0.00
18.48
10.11
18.91
28.12
5.34
2.38
4.03
8.26
1.00
0.36
0.40
0.06
7.28
6.67
8.00
2.00
12.32
4.20
0.00
9.42

792
3313
3
1173
15
3993
1372
2
817
923
4960
2954
161
47
1343
1910
25
2422
10
40
6514
5
145
5
3114
9
5
36072

6.95
4.13
1.00
5.98
1.67
12.10
5.65
1.00
7.43
20.98
18.10
5.38
5.03
3.62
9.14
7.99
4.17
6.75
2.00
2.50
4.91
1.67
4.14
2.50
13.36
1.80
1.67
7.07 

559
984
6
38
22
6854
760
0
2033
445
5182
15436
171
31
592
1973
6
128
2
1
9658
20
280
4
2871
21
0
48077

71 

EN 

EN 

 
  
Table A.5 SME financial groups and their averages for 75% ownership threshold

( 1 )

( 3 )

( 4 )

( 5 )

( 6 )

( 7 )

( 8 )

( 9 )

Country 
of LSE 
parent

Abb.

LSE  
Parents 
Sample

Total LSE 
Parents + 
Subs 
Sample

Average 
N° of 
Subs per 
Parent 
(5/4)

N° of 
Domestic 
Subs

Average 
N° of 
Domestic 
Subs per 
Parent 
(8/4)

( 10 )
EU 
Foreign 
Subs 
(Total EU 
Subs - 
Domestic 
Subs)

( 11 )

Average 
N° of EU 
Foreign 
Subs per 
Parent 
(10/4)

226
955
1
1
1
450
396
3
220
104
520
222
4

69
687

n.a.

LSE Subs 
in Sample
463
1480
5
1
1
1572
862
14
669
256
998
2193
5

n.a.

n.a.

n.a.

n.a.

80
1629

31
5
4
4284

48
206
1
1
1
81
92
3
79
18
89
61
2

10
191

9
1
1
631

n.a.

n.a.

511
1686
6
2
2
1653
954
17
748
274
1087
2254
7

90
1820

40
6
5
4915

9.65
7.18
5.00
1.00
1.00
19.41
9.37
4.67
8.47
14.22
11.21
35.95
2.50

237
525
4
0
0
1122
466
11
449
152
478
1971
1

4.94
2.55
4.00
0.00
0.00
13.85
5.07
3.67
5.68
8.44
5.37
32.31
0.50

n.a.

n.a.

n.a.

n.a.

n.a.

8.00
8.53

3.44
5.00
4.00
6.79

11
942

n.a.

n.a.

0
3
3
2796

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

2
140
1
1
1669

2
1634
4
1
16193

4
1774
5
2
17862

1.00
11.67
4.00
1.00
9.70

0
1086
3
0
10260

1.10
4.93

0.00
3.00
3.00
4.43

0.00
7.76
3.00
0.00
6.15

n.a.

n.a.

n.a.
n.a.

n.a.
n.a.

31
2
1
1488

2
548
1
1
5933

4.71
4.64
1.00
1.00
1.00
5.56
4.30
1.00
2.78
5.78
5.84
3.64
2.00

6.90
3.60

3.44
2.00
1.00
2.36

1.00
3.91
1.00
1.00
3.55

AT
1 Austria
2 Belgium BE
BG
3 Bulgaria
4 Cyprus
CY
5 Czech Rep CZ
6 Germany DE
7 Denmark DK
EE
8 Estonia
ES
9 Spain
FI
10 Finland
FR
11 France
GB
12 UK
13 Greece
GR
14 Hungary HU
IE
15 Ireland
16 Italy
IT
17 Lithuania LT
18 LuxembourLU
LV
19 Latvia
20 Malta
MT
21 Nehterland NL
PL
22 Poland
23 Portugal
PT
24 Romania RO
25 Sweden
SE
26 Slovenia SI
27 Slovakia SK

Total

EN 

72 

EN 

 
  
 
3.3 

The effects of formula apportionment on the distribution of corporate tax bases  

The  exercise  has  consisted  of  simulating  for  a  sample  of  750  multinational  industrial  groups 
extracted  from  Amadeus  and  2073  multinational  financial  groups  extracted  from  Orbis,  their 
taxable  profits  in  each  country  of  the  EU,  both  under  the  current  tax  conditions  and  under 
alternative  scenarios  of  'consolidation  +  apportionment'.  The  assumptions  for  simulating  each  of 
these scenarios have been the following: 

* Benchmark case: in what concerns loss offsetting provisions, the current tax bases are calculated 
assuming that (i) there is national loss offset regimes in the 18 Member States that currently allow 
so  and  (ii)  when  domestic  compensation  is  not  possible,  carry-forward  of  losses  at  the  individual 
companies' level is allowed. There is no international loss offset system in place. The taxable profits 
of  all  groups  are  then  aggregated  by  country.  This  yields  what  we  call  the  'current  national  tax 
bases' for the sample. Table A.6 shows country tax shares in the sample of industrial and financial 
groups and an overall share, calculated as the weighted average of the two samples. The weighting 
factors for each country are the shares of corporate tax revenues from financial and non-financial 
companies. (These data are missing for Cyprus, Luxembourg and Malta and have been replaced by 
the overall EU shares.) 

*  Alternative  scenarios  of  'consolidation  +  apportionment':  in  what  concerns  loss  offsetting 
provisions (cross-border) consolidation has been assumed at the level of each multinational group. 
Thus,  under  this  scenario,  losses  of  a  group  company  in  a  given  year  could  be  offset  against 
contemporary profits of any other group companies (either in the same country of the loss-making 
group  company  or  in  other  countries)103.  The  EU  consolidated  tax  base  obtained  for  each 
multinational  group  in  this  way  has  then  been  distributed  across  countries  according  to  different 
apportioning formulae. The following six apportioning formulae have been tested: 

*1/3 ‘Cost of employees’ – 1/3 ‘Total Fixed Assets’104['Assets105' for financial groups]– 1/3 
(Proxy) ‘Sales by Destination106’ 

*1/6 ‘Cost of employees’ – 1/6 ‘Number of Employees’ - 1/3 ‘Total Fixed Assets’['Assets' 
for financial groups] – 1/3 (Proxy) ‘Sales by Destination’ 

*  1/3  ‘Cost  of  employees’  –  1/3  ‘Total  Fixed  Assets’  ['Assets'  for  financial  groups]–  1/3 
‘Turnover’ ['Sales by origin'] 

103 

104 
105 

106 

Once  the  loss  is  offset  in  a  given  year,  it  is  not  carried-forward  to  next  year:  so,  in  the  simulations  double 
counting of the losses is excluded. 
Excluding intangible and financial fixed assets. 
For banks: 'Loans'/10 + 'Fixed assets'; for insurance companies: 'Total investment'/10; for industrial companies 
within financial groups, 'Total fixed assets' minus 'Total intangible assets' (as for industrial groups) 
Companies  do  not  report  the  place  of  destination  of  their  sales  in  their  financial  accounts.  Therefore  the 
simulation  of  this  factor  cannot  be  based  on  firm-specific  data.  The  alternative  approach  taken  to  'roughly' 
simulate the effects of the mechanisms including 'sales by destination' has been to use a 'macro factor': that is, 
one  third  of  the  groups'  total  taxable  profits  has  been  shared  by  reference  to  the  relative  position  of  each 
country in the aggregated Consumption Expenditure macro-variable (ie an aggregated proxy for the destination 
of  sales  by  companies).  This  is  clearly  an  extreme  simplification,  because  the  definition  of  the  'sales  by 
destination' factor would be more complex than this approach (e.g. spread throw-back rule when the company 
has no physical presence in the country of destination, etc.). This calls for extreme caution in interpreting the 
results. 

EN 

73 

   EN 

 
                                                 
* 1/6 ‘Cost of employees’ – 1/6 ‘Number of Employees’ - 1/3 ‘Total Fixed Assets’['Assets' 
for financial groups] – 1/3 ‘Turnover’ ['Sales by origin'] 

* ½ ‘Cost of employees’ – ½ ‘Total Fixed Assets’ ['Assets' for financial groups] 

* ¼ ‘Cost of employees’ – ¼ ‘Number of Employees’ – ½ ‘Total Fixed Assets’['Assets' for 
financial groups] 

Table A.7 compares the current tax bases' distribution with the apportioning factors distribution by 
country  for  the  sample  of  750  MNEs  in  2004  (see  Section  5.2).  Table  A.8  and  A.9  present  the 
sample tax bases under the current scheme and the 6 apportionment mechanisms for industrial and 
financial groups, respectively. Figures A.1 and A.2 show for these two samples how country shares 
of the EU-total tax base evolve under the various apportionment mechanisms. Table A.10 shows the 
net value of depreciation allowances of  the  current tax systems (as of 2007) and the common tax 
base for both a 20% and 25% depreciation rate for plant and machinery. Finally, Table A.11 reports 
the effects of "consolidation + apportionment" on the tax bases for different sharing mechanisms.  

EN 

74 

   EN 

 
Table A.6 Country shares in current tax bases 

Share of the MS 
base in the EU total. 
Amadeus sample 
(2002-2004) - 
industrial groups 

Share of the MS 
base in the EU total. 
Orbis sample (2002- 
2005) - financial 
groups 

Share of financial 
groups in corporate 
tax revenues 
(Eurostat. 2002-
2005) 

Share of the MS 
sample tax base in 
the EU total. 
industrial and 
financial groups 

Austria 

Belgium 

Bulgaria 

Cyprus 

Czech Republic 

Germany 

Denmark 

Estonia 

Spain 

Finland 

France 

Greece 

Hungary 

Ireland 

Italy 

Lithuania 

Luxembourg 

Latvia 

Malta 

Netherlands 

Poland 

Portugal 

Romania 

Sweden 

Slovenia 

Slovakia 

UK 

Total EU 

: 

4.7% 

5.0% 

0.0% 

0.0% 

0.2% 

18.3% 

6.5% 

0.2% 

2.5% 

9.2% 

8.5% 

0.8% 

0.6% 

3.8% 

6.4% 

0.1% 

1.1% 

0.0% 

7.1% 

2.3% 

1.3% 

0.0% 

5.1% 

0.1% 

0.0% 

16.3% 

100.0% 

0.7%

7.8%

0.0%

0.0% :

0.4%

13.6%

4.0%

0.1%

8.0%

0.7%

7.8%

0.2%

0.4%

0.6%

5.2%

0.0%

0.7% :

0.0%

0.0% :

4.4%

0.2%

1.1%

0.1%

9.0%

0.0%

0.1%

34.8%

100.0%

17.4% 

22.8% 

13.0% 

14.3% 

34.8% 

23.2% 

8.9% 

15.6% 

8.2% 

22.6% 

8.6% 

17.9% 

28.3% 

26.2% 

2.4% 

13.0% 

25.7% 

15.3% 

10.0% 

5.2% 

20.5% 

17.6% 

6.4% 

21.9% 

21.8% 

: 

3.82%

5.62%

0.01%

0.03%

0.23%

17.28%

5.97%

0.17%

3.70%

7.36%

8.34%

0.64%

0.55%

3.07%

6.11%

0.06%

1.00%

0.04%

6.52%

1.86%

1.22%

0.07%

5.92%

0.10%

0.03%

20.30%

100.00%

Source: own calculations on the Amadeus and ORBIS databases.  

EN 

75 

   EN 

 
 
Table  A.7  Comparison  of  the  current  tax  bases'  distribution  with  the  apportioning  factors' 
distribution by country, 2002-2004 (NPV 2002) 

Country 

Austria 

Belgium 

Bulgaria 

Cyprus 

Czech Republic 

Germany 

Denmark 

Estonia 

Spain 

Finland 

France 

Greece 

Hungary 

Ireland 

Italy 

Lithuania 

Luxembourg 

Latvia 

Malta 

Netherlands 

Poland 

Portugal 

Romania 

Sweden 

Slovenia 

Slovakia 

Share of cost 
of EMP in the 
EU total (%) 

Share of Nr 
of EMP in 
the EU total 
(%) 

Share of 
operating 
revenue in 
the EU 
total (%) 

Share of 
fixed 
tangible 
assets in the 
EU total 
(%) 

Share in 
the EU 
total 
current tax 
base 

3.01 

2.90 

0.00 

0.08 

0.09 

3.40

2.83

0.01

0.02

0.70

3.01

2.62

0.00

0.01

0.22

6.47 

2.95 

0.00 

0.02 

0.39 

4.70

5.00

0.00

0.03

0.19

28.09 

27.24

32.18

24.41 

18.32

5.33 

0.04 

3.03 

7.50 

5.54 

1.49 

0.00 

1.93 

4.04 

0.13 

0.68 

0.12 

n.a. 

1.31 

0.00 

1.01 

0.00 

5.04 

1.00 

0.00 

5.42

0.54

3.23

6.79

4.68

0.36

0.07

1.96

3.96

0.13

0.16

0.29

n.a.

1.40

2.51

1.38

0.24

4.75

0.61

0.05

3.96

0.14

2.04

5.16

6.79

0.23

0.31

2.15

5.04

0.08

0.31

0.04

n.a.

10.14

2.20

1.65

0.06

4.44

0.17

0.02

17.04

100

3.97 

0.09 

2.70 

4.10 

12.23 

0.26 

0.20 

0.91 

4.52 

0.09 

0.21 

0.03 

n.a. 

2.31 

2.62 

1.83 

0.08 

8.38 

0.20 

0.03 

6.53

0.21

2.50

9.21

8.49

0.76

0.60

3.76

6.36

0.08

1.09

0.04

n.a.

7.08

2.31

1.27

0.05

5.06

0.12

0.01

20.98 

100 

16.24

100

United Kingdom 

Total EU 

28.57 

100 

27.27

100

Source: calculations on the Amadeus and ORBIS databases.  

EN 

76 

   EN 

 
Table A.8 Comparison of the current tax bases with 'consolidation+apportionment' tax bases for different apportioning mechanisms, 2002-2004 (NPV 2002) , in millions of Euros and  % 
change, industrial groups 

1/3 cost of employees+ 

1/6 cost of employees+ 

1/3 cost of employees+ 

1/6 cost of employees+ 

1/2 cost of employees+ 

1/4 cost of employees+ 

1/3 fixed tangible assets+ 

1/6 N°of employees+ 

1/3 fixed tangible assets+ 

1/6 N°of employees+ 

1/2 fixed tangible assets 

1/4 N°of employees+ 

1/3 sales by destination 

1/3 fixed tangible assets+ 

1/3 sales by origin 

1/3 fixed tangible assets+ 

1/2 fixed tangible assets 

1/3 sales by destination 

1/3 sales by origin 

Sample 
current tax 
base  

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change (%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative change 
(%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change (%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change (%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change (%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change (%) 

Country 

AT

BE

BG

CY

CZ

DE

DK

EE

ES

FI

FR

GR

HU

IE

IT

LT

LU

LV

MT

NL

4964

5281

0.117

35

196

19329

6885

218

2638

9726

8958

802

636

3965

6710

82

1145

42

:

3626

3899

:

72

456

25194

4088

164

4389

6377

10863

1658

460

3763

9040

219

773

102

18

-27.0%

-26.2%

:

104.3%

132.4%

30.3%

-40.6%

-24.6%

66.4%

-34.4%

21.3%

106.8%

-27.7%

-5.1%

34.7%

165.6%

-32.5%

144.4%

:

3639

3967

:

71

497

23528

4504

190

4473

6264

10774

1434

459

3437

9164

166

621

92

18

-26.7%

-24.9%

:

104.0%

153.3%

21.7%

-34.6%

-12.6%

69.6%

-35.6%

20.3%

78.9%

-27.9%

-13.3%

36.6%

101.6%

-45.7%

120.2%

:

4424

4533

:

32

250

25449

5612

221

2643

8696

8281

1294

446

4783

6815

189

999

85

:

-10.9%

-14.2%

:

-10.0%

27.4%

31.7%

-18.5%

1.6%

0.2%

-10.6%

-7.6%

61.3%

-30.0%

20.6%

1.6%

129.1%

-12.7%

103.7%

:

4437

4601

:

31

291

23786

6028

247

2727

8584

8192

1070

444

4450

6939

136

848

74

:

-10.6%

-12.9%

:

-10.3%

48.3%

23.1%

-12.4%

13.6%

3.4%

-11.7%

-8.5%

33.4%

-30.1%

12.2%

3.4%

65.1%

-25.9%

77.8%

:

4326

4529

:

34

286

27181

5236

203

2662

8887

8100

1477

309

5107

6797

240

1055

99

:

-12.9%

-14.2%

:

-3.3%

45.7%

40.6%

-24.0%

-6.6%

0.9%

-8.6%

-9.6%

84.3%

-51.4%

28.8%

1.3%

191.2%

-7.9%

137.3%

:

4345

4631

:

34

347

24681

5860

243

2788

8717

7966

1142

308

4618

6984

161

828

84

:

-12.5%

-12.3%

:

-3.8%

77.1%

27.7%

-14.9%

11.4%

5.7%

-10.4%

-11.1%

42.4%

-51.6%

16.5%

4.1%

95.2%

-27.7%

101.0%

:

7492

3878

-48.2%

3915

-47.7%

4031

-46.2%

4074

-45.6%

3589

-52.1%

3644

-51.4%

EN 

77 

EN 

 
  
  
  
  
  
  
  
  
PL 

PT

RO

SE

SI

SK

UK

Total EU

2440

1339

49

5338

127

14

1861 

-23.7% 

1359

240

4499

132

111

1.5%

391.5%

-15.7%

4.4%

685.7%

-10.6%

-2.8%

2188

1349

303

5094

143

110

16184

102655

-10.3%

0.7%

521.2%

-4.6%

12.6%

674.1%

-5.7%

-2.8%

1883

1258

73

5965

86

20

14439

102509

-22.8%

-6.0%

50.4%

11.7%

-32.0%

39.2%

-15.9%

-2.9%

2210

1248

137

6560

96

18

15279

102509

-9.4%

-6.8%

180.1%

22.9%

-24.4%

27.6%

-11.0%

-2.9%

1705

1272

69

5441

74

21

13956

102655

-30.1%

-5.0%

41.5%

1.9%

-41.3%

47.7%

-18.7%

-2.8%

2195

1257

164

6333

90

18

15215

102655

-10.1% 

-6.1%

236.0%

18.6%

-29.0%

30.3%

-11.3%

-2.8%

17162

105573

15344

102655

Source: own calculations on the Amadeus database.  

EN 

78 

EN 

 
  
Figure  A.1  Distribution  of  the  cake  by  country  (shares 
'consolidation+apportionment'. Six different apportioning mechanisms, industrial groups 

in  total  EU  tax  base):  current  tax  base  versus 

(Amadeus database) 

0,10

0,08

0,06

0,04

0,02

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Belgium

Bulgaria

Czech Republic

Austria

Cyprus

6

5

4

3

2

1

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,6

0,5

0,4

0,3

0,2

0,1

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,30

0,25

0,20

0,15

0,10

0,05

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Denmark

Estonia

France

Finland

10

8

6

4

2

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

6

5

4

3

2

1

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

5

4

3

2

1

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,10

0,08

0,06

0,04

0,02

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

7
6
5
4
3
2
1
0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

12

10

8

6

4

2

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,8

0,6

0,4

0,2

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,25

0,20

0,15

0,10

0,05

0,00

)

%

(

l

a
t
o
t

U
E

f
o

e
r
a
h
s
e
s
a
b

x
a
T

Germany

Spain

Greece

28
24
20
16
12
8
4
0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

5

4

3

2

1

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

2,0

1,6

1,2

0,8

0,4

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

10

8

6

4

2

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Hungary

Ireland

Italy

1,2

)

%

(

1,0

0,12

)

%

(

0,10

l

a
o

t

t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

0,8

0,6

0,4

0,2

0,0

l

a
o

t

t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

0,08

0,06

0,04

0,02

0,00

Lithuania

Luxembourg

Latvia

8

6

4

2

0

2,5

2,0

1,5

1,0

0,5

0,0

)

%

(

l

a
o

t

t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

1,6

1,2

0,8

0,4

0,0

)

%

(

l

a
o

t

t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

)

%

(

l

a
o

t

t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

Netherlands

Poland

Portugal

EN 

79 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b
x
a
T

0,4

0,3

0,2

0,1

0,0

Romania

0,12

0,10

0,08

0,06

0,04

0,02

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,16

0,12

0,08

0,04

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Sweden

Slovenia

7
6
5
4
3
2
1
0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

20

16

12

8

4

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Slovakia

United Kingdom

. 

█ - % of the total current tax base 

█ - % of apportioned tax base (1/3 cost of employees+1/3 fixed tangible assets+1/3 sales by destination) 

█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of employees+1/3 fixed tangible assets+1/3 sales by destination) 

█ - % of apportioned tax base (1/3 cost of employees+1/3 fixed tangible assets+1/3 sales by origin) 

█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of employees+1/3 fixed tangible assets+1/3 sales by origin) 

█ - % of apportioned tax base (1/2 cost of employees+1/2 fixed tangible assets) 

█ - % of apportioned tax base (1/4 cost of employees+1/4 N°of employees+1/2 fixed tangible assets) 

EN 

80 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table  A.9  Comparison  of  the  current  tax  bases with  'consolidation+apportionment'  tax  bases  for  different  apportioning  mechanisms,  2002-2005  (NPV  2005),  in  millions  of  Euros  and  % 
change, financial groups 

2 

4 

3 

5 

1 

6 

1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 ‘Sales by 
destination’ 

1/6 ‘Cost of employees’ – 
1/6 ‘Number of Employees’ 
- 1/3 ‘Assets’ – 1/3 ‘Sales 
by destination’ 

1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 
‘Turnover’ 

1/6 ‘Cost of employees’ – 
1/6 ‘Number of Employees’ 
- 1/3 ‘Assets’ – 1/3 
‘Turnover’ 

½ ‘Cost of employees’ – ½ 
‘Assets’ 

¼ ‘Cost of employees’ – ¼ 
‘Number of Employees’ – 
½ ‘Assets’ 

Sample 
current 
tax base 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change 
(%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change 
(%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change 
(%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change 
(%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change 
(%) 

'Consolidation 
+ 
Apportionment' 
Tax Base 

Relative 
change 
(%) 

Country 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

7641 

90195 

566 

: 

4224 

3984 

-47.9% 

4050 

-47.0% 

5934 

-22.3% 

6000 

-21.5% 

4353 

-43.0% 

4453 

-41.7% 

52285 

-42.0% 

51024 

-43.4% 

55399 

-38.6% 

54139 

-40.0% 

71445 

-20.8% 

69554 

-22.9% 

336 

-40.6% 

440 

-22.3% 

387 

-31.6% 

491 

-13.2% 

481 

-15.1% 

637 

12.4% 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

2526 

-40.2% 

2393 

-43.3% 

3294 

-22.0% 

3160 

-25.2% 

3286 

-22.2% 

3086 

-26.9% 

156367 

159105 

1.8% 

165215 

5.7% 

143459 

-8.3% 

149569 

-4.3% 

129183 

-17.4% 

138348 

-11.5% 

46175 

32698 

-29.2% 

32760 

-29.1% 

40130 

-13.1% 

40192 

-13.0% 

42910 

-7.1% 

43003 

-6.9% 

661 

92201 

8063 

1968 

197.7% 

1726 

161.1% 

2131 

222.3% 

1889 

185.7% 

2901 

338.9% 

2538 

284.0% 

79314 

-14.0% 

77468 

-16.0% 

77872 

-15.5% 

76026 

-17.5% 

76751 

-16.8% 

73982 

-19.8% 

5365 

-33.5% 

5575 

-30.9% 

6620 

-17.9% 

6829 

-15.3% 

6954 

-13.8% 

7268 

-9.9% 

89917 

100846 

12.2% 

105198 

17.0% 

83054 

-7.6% 

87406 

-2.8% 

85861 

-4.5% 

92389 

2.7% 

2603 

4364 

1077 

-58.6% 

1283 

-50.7% 

1651 

-36.6% 

1856 

-28.7% 

1113 

-57.3% 

1421 

-45.4% 

3864 

-11.5% 

2820 

-35.4% 

5160 

18.2% 

4116 

-5.7% 

5422 

24.2% 

3857 

-11.6% 

EN 

81 

EN 

 
  
  
  
IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

6887 

60213 

166 

7876 

493 

27 

51240 

2705 

12236 

1611 

4103 

-40.4% 

4674 

-32.1% 

7027 

2.0% 

7597 

10.3% 

5093 

-26.0% 

5949 

-13.6% 

66092 

9.8% 

64550 

7.2% 

61524 

2.2% 

59982 

-0.4% 

62044 

3.0% 

59730 

-0.8% 

471 

183.7% 

1302 

684.5% 

538 

224.4% 

1370 

725.2% 

627 

277.8% 

1874 

1029.1% 

11328 

43.8% 

12033 

52.8% 

30541 

287.8% 

31246 

296.7% 

16199 

105.7% 

17256 

119.1% 

1089 

121.0% 

809 

64.2% 

1142 

131.8% 

863 

75.1% 

1609 

226.5% 

1190 

141.4% 

1 

-97.6% 

1 

-97.6% 

0 

-99.8% 

0 

-99.8% 

0 

-100.0% 

0 

-100.0% 

65195 

27.2% 

65159 

27.2% 

66480 

29.7% 

66444 

29.7% 

78384 

53.0% 

78330 

52.9% 

2312 

-14.5% 

2184 

-19.3% 

2938 

8.6% 

2810 

3.9% 

2116 

-21.8% 

1924 

-28.9% 

10251 

-16.2% 

9963 

-18.6% 

12033 

-1.7% 

11744 

-4.0% 

12260 

0.2% 

11826 

-3.3% 

1602 

-0.5% 

1469 

-8.8% 

1812 

12.5% 

1679 

4.3% 

2145 

33.1% 

1945 

20.8% 

103706 

57609 

-44.4% 

59545 

-42.6% 

73544 

-29.1% 

75480 

-27.2% 

70074 

-32.4% 

72978 

-29.6% 

69 

892 

104 

50.3% 

69 

-0.4% 

222 

222.4% 

187 

171.7% 

145 

110.3% 

93 

34.2% 

1127 

26.4% 

1126 

26.2% 

1431 

60.5% 

1430 

60.3% 

1644 

84.4% 

1643 

84.2% 

401108 

457604 

14.1% 

449393 

12.0% 

437728 

9.1% 

429517 

7.1% 

439257 

9.5% 

426941 

6.4% 

Total EU 

1152206 

1122257 

-2.6% 

1122257 

-2.6% 

1122257 

-2.6% 

1122257 

-2.6% 

1122257 

-2.6% 

1122257 

-2.6% 

Source: own calculations on the ORBIS database. 

EN 

82 

EN 

 
  
Figure  A.2  Distribution  of  the  cake  by  country  (shares 
'consolidation+apportionment'. Six different apportioning mechanisms, financial groups (Orbis database) 

in  total  EU  tax  base):  current  tax  base  versus 

5

4

3

2

1

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

32
28
24
20
16
12
8
4
0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

5

4

3

2

1

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

1,6

1,2

0,8

0,4

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

10

8

6

4

2

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,12

0,10

0,08

0,06

0,04

0,02

0,00

)

%

(

l

a
t
o
t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

Austria

Germany

5

4

3

2

1

0

7
6
5
4
3
2
1
0

12

10

8

6

4

2

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Spain

France

Greece

Italy

Hungary

Lithuania

0,8

0,6

0,4

0,2

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,25

0,20

0,15

0,10

0,05

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

8

6

4

2

0

)

%

(

l

a
t
o
t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

Belgium

Czech Republic

0,5

0,4

0,3

0,2

0,1

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,30

0,25

0,20

0,15

0,10

0,05

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Denmark

Estonia

Finland

Ireland

Luxembourg

10

8

6

4

2

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

5

4

3

2

1

0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

1,5

1,0

0,5

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

2,5

2,0

1,5

1,0

0,5

0,0

)

%

(

l

a
t
o
t

U
E

f

o
e
r
a
h
s
e
s
a
b

x
a
T

Latvia

Netherlands

Poland

EN 

83 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portugal

1,6

1,2

0,8

0,4

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,16

0,12

0,08

0,04

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Romania

0,4

0,3

0,2

0,1

0,0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

0,12

0,10

0,08

0,06

0,04

0,02

0,00

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Sweden

8
7
6
5
4
3
2
1
0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

28
24
20
16
12
8
4
0

)

%

(

l

a
t
o
t

U
E

f
o
e
r
a
h
s
e
s
a
b

x
a
T

Slovenia

Slovakia

United Kingdom

. 

█ - % of the total current tax base 

█ - % of apportioned tax base (1/3 cost of employees+1/3 fixed tangible assets+1/3 sales by destination) 

█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of employees+1/3 fixed tangible assets+1/3 sales by destination) 

█ - % of apportioned tax base (1/3 cost of employees+1/3 fixed tangible assets+1/3 sales by origin) 

█ - % of apportioned tax base (1/6 cost of employees+1/6 N°of employees+1/3 fixed tangible assets+1/3 sales by origin) 

█ - % of apportioned tax base (1/2 cost of employees+1/2 fixed tangible assets) 

█ - % of apportioned tax base (1/4 cost of employees+1/4 N°of employees+1/2 fixed tangible assets) 

EN 

84 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A.10 Net present value (NPV) of fiscal depreciation schemes  

NPV 

Current 
systems      

(1) 

NPV 
CCTB-20 
(2) 

Difference 
Current 
systems – 
CCTB-20 
(2)-(1) 

tax base 
change* 

NPV 
CCTB-25 
(3) 

tax base 
change* 

Difference 
Current 
systems – 
CCTB-25 
(3)-(1) 

MSs 
(Ranked from 
Narrowest to 
Broadest Tax 
Base as in 'as-
is') 

Lithuania 

Latvia 

Slovenia 

Denmark 

Belgium 

Slovak Republic 

Romania 

Cyprus 

Greece 

Finland 

France 

Bulgaria 

Sweden 

Portugal 

-2007 

49.53% 

46.17% 

46.01% 

45.72% 

44.37% 

44.30% 

43.65% 

41.78% 

41.09% 

40.46% 

40.07% 

39.93% 

39.68% 

39.63% 

35.66% 

35.87% 

41.31% 

35.69% 

32.48% 

35.75% 

39.51% 

36.83% 

32.58% 

34.41% 

31.27% 

34.68% 

32.14% 

32.89% 

Luxembourg 

39.35% 

32.55% 

United Kingdom 

39.28% 

33.29% 

Czech Republic 

Italy 

Poland 

Austria 

Ireland 

Netherlands 

Germany 

Hungary 

Spain 

Malta 

Estonia 

39.26% 

38.04% 

37.41% 

36.83% 

35.79% 

35.70% 

35.67% 

35.32% 

32.95% 

28.79% 

0.00% 

35.74% 

30.32% 

38.04% 

34.00% 

31.13% 

31.99% 

31.26% 

35.57% 

31.72% 

26.85% 

34.61% 

13.87 

10.3 

4.7 

10.03 

11.89 

8.55 

4.14 

4.95 

8.51 

6.05 

8.8 

5.25 

7.54 

6.74 

6.8 

5.99 

3.52 

7.72 

-0.63 

2.83 

4.66 

3.71 

4.41 

-0.25 

1.23 

1.94 

27.48% 

19.13% 

8.71% 

18.48% 

21.37% 

15.35% 

7.35% 

8.50% 

14.45% 

10.16% 

14.68% 

8.74% 

12.50% 

11.16% 

37.10% 

37.20% 

42.90% 

36.70% 

33.50% 

37% 

41.10% 

37.70% 

33.70% 

35.50% 

32% 

35.90% 

33.10% 

34.10% 

11.21% 

33.50% 

9.86% 

34.30% 

5.80% 

12.46% 

-1.01% 

4.48% 

7.26% 

5.77% 

6.86% 

-0.39% 

1.83% 

2.72% 

37.10% 

31.30% 

39.40% 

35.20% 

32.10% 

32.90% 

32.30% 

36.90% 

32.60% 

27.60% 

35.80% 

12.43 

8.97 

3.11 

9.02 

10.87 

7.3 

2.55 

4.08 

7.39 

4.96 

8.07 

4.03 

6.58 

5.53 

5.85 

4.98 

2.16 

6.74 

-1.99 

1.63 

3.69 

2.8 

3.37 

-1.58 

0.35 

1.19 

-35.8 

24.63% 

16.66% 

5.76% 

16.62% 

19.54% 

13.11% 

4.53% 

7.01% 

12.54% 

8.33% 

13.47% 

6.71% 

10.91% 

9.16% 

9.65% 

8.20% 

3.56% 

10.88% 

-3.18% 

2.58% 

5.75% 

4.35% 

5.24% 

-2.44% 

0.52% 

1.67% 

-35.80% 

-34.61 

-34.61% 

EU-27 Average 

37.90% 

32.00% 

5.9 

9.50% 

33.00% 

4.9 

7.89% 

Standard deviation 

8.90% 

3.00% 

3.20% 

EN 

85 

   EN 

 
 
 
 
 
 
 
 
 
 
 
Notes: the NPV of fiscal depreciation schemes are expressed in % of the purchase price. The % change in the tax base is 
calculated subtracting the estimated NPVs from the normalized value of 1. 

Source: calculations on the ORBIS database used to calibrate the CORTAX. 

EN 

86 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A.11 Comparison of the current tax bases with 'consolidation+apportionment' tax bases for different apportioning mechanisms.  

Cross country distribution and change to the current tax base  

Sample 
current 
tax base  
Cross-country 
distribution 

Country 

1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 ‘Sales 
by destination’ 

1/6 ‘Cost of employees’ – 
1/6 ‘Number of 
Employees’ - 1/3 ‘Assets’ 
– 1/3 ‘Sales by 
destination’ 

1/3 ‘Cost of employees’ – 
1/3 ‘Assets’– 1/3 
‘Turnover’ 

1/6 ‘Cost of employees’ – 
1/6 ‘Number of 
Employees’ - 1/3 ‘Assets’ 
– 1/3 ‘Turnover’ 

Cross-country 
distribution 

Change 

Cross-country 
distribution 

Change 

Cross-country 
distribution 

Change 

Cross-country 
distribution 

Change 

½ ‘Cost of employees’ – 
½ ‘Assets’ 

Cross-country 
distribution 

Change 

¼ ‘Cost of employees’ – 
¼ ‘Number of 
Employees’ – ½ ‘Assets’ 
Cross-country 
distribution 

Change 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

EN 

4.00% 

5.60% 

0.00% 

: 

0.20% 

16.70% 

5.90% 

0.19% 

3.40% 

8.50% 

8.30% 

0.70% 

0.60% 

2.90% 

6.10% 

0.10% 

1.00% 

0.00% 

: 

6.40% 

2.00% 

1.20% 

0.10% 

5.90% 

0.10% 

0.00% 

2.90% 

3.90% 

: 

: 

0.40% 

20.40% 

3.60% 

0.16% 

4.60% 

5.60% 

9.90% 

1.40% 

0.40% 

2.70% 

7.80% 

0.20% 

: 

0.10% 

: 

4.20% 

1.50% 

1.20% 

0.20% 

4.40% 

0.10% 

0.10% 

-1.1 

-1.7 

: 

: 

0.2 

3.7 

-2.3 

-0.03 

1.2 

-2.9 

1.6 

0.7 

-0.2 

-0.2 

1.7 

0.1 

: 

0.1 

: 

-2.2 

-0.5 

0 

0.1 

-1.5 

0 

0.1 

2.90% 

3.90% 

: 

: 

0.40% 

19.50% 

3.90% 

0.20% 

4.60% 

5.50% 

10.00% 

1.30% 

0.40% 

2.50% 

7.90% 

0.20% 

: 

0.10% 

: 

4.20% 

1.80% 

1.20% 

0.30% 

4.90% 

0.10% 

0.10% 

-1.1 

-1.7 

: 

: 

0.2 

2.8 

-2 

0.01 

1.2 

-3 

1.7 

0.6 

-0.2 

-0.4 

1.8 

0.1 

: 

0.1 

: 

-2.2 

-0.2 

0 

0.2 

-1 

0 

0.1 

3.60% 

4.40% 

: 

: 

0.20% 

20.10% 

4.90% 

0.20% 

3.20% 

7.60% 

7.70% 

1.10% 

0.40% 

3.40% 

6.20% 

0.20% 

: 

0.10% 

: 

4.30% 

1.60% 

1.20% 

0.10% 

5.80% 

0.10% 

0.00% 

-0.4 

-1.2 

: 

: 

0.1 

2.5 

-0.7 

0.01 

-0.2 

-1 

-0.6 

0.2 

-0.2 

0.3 

0.1 

0 

: 

0.1 

: 

-2.1 

-0.2 

0 

0 

0.4 

0 

0 

3.50% 

4.70% 

: 

: 

0.30% 

20.70% 

4.70% 

0.20% 

3.20% 

7.80% 

7.60% 

1.30% 

0.30% 

3.60% 

6.20% 

0.20% 

: 

0.10% 

: 

4.30% 

1.40% 

1.20% 

0.10% 

5.30% 

0.10% 

0.00% 

-0.5 

-0.9 

: 

: 

0.1 

4 

-1.2 

0.01 

-0.2 

-0.7 

-0.7 

0.6 

-0.3 

0.7 

0.1 

0.1 

: 

0.1 

: 

-2.1 

-0.6 

0 

0 

-0.6 

0 

0 

3.50% 

4.80% 

: 

: 

0.30% 

19.40% 

5.10% 

0.20% 

3.20% 

7.60% 

7.70% 

1.00% 

0.30% 

3.30% 

6.20% 

0.20% 

: 

0.10% 

: 

4.30% 

1.80% 

1.20% 

0.20% 

6.10% 

0.10% 

0.00% 

-0.5 

-0.9 

: 

: 

0.1 

4 

-1.2 

0.01 

-0.2 

-0.7 

-0.7 

0.6 

-0.3 

0.7 

0.1 

0.1 

: 

0.1 

: 

-2.1 

-0.6 

0 

0 

-0.6 

0 

0 

3.60% 

4.40% 

: 

: 

0.30% 

19.20% 

5.20% 

0.20% 

3.20% 

7.50% 

7.70% 

0.90% 

0.40% 

3.20% 

6.20% 

0.10% 

: 

0.10% 

: 

4.30% 

1.80% 

1.20% 

0.10% 

6.30% 

0.10% 

0.00% 

-0.4 

-1.2 

: 

: 

0 

3.4 

-1 

0.01 

-0.2 

-0.9 

-0.6 

0.4 

-0.2 

0.5 

0.1 

0.1 

: 

0.1 

: 

-2.1 

-0.4 

0 

0 

-0.1 

0 

0 

87 

EN 

 
  
  
UK 

20.30% 

Total EU 

100.00% 

20.00% 

97.30% 

-0.3 

-2.7 

20.50% 

97.30% 

0.2 

-2.7 

19.00% 

97.20% 

-1.3 

-2.7 

19.40% 

97.20% 

-0.9 

-2.7 

18.70% 

97.30% 

-1.6 

-2.7 

19.40% 

97.30% 

-1.6 

-2.7 

EN 

88 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: own calculations on the Amadeus and ORBIS databases. 

EN 

89 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annex 4. The European Tax Survey  

In order to have a better understanding of the impact of taxation on companies' decisions and 
activities,  and  potential  costs  that  may  arise  for  the  lack  of  coordination  in  this  area  at  EU 
level, the European Commission's Taxation and Customs Union Directorate-General launched 
a European Tax Survey in 2003. 700 companies active in the EU participated in the Survey 
providing  information  on  a  large  number  of  tax  compliance  related  issues107.  Company 
responses included quantitative estimates of their compliance costs and opinions on a number 
of issues related to tax systems. 

Companies from the then EU-15 countries had the opportunity to participate in the survey and 
the  700  companies  that  participated  cover  14  EU  Member  States.  In  order  to  correct  for 
under- or over-representation of some countries the responses of companies were weighted in 
order to reflect the number of companies of the same size in their country. However, due to 
the relatively low number of responses, the results presented did not pretend to provide a fully 
representative  picture  of  the  EU.  This  did  not  preclude,  however,  drawing  interesting  and 
innovative  insights  from  the  considerable  amount  of  information  provided  by  the  700 
companies involved in the survey. 

The  European  Tax  Survey  contained  both  quantitative  and  qualitative  questions,  which  are 
briefly summarised here. 

Main results of the quantitative analysis 

The  first  part  of  the  study  bore  on  a  quantitative  analysis  of  data  concerning  the  perceived 
total absolute compliance costs of companies. These compliance costs consisted of company 
taxation  and  Value  Added  Tax  (VAT)  compliance  costs  in  the  EU  and  company  taxation 
compliance  costs  outside  the  EU.  The  first  stage  of  this  quantitative  analysis  presented  the 
weighted  perceived  compliance  costs  of  the  EU  companies.  The  second  stage  presented  a 
series of regression analyses. 

* Compliance costs relative to sales are larger for SMEs than for large companies  

The  data  provided  by  companies  on  their  perceived  compliance  costs,  taxes  paid  and  sales 
produced the following main results: 

•  Weighted  total  absolute  compliance  costs  were  estimated  at  EUR  1.460.000  for  large 
companies. This corresponds to 1.9% of taxes paid and at 0.02% of sales, respectively. The 
figures for large companies are consistent with figures presented in other studies. 

107 

The  European  Tax  Survey  was  launched  on  the  1st  of  September  2003  and  closed  on  the  31st  of 
January  2004.  In  order  to  take  part  in  this  survey  companies  needed  to  register  as  a  member  of  the 
European Business Test Panel (EBTP) set up by the Commission's Internal Market Directorate-general. 
The  EBTP  has  been  introduced  to  provide  companies  the  opportunity  to  express  their  views  on  new 
legislative proposals and policy initiatives under consideration by the Commission. The European Tax 
Survey covered the 2141 EU companies that were registered at the time in the European Business Test 
Panel.  Furthermore,  not  all  registered  companies  in  the  EBTP  responded  to  the  questionnaire.  At  the 
closure date of the survey 700 EU companies across 14 Member States of the EU had responded (no 
companies  from  Luxembourg  participated  in  the  survey  and  for  most  of  the  topics,  information  for 
France  was  not  available);  that  is,  32.7%  of  the  registered  EU  companies  participated  in  the  survey. 
This  figure  is  relatively  high  compared  to  participation  rates  in  other  international  surveys  of 
administrative burdens.  

EN 

90 

   EN 

 
                                                 
•  Weighted  total  absolute  compliance  costs  were  estimated  at  EU  203.000  for  Small  and 
Medium-sized Enterprises (SMEs). This amount corresponds to 30.9% of taxes paid and to 
2.6% of sales, respectively. 

•  Econometric  regressions  provided  significant  and  recurrent  evidence  that  total,  VAT  and 
company  taxation  compliance  costs  increase  with  company  size  and  impose  a  higher 
relative burden on smaller companies. These results are in line with established findings in 
the economic literature.  

* Cross-border activity leads to higher tax-related compliance costs for companies 

Furthermore,  the  econometric  analysis  of  the  replies  provided  convincing  evidence  of  the 
importance  of  cross-border  activities  for  compliance  costs  and  highlighted  some  of  the 
variables that are correlated with compliance costs: 

•  Compliance  costs  are  higher  for  companies  with  at  least  one  subsidiary  in  another  EU 
Member State compared with companies without subsidiaries in another Member State. 

•  Compliance costs increase with the number of subsidiaries abroad. 

In  the  context  of  an  analysis  focusing  on  the  impact  of  taxation  on  the  functioning  of  the 
Internal market, these results need to be particularly stressed. The econometric results based 
on  the  data  provided  by  the  700  EU  companies  participating  in  the  European  Tax  Survey 
provided  quantitative  evidence  that  there  is  an  additional  cost  for  companies  that  are  active 
cross-border  in  the  EU.  Significant  results  in  this  respect  recurred  in  the  various  estimated 
models. 

Main results of the qualitative analysis 

The  quantitative  analysis  was  complemented  by  a  qualitative  analysis.  The  latter  aimed  to 
provide  better  information  on  the  sample  companies'  opinions  on  a  number  of  tax  related 
issues and to facilitate the interpretation of the quantitative results. 

Companies  participating  in  the  European  Tax  Survey  were  asked  to  indicate  whether  a 
number  of  tax  requirements  lead  to  difficulties.  In  relation  to  foreign-sourced  income,  the 
results highlighted that large companies with a branch or a subsidiary in another EU Member 
State  have  particular  difficulties  with  regard  to  audits  and  litigations.  Furthermore,  transfer 
pricing appeared as a major tax obstacle. The estimates highlighted that transfer pricing is an 
important  issue  for  81.5%  of  large  companies,  in  particular  when  it  comes  to  dealing  with 
documentation requirements, which are a difficulty for 81.9% of large companies. 

To sum up, the evidence obtained from the responses provided in the European Tax Survey 
strongly indicates that compliance costs of EU companies increase when they undertake 
cross-border  activities  in  the  EU.  These  costs  also  increase  when  company  activities 
increase,  for  example  by  setting  up  new  subsidiaries  in  other  EU  Member  States,  ceteris 
paribus. 

EN 

91 

   EN 

 
Annex  5.  The  basic  elements  defining  the  comprehensive  policy  options  consisting  in  a 

common consolidated corporate tax base 

The following provides for a description of the policy option for a Common Corporate Tax 
Base (CCTB), and for an optional Common Consolidated Corporate Tax Base (CCCTB). 
The  other  policy  options  analysed  in  this  Impact  Assessment  are  also  implicitly  described 
here,  by  selecting  or  dropping  the  corresponding  elements  (i.e.  a  compulsory  system  would 
ignore the element of optionality).  

5.1 Common Corporate Tax Base (CCTB) 

The basic elements of a Common Corporate Tax Base. 

* The rules for defining the common tax base 

•  There  is  no  formal  link  between  the  base  and  International  Accounting  Standards/IFRS. 
The rules for the common  tax  base  would therefore define the tax base itself but not the 
methodology for adjusting the accounts (sometimes called the 'bridge') to arrive at the tax 
base. That would not be possible as companies will potentially be starting from financial 
accounts prepared under 27 different national GAAP. However, it should be noted that the 
work for defining the common tax base has made constant reference to IAS/IFRS. Further, 
unless uniform treatment is explicitly provided for in the legislation, the tax base would be 
computed by reference to the general principles in the Directive.  

•  Resident taxpayers (i.e. EU-resident companies) shall be subject to corporate tax on their 
worldwide income. Non-resident taxpayers (i.e. third country companies) shall be subject 
to tax on business income attributable to their EU-located PE(s), as defined in the OECD 
Model (subject to existing treaty obligations with third countries). 

•  The tax base shall be calculated as revenues less exempt revenues, deductible expenses and 
other deductible items. As a matter of principle, the tax base would be calculated for each 
tax year. 

•  Revenues include  proceeds of any  kind,  whether monetary or non-monetary.  That is,  not 
only  trading  income  but  also  proceeds  from  disposals  of  assets  and  rights,  interest, 
dividends and other profit distributions, royalties, subsidies and grants, gifts, compensation 
and ex-gratia payments. 

•  Deductible  expenses  shall  mean  all  expenses  incurred  by  the  taxpayer  for  business 
purposes in the production, maintenance or securing of income, including costs of research 
and development or costs for raising equity or debt for business purposes. The definition is 
accompanied by an exhaustive list of non-deductible expenses. 

•  Fixed  assets  are  all  tangibles,  those  intangibles  acquired  for  a  value  and  financial  assets 
where they are capable of being valued independently and are used in the business in the 
production,  maintenance  or  securing  of  income  for  more  than  12  months.  Such  assets 
would  be  depreciated.  However,  where  the  cost  of  its  acquisition,  construction  or 
improvement  is  less  than  EUR  1,000,  an  asset  would  not  be  treated  as  a  fixed  asset  and 
would be immediately deductible. 

EN 

92 

   EN 

 
•  Fixed assets with a useful life longer than 15 years shall be depreciated on an individual 

basis whereas short- to medium-term assets shall be pooled for depreciation purposes. 

•  Tangible  assets  not  subject  to  wear  and  tear  and  obsolescence  such  as  land,  fine  art, 
antiques, or jewellery and intangible assets with an indefinite life and financial assets shall 
not be depreciated unless the taxpayer demonstrates that they have permanently decreased 
in  value;  by  exception,  financial  assets  which,  if  disposed  of,  give  rise  to  exempt  gains 
would not be depreciable under any circumstances. 

•  Income and expenses shall be recognised on an accruals basis in the tax year to which they 
relate.  Generally  speaking,  the  expense  should  be  established  and  the  amount  known  in 
order to be accrued. However, when an amount arising from a legal obligation or a likely 
legal obligation relating to activities or transactions carried out in the current or previous 
tax years, such as potential warranty claims, can be reliably estimated, the expense would 
be deductible in the current tax year. An appropriate deduction shall be allowed for a bad 
debt receivable by the taxpayer when certain conditions are met. 

•  Income and expenditure shall be measured by reference to: 

-  the  monetary  consideration  for  the  relevant  transaction,  such  as  the  price  of  goods  or 
services, 

-  the  market  price  where  the  consideration  for  the  transaction  is  wholly  or  partly  non-
monetary, 

- the arm's length price in the case of transactions between related parties, 

- the fair value of financial assets and liabilities held for trading. 

•  Tax base, income and expenses shall be measured in EUR or translated into EUR on the 

last day of the tax year. 

•  Inventories  shall  be  valued  on  the  last  day  of  the  tax  year  at  the  lower  of  cost  and  net 
realisable value. The total amount of deductible expenses for a tax year would be increased 
by  the  value  of  inventories  at  the  beginning  of  the  tax  year  and  reduced  by  the  value  of 
inventories at the end of the tax year. 

•  CCTB  losses  shall  be  eligible  for  carry  forward  indefinitely.  No  loss  carry-back  shall  be 
allowed  and  the  oldest  loses  shall  be  used  first.  Transitional  arrangements  may  be 
necessary  for  losses  incurred  under  the  National  system  where  a  CCTB  would  be 
mandatory. 

•  A CCTB would not involve a consolidation of tax results or the apportionment of the tax 

base using the three factor formula. 

•  A CCTB would not solve the major issues facing companies operating cross border such as 
loss  relief,  double  taxation  or  remove  barriers  to  the  smooth  functioning  of  the  Internal 
Market. 

5.2 Optional Common Consolidated Corporate Tax Base (CCCTB) 

EN 

93 

   EN 

 
The  optional  Common  Consolidated  Corporate  Tax  Base  aims  to  provide  groups  of 
companies with the option to apply a common set of rules across the EU for determining their 
taxable base, which would be consolidated for their EU-wide activities. The scheme consists 
of three basic elements: (i) optionality, (ii) common rules to determine the taxable income and 
(iii)  consolidation  and  allocation  of  taxable  shares  by  formulary  apportionment  (FA).  The 
administrative framework envisaged for the CCCTB is also briefly described 

* Scope  

The Directive  shall  apply  to EU companies listed  in  an annex which are subject to national 
corporate income taxes (or similar subsequently introduced taxes) listed in another annex. It 
would also apply to third country companies which have a similar form to EU companies and 
which maintain a taxable presence in the EU through a PE. 

* Optionality 

Under an optional  system, eligible companies, resident in the EU, may opt for the common 
rules. Eligible companies not resident in the EU may opt in respect of their EU-located PEs. 
The option shall be valid for 5 years and be automatically renewed for successive periods of 3 
years  unless  notice  is  given  to  the  contrary.  Companies  that  fulfil  the  requirements  for 
consolidation must either all opt into the CCCTB or not apply the system at all. 

* The rules for defining the common tax base 

•  There  is  no  formal  link  between  the  base  and  International  Accounting  Standards/IFRS. 
The rules for the common  tax  base  would therefore define the tax base itself but not the 
methodology for adjusting the accounts (sometimes called the 'bridge') to arrive at the tax 
base. That would not be possible as companies will potentially be starting from financial 
accounts prepared under 27 different national GAAP. However, it should be noted that the 
work for defining the common tax base has made constant reference to IAS/IFRS. Further, 
unless uniform treatment is explicitly provided for in the legislation, the tax base would be 
computed by reference to the general principles in the Directive.  

•  Resident taxpayers (i.e. EU-resident companies) shall be subject to corporate tax on their 
worldwide income. Non-resident taxpayers (i.e. third country companies) shall be subject 
to tax on business income attributable to their EU-located PE(s), as defined in the OECD 
Model (subject to existing treaty obligations with third countries). 

•  The tax base shall be calculated as revenues less exempt revenues, deductible expenses and 
other deductible items. As a matter of principle, the tax base would be calculated for each 
tax year. 

•  Revenues include  proceeds of any  kind,  whether monetary or non-monetary.  That is,  not 
only  trading  income  but  also  proceeds  from  disposals  of  assets  and  rights,  interest, 
dividends and other profit distributions, royalties, subsidies and grants, gifts, compensation 
and ex-gratia payments. 

•  Deductible  expenses  shall  mean  all  expenses  incurred  by  the  taxpayer  for  business 
purposes in the production, maintenance or securing of income, including costs of research 
and development or costs for raising equity or debt for business purposes. The definition is 
accompanied by an exhaustive list of non-deductible expenses. 

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•  Fixed  assets  are  all  tangibles,  those  intangibles  acquired  for  a  value  and  financial  assets 
where they are capable of being valued independently and are used in the business in the 
production,  maintenance  or  securing  of  income  for  more  than  12  months.  Such  assets 
would  be  depreciated.  However,  where  the  cost  of  its  acquisition,  construction  or 
improvement  is  less  than  EUR  1,000,  an  asset  would  not  be  treated  as  a  fixed  asset  and 
would be immediately deductible. 

•  Fixed assets with a useful life longer than 15 years shall be depreciated on an individual 

basis whereas short- to medium-term assets shall be pooled for depreciation purposes. 

•  Tangible  assets  not  subject  to  wear  and  tear  and  obsolescence  such  as  land,  fine  art, 
antiques, or jewellery and intangible assets with an indefinite life and financial assets shall 
not be depreciated unless the taxpayer demonstrates that they have permanently decreased 
in  value;  by  exception,  financial  assets  which,  if  disposed  of,  give  rise  to  exempt  gains 
would not be depreciable under any circumstances. 

•  Income and expenses shall be recognised on an accruals basis in the tax year to which they 
relate.  Generally  speaking,  the  expense  should  be  established  and  the  amount  known  in 
order to be accrued. However, when an amount arising from a legal obligation or a likely 
legal obligation relating to activities or transactions carried out in the current or previous 
tax years, such as potential warranty claims, can be reliably estimated, the expense would 
be deductible in the current tax year. An appropriate deduction shall be allowed for a bad 
debt receivable by the taxpayer when certain conditions are met. 

•  Income and expenditure shall be measured by reference to: 

-  the  monetary  consideration  for  the  relevant  transaction,  such  as  the  price  of  goods  or 
services, 

-  the  market  price  where  the  consideration  for  the  transaction  is  wholly  or  partly  non-
monetary, 

- the arm's length price in the case of transactions between related parties, 

- the fair value of financial assets and liabilities held for trading. 

•  Tax base, income and expenses shall be measured in EUR or translated into EUR on the 

last day of the tax year. 

•  Inventories  shall  be  valued  on  the  last  day  of  the  tax  year  at  the  lower  of  cost  and  net 
realisable value. The total amount of deductible expenses for a tax year would be increased 
by  the  value  of  inventories  at  the  beginning  of  the  tax  year  and  reduced  by  the  value  of 
inventories at the end of the tax year. 

•  CCCTB losses shall be eligible for carry forward indefinitely. No loss carry-back shall be 

allowed. 

* Consolidation 

A  2-part  test  determines  the  entitlement  to  participation  in  the  group.  The  deciding  factors 
are  control  (>50%  of  voting  rights)  and  either  ownership  (>75%  of  capital),  or  rights  to 

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profits  (>75%  of  rights  giving  entitlement  to  profit).  EC-located  branches  (of  third-country 
companies)  are  treated  as  individual  group  members  in  the  allocation  of  their  apportioned 
share  and  all  inbound  and  outbound  group  payments.  The  2  thresholds  have  to  be  met 
throughout  the  year.  Otherwise,  the  company  has  to  leave  the  group.  There  is  also  a  9-
month minimum requirement for being a group member (i.e. the taxpayer joins when the 2 
thresholds are met but, if those are not reached for at least 9 months without interruption, the 
taxpayer will be treated as never having been part of the group). 

•  Intra-group  transactions  are  eliminated,  meaning  that  no  pricing  adjustments  will  be 
required  in  line  with  the  ‘arm’s  length’  principle.  Further,  no  withholding  tax  or  other 
source taxation will apply to transactions within the same group. 

•  Business reorganisations:  

A. Companies entering the group 

The  underlying  rationale  is  to  create  a  bridge  between  the  national  tax  system  and  the 
CCCTB scheme. The aim is to strike a balance between MS individual taxing rights and the 
concept of a consolidated shared tax base. 

(iii) 

Pre-consolidation trading losses are ring-fenced and carried forward to be set off 
against  the  taxpayer’s  apportioned  share.  The  idea  behind  this  is  that  the  MS 
participating in the consolidated group do not have to bear the cost of losses already 
incurred; 

(iv) 

Hidden reserves: the capital gains are taxable upon realisation and shared across 
the group; 

The  draft  proposal  contains  rules  put  in  place  to  protect  the  taxing  rights  of 
individual  MS  in  connection  with  values  largely  built  up  under  their  national  tax 
systems (i.e. before a company opted for consolidation); 

A proxy  (i.e. R&D, marketing and advertising costs over a specified period)  is 
used  to  deal  with  the  problem  of  self-generated  intangible  assets.  Those  are 
difficult  to  identify  because  they  are  not  registered  and  do  not  appear  separately  in 
companies' accounts. 

B. Companies leaving the group 

(iii) 

(iv) 

Group  trading  losses:  nothing  is  attributed  to  the  leaving  company;  losses 
produced during the period of consolidation remain at group level; 

Hidden  reserves:  capital  gains  are  taxable  upon  realisation  at  the  level  of  the 
company leaving the group; 

The draft proposal contains rules put in place to protect the consolidated tax base 
in  connection  with  values  largely  built  up  during  the  period  of  consolidation. 
Namely, since all group members have borne part of the cost linked to the creation of 
those values, they should be given a taxing right over the gain when realised. 

A  proxy  is  used  to  deal  with  the  problem  of  self-generated  intangible  assets:  the 
concern is that potential future profits may risk not being taxed at all under the tax 

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system that succeeds consolidation. Further, those profits will have been funded by 
the  group  in  the  sense  that  they  gave  rise  to  expense  deductions  shared  by  all  MS 
over the past years. 

C. Reorganisation within a group 

(iv) 

Trading  losses  incurred  during  consolidation  have  no  impact  from  a  tax  point  of 
view; 

(v) 

Pre-consolidation losses remaining unrelieved continue to be ring-fenced; 

•  Hidden  reserves:  tax  neutrality  is  the  overarching  principle  [coupled  with  certain 
interventions  in  the  allocation  of  taxing  rights  within  the  group  for  the  purpose  of 
avoiding  stripping  the  'departing'  MS  of  its  taxing  entitlement  (if  no  branch  is  left  in  its 
territory as a result of the reorganisation)]. 

*Transactions between the group and entities outside the group 

•  Relief  by  exemption  will  be  given  for  third-country  located  branch  income;  inbound 
dividend  distributions;  and  the  proceeds  from  the  disposal  of  shares  held  in  a  company 
outside the group.108 

•  Relief by credit for inbound interest and royalty payments; the credit is shared among 
the group members according to the formula (without inclusion in the consolidated base). 

•  Withholding  taxes  charged  on  outbound  interest  and  royalties  will  be  shared  among 
the group members according to the formula (without inclusion in the consolidated base); 
in the case of dividends, the withholding tax will not be shared (since, contrary to interest 
and  royalties,  dividends  have  not  led  to  a  previous  deduction  borne  by  all  group 
companies). 

•  Transactions between associated enterprises will be subject to pricing adjustments in 

line with the 'arm's length' principle. 

*Anti-Abuse 

•  A  General  Anti-Abuse  Rule  (GAAR)  is  supplemented  by  measures  designed  to  curb 

abusive practices of a cross-border nature:  

(i) 

(ii) 

108 

109 

Limitations apply to the deductibility of interest paid to associated enterprises in a 
low-tax third country which does not exchange information with the Member State 
of the payer; specific rules define the concept of a 'low-tax third country'; 

Controlled  Foreign  Companies  (CFCs)109  legislation  requires  that  the  CFC, 
resident  in  a  low-tax  third  country,  is  controlled  at  more  than  50%  of  its  voting 

A number of anti-avoidance provisions apply to curb potentially abusive tax practices. An example is 
the 'switch-over clause': exemption switches over to credit where the received dividends, the entity of 
which the shares are disposed of or the branch were subject to low or no taxation in the state of source. 
Specific rules define the concept of 'low taxation'. 
For the purpose of the Draft Proposal, a CFC is a company under the 'definitive influence' of a group 
member which is tax resident in a low-tax third country without exchange of information. Further, the 

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rights,  owned  at  more  than  50%  of  its  capital  and  gives  more  than  50%  profit 
entitlement to the taxpayer. In addition, 30% of CFC income should be 'tainted'. 

*Formulary Apportionment (FA) 

•  The consolidated tax base shall be shared through a formula, uniform to all Member States, 
between each individual taxpayer of a group and each EU permanent establishment which 
is situated in a different jurisdiction from that of the taxpayer's headquarters. 

•  The consolidated tax base of a group shall only be shared when it is positive. 

•  The FA comprises 3 equally-weighted factors (i.e. assets, payroll and sales)110: 

(i) 

(ii) 

Labour  is  computed  based  on  both  payroll  and  the  number  of  employees  (each 
item counts for half); 

Assets  consist  of  all  fixed  tangible  assets,  meaning  that  intangibles  and  financial 
assets  are  excluded  from  the FA;  the reason for  this  exclusion  mainly  lies  with  the 
mobile nature of those assets and the risks of circumventing the system; 

(iii) 

Sales  are  taken  into  account  to  increase  the  taxing  entitlement  of  the  MS  of 
destination. 

To apportion the tax base to a given jurisdiction, the company must have a taxable presence 
(i.e. a PE or subsidiary).  

*Administration 

•  The 'one-stop-shop' practice will allow groups with a taxable presence in more than one 
MS to deal with a single tax authority across the EU (i.e. principal tax authority (PTA)), 
being  that  of  the  EU  parent  of  the  group  termed  'principal  taxpayer'.  A  consolidated  tax 
return will be filed with that authority. 

•  The draft proposal contains procedural rules on various matters: 

(i) 

(ii) 

(iii) 

110 

How taxpayers should submit their notice to opt into the CCCTB and subsequently 
their annual tax returns; 

Amended  assessments  shall  be  issued  by  the  PTA,  in  agreement  with  the  other 
concerned tax authorities, and shall be enforced by individual tax authorities. 

A  ruling  mechanism,  coupled  with  an  interpretation  panel  and  a  scheme  for  the 
exchange of information, shall be operated by the competent authority (CA) in each 
group member; 

CFC does not engage in genuine commercial activity which, in the Draft Proposal, is evidenced by the 
fact that it earns more than 30% of its income from certain sources identified as 'tainted' (e.g. passive 
income  from  interest  and  royalties  coming  from  transactions  with  associated  companies  at  more  than 
50%). 
There is provision for sector-specific formulae; in practice, those are adjustments of the mainstream 
FA  customised  to  serve  features  peculiar  to  certain  industries  (i.e.  credit  institutions,  insurance 
undertakings, shipping, inland waterways transport and air transport and the oil and gaz industry). 

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(iv) 

(v) 

Audits shall be initiated and coordinated by the PTA; CAs of other group members 
may also request the initiation of audits; the PTA and all relevant CAs shall have to 
agree,  by  joint  decision,  to  the  scope  and  content  of  an  audit  as  well  as  the  group 
members to be audited. The PTA shall be compiling the results of all audits carried 
out locally ahead of issuing an amended assessment; 

In  terms  of  dispute  settlement,  disputes  between  MS  shall  be  referred  to 
Arbitration  whilst  those  between  taxpayers  and  MS  shall  be  dealt  with  by  an 
Administrative  Appeals  Body  at  a  first  instance  and,  at  a  second  instance,  shall 
have to be brought before the national courts of the principal taxpayer. 

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Annex 6. The European Tax Analyzer  

The European Tax Analyzer is a model for calculation, analysis and comparison of tax bases 
size  /  effective  company  tax  burden  of  different  tax  systems  for  a  representative  ‘model’ 
company. It follows the so-called model-firm approach which means that it uses real company 
data as a basis for the calculation (i.e. in the current version, data derived from balance sheets 
and  profit  and  losses  accounts  is  taken  from  the  Amadeus  database).  With  the  help  of  a 
computer-based model, the development of this ‘model’ company is simulated over a period 
of  ten  years.  Besides  other  business  and  economic  variables  –such  as  corporate  planning, 
interest rates, etc- the relevant corporate tax provisions are taken into account for simulating 
the development of the ‘model’ company over the ten years period. The following major tax 
base provisions have been taken into account for implementing different tax systems in these 
simulations:  depreciation  allowances,  valuation  of  inventories,  production  costs,  costs  for 
R&D as part of production costs, provisions for future pension payments, provisions for legal 
obligations  (e.g.  warranty  claims),  systems  for  the  relief  of  dividends’  double  taxation  and 
domestic  loss  relief.  For  the  sake  of  cross-country  and  cross-tax  system  comparability,  it  is 
assumed  that  companies  in  each  country  or  system  show  identical  business  data  before  any 
taxation. Due to this necessary assumption, any differences between pre and post-tax data in 
the model can  be  solely attributed  to  the different tax systems included for comparison (eg. 
different provisions defining the tax base). 

In  the  version  used  for  this  study,  the  following  major  tax  base  provisions  (unrelated  to 
consolidation)  have  been  taken  into  account  for  implementing  different  tax  systems: 
depreciation allowances, valuation of inventories, production costs, costs for R&D as part of 
production costs, provisions for future pension payments, provisions for legal obligations (e.g. 
warranty claims), systems for the relief of dividends’ double taxation and domestic loss relief. 

The  tax  bases  of  these  model  companies  have  been  measured,  under  the  different  tax 
scenarios,  by  the  ‘Future  Value  of  the  Tax  Base’  concept:  that  is,  the  sum  of  all  yearly  tax 
bases as evaluated at the end of the simulation period of 10 years. The benchmark case has 
taken into account the EU Member States’ tax provisions as the law stood for the fiscal year 
2006.  Table  A.1  reports  the  values  of  such  tax  bases,  alongside  the  %  change  when  all 
provisions  of  the  common  tax  base  (CCTB)  are  implemented  simultaneously,  under  two 
different rates applicable for pool depreciation on machinery and equipment, namely 20% and 
25%111.  

111 

These results have been subject to a sensitivity analysis. It consisted in changing the economic model 
assumptions that serve to define the structure of the “model” company (for instance the capital, labour, 
inventory  intensities  or  the  profitability  ratios)  so  as  to  characterise  “model”  companies  for  different 
sectors  or  subgroup  of  countries.  The  results  show  that  in  sectors  such  as  energy,  manufacturing, 
service/trade and transport the tax base would tend to increase even more in the event of a common tax 
base, while in sectors such as commerce and construction the new common tax base would not increase 
as  much  as  for  the  average  EU-27  “model”  company  (but  still  it  would  be  broader  than  under  most 
current  national  rules).  Also,  “model”  companies  have  been  characterised  for  the  EU-15  (average 
company of the old Member States) and the EU-12 (average company of the new Member States). The 
results show that, on average, the broadening of the future value of the tax base in the EU-12 exceeds 
the  EU-27  average  broadening,  while  the  opposite  holds  true  for  the  EU-15  (where  the  broadening 
ranges,  on  average,  below  the  EU-27  average).  Finally,  instead  of  taking  the  fiscal  rules  of  2006  as 
benchmark,  the  major  tax  reforms  in  five  countries  (France,  Germany,  Italy,  Netherlands  and  Spain) 
which became effective in 2007 and 2008 have been implemented as “current national rules”: as these 
reforms  already  resulted  in  a  broadening  of  the  tax  base,  the  average  increase  of  the  tax  base  in  the 

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Table  A.12  Future  Value  of  Tax  Base  in  Case  of  National  Tax  Base  Rules  versus  a 
Common Corporate Tax Base (Large and SME Companies) 

Large model company 

SMEs model company 

Member 
State (*)  

Future Value Tax Base  

Member 
State (*) 

Future Value Tax Base 

National 
rules 

 (2006) 
(Mio €)  

% 
Change 
CCTB-
20% 

% 
Change 
CCTB-
25% 

National 
rules 
(2006) 
(Mio €)  

% 
Change 
CCTB-
20% 

% 
Change 
CCTB-
25% 

HU 

FR 

DE 

BE 

AT 

ES 

SL 

DK 

LU 

UK  

SE 

LT 

LV  

BG 

PT 

IT 

FI 

RO 

NL 

GR 

CZ 

SK 

PL 

MT 

IE 

EE 

CY 

41.7 

55.43 

74.05 

78.55 

81.19 

85.05 

89.26 

91.36 

93.42 

93.45 

93.6 

93.7 

93.84 

94.64 

94.67 

94.72 

95.06 

95.16 

95.66 

95.9 

95.97 

96.26 

97.46 

98.18 

101.06 

103.22 

104.98 

12.3 

9.8 

4.8 

3 

5.9 

4.6 

8.6 

3.8 

3.7 

0.2 

4.4 

11.1 

11.3 

13.1 

10.6 

8.8 

9.4 

4.9 

2.2 

9.1 

9.9 

9.8 

7.7 

3.8 

-1.5 

2.6 

-6.7 

0.72

1.98

1.85

0.34

2.45

1.89

2.95

1.31

1.52

-2.2

2.19

3.58

3.75

5.58

3.28

1.63

2.16

2.4

0.14

1.96

2.7

2.5

0.48

-1.11

-3.64

0.7

-11.68

HU

FR

DE

AT

BE

ES

SL

DK

LU

UK 

SE

LT

IT

LV 

GR

NL

PT

FI

BG

RO

CZ

PL

MT

SK

IE

EE

CY

1.08

2.36

2.68

2.87

2.94

3.07

3.17

3.29

3.35

3.36

3.36

3.38

3.39

3.4

3.41

3.41

3.41

3.42

3.43

3.44

3.45

3.46

3.46

3.46

3.54

3.6

3.74

15.4 

5.3 

2.9 

4.3 

1.5 

2.6 

8.3 

2.4 

2.3 

0.7 

2.7 

10.5 

8.8 

10.4 

10.3 

1.3 

9.9 

9.2 

11.8 

2.5 

9.5 

8.8 

5.4 

9.5 

-0.8 

1.8 

-6.9 

2.85 

1.4 

1.54 

2.11 

0.13 

1.42 

4.04 

1.1 

1.16 

-0.59 

1.62 

4.93 

3.51 

4.83 

4.94 

0.29 

4.53 

3.8 

6.26 

1.64 

4.13 

3.42 

1.64 

4.03 

-1.82 

0.57 

-10.68 

EU-Ø 

89.91 

6.2 

1.09

EU-Ø

3.22

5.57 

1.96 

event  of  a  CCTB  is  smaller,  compared  to  this  new  “current”  situation,  for  both  the  EU-27  large  and 
SME company. 

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(*) Ranked from the narrowest to the broadest tax base in 'as-is' case.

Source: simulations based on the European Tax Analyzer model.  

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Annex  7.  The  impact  of  corporate  income  tax  reforms  at  the  EU  level  on  European 
business  taxpayers:  case  studies  from  a  sample  of  multinational  groups 
operating in the EU 

At  the  request  of  the  European  Commission  TAXUD,  Pricewaterhouse  Coopers  has 
completed a study on the impact of income tax reforms at the EU level on European business 
taxpayers. The study had two tasks: i) to quantify the impact of alternative tax scenarios on 
the size of multinationals' taxable profits and on their effective tax rates and ii) to quantify the 
impact  of  the  alternative  tax  scenarios  on  the  size  of  multinationals'  tax  related  compliance 
costs.  

The  required  analysis  has  been  addressed  through  the  collection  of  relevant  data  from  a 
sample of multinational groups operating in the EU. In order to source the necessary inputs 
from  groups  and  perform  each  part  of  the  study  a  questionnaire  was  designed,  which  were 
completed by the participating multinational groups.  

The sample: In carrying out this exercise, the contractor first sourced multinationals willing 
to participate in the exercise. Data has been collected from 21 multinational groups operating 
in  the  EU.  Of  the  21  multinational  groups  participating  in  the  study,  13  multinationals 
participated  in  the  taxable  profits  and  effective  tax  rate  study  and  17  multinationals 
participated  in  the  impact  on  corporate  income  tax  compliance  cost  study.  9  multinationals 
participated in both parts of the study. 

The  participating  multinational  groups  have  operations  across  the  27  Member  States  and 
represent  a  number  of  economic  sectors  (banks,  electricity,  food  retail,  insurance,  leisure 
goods,  media  &  entertainment,  oil  &  gas,  pharmaceuticals,  technology  &  hardware, 
telecommunications).  All  multinational  groups,  except  one,  requested  complete  anonymity 
regarding their participation and data. 

The following describes in more detail the methodology followed for each of the two tasks of 
the study.  

Simulation of effective taxable profits under different tax scenarios 

One  questionnaire  was  created  to  gather  the  relevant  input  data  for  the  simulation  of  the 
taxable profits under different tax scenarios: 

- the current national tax system 

- a common corporate tax base (CCTB) and 

- a common consolidated corporate tax base (CCCTB). 

For this part of the study data was requested for two years, to reduce the impact of unusual 
circumstances  in  any  given  year.  The  two  year  base  period  was  calendar  2005/2006  for  all 
companies  in  the  sample  with  the  exception  of  one  for  which  the  base  period  was  calendar 
2006/2007. Electronic templates were sent to the Heads of Tax (Global or European) and data 
was  gathered  in  the  period  from  9  April  to  20  June  2008.  Discussions  were  held  with 
participating  MNCs  in  conference  calls  and  on  a  one-to-one  basis  to  deal  with  any  issues 
arising  in  connection  with  the  completion  of  the  templates.  Help-lines  were  also  available 
throughout  the  period  and  were  well  used.  The  data  provided  by  MNCs  has  been  sense 

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checked by PwC and queried where relevant to eliminate inconsistencies and amended where 
there were errors. However, PwC has not verified or validated the data provided and does not 
give any representations or warranties as to the accuracy of the results of the study. 

For the base case (current system) companies were requested to provide data on their national 
GAAP  (or  IFRS  where  permissible)  profits  before  tax  (PBT  or  EBT),  their  national  tax 
regime  cash  tax  charges,  and  therefore  their  national  GAAP/tax  effective  cash  tax  rate 
(ETRs). Companies were also requested to provide national taxable profits by country.  

Companies were also requested to provide details of brought forward local tax losses and any 
national  tax  rules  limiting  the  utilisation  thereof  e.g.  where  only  a  certain  level  (EUR  1 
million)  of  losses  can  be  fully  used  in  the  succeeding  year  (Germany)  with  only  partial 
utilisation above EUR 1 million, or where there is a time bar on loss carry forward (e.g. Italy 
5 years, The Netherlands 9 years, etc) limiting the use of their carry forward tax losses in the 
review period. 

For  the  CCTB  and  CCCTB  scenarios,  companies  were  provided  with  a  summary  of 
CCCTB/WP57 (CCCTB: Possible Elements of a Technical Outline), CCCTB/WP60 (CCCT: 
Possible  Elements  of  the  Sharing  Mechanism)  and  CCCTB/WP61  (CCCTB:  Possible 
Elements of the Administrative Framework). 

Companies were also provided with a template for each of the 27 EU countries, and requested 
to populate the template with the EBT of their companies/permanent establishments in each 
Member  State  (in  aggregate  for  each  Member  State)  and  to  enter  the  principal  adjustments 
envisaged under WP57 to arrive at that country's element of that group's CCCTB base, prior 
to  aggregation  to  effect  cross-border  consolidation  and  formulary  apportionment  of  the 
resulting CCCTB taxable profit back to participating Member State companies. 

Companies were also requested to provide data on employees (headcount and Euro amount of 
payroll), property (tangible assets: tax residue brought forward from national tax systems, and 
including loan book receivables for banks) and sales by destination. 

In collating the results of the participating MNCs, two main methods have been used for this 
part  of  the  analysis.  The  first,  the  'non-aggregated'  approach,  weights  all  MNCs  equally 
regardless of size. The second, the 'aggregated' approach, sums together the results of MNCs, 
thus giving greater weighting to larger MNCs.  

The size effects on the average (where all MNCs are equally weighted) and in the aggregate 
tax bases under the CCTB and CCCTB options are reported in table A.3. Table A.4 shows the 
results  on  the  distribution  of  the  tax  bases  under  the  CCCTB  with  different  apportionment 
factors.  

EN 

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Table A.13 Change (% points) in average and aggregate tax bases of sampled MNEs by 
MS under CCTB and CCCTB, compared to status-quo. 

CCTB 

CCCTB 

MS 

Change  in  average  tax 
base  

Change  in  aggregate  tax 
base  

Change  in  average  tax 
base  

Change  in  aggregate  tax 
base  

Belgium

Denmark

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Poland

Portugal

Spain

Sweden

UK

Other MS

Total 
sample 

EU 

3%

(0%)

(1%)

3%

(0%)

1%

1%

5%

0%

(1%)

0%

(3%)

1%

2%

(0%)

11% 

Source: PWC survey 

3%

(0%)

(2%)

4%

(0%)

1%

2%

1%

(1%)

(0%)

(0%)

1%

(9%)

1%

(0%)

3% 

1%

0%

(5%)

0%

(0%)

(2%)

(2%)

4%

0%

(1%)

0%

2%

(0%)

8%

(0%)

5% 

1%

0%

(4%)

(1%)

(0%)

(4%)

0%

1%

(0%)

(1%)

0%

1%

(3%)

11%

(0%)

(2%) 

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Table  A.14  Changes  in  average  tax  base  (with  respect  to  as-is)  by  country  under 
different weighting of CCCTB apportionment factors (average over 2 years) 

BE 

DK 

FR 

DE 

GR 

IR 

IT 

LU 

NL 

PL 

PT 

ES 

SE 

UK 

Other 

CCTB 

1% 

0% 

-2% 

4% 

0% 

0% 

2% 

0% 

-2% 

0% 

0% 

-3% 

0% 

0% 

0% 

CCCTB SM1 

1% 

0% 

-5% 

0% 

0% 

-3% 

-2% 

3% 

0% 

-1% 

0% 

1% 

0% 

6% 

0% 

CCCTB SM2 

2% 

0% 

-6% 

0% 

0% 

-2% 

-3% 

3% 

1% 

-1% 

0% 

-1% 

0% 

6% 

0% 

CCCTB SM3 

3% 

0% 

-6% 

1% 

0% 

-3% 

-2% 

4% 

0% 

-1% 

0% 

1% 

-1% 

6% 

0% 

CCCTB SM4 

1% 

0% 

-5% 

0% 

0% 

-3% 

-2% 

3% 

0% 

-2% 

0% 

1% 

-1% 

7% 

0% 

CCCTB SM5 

2% 

0% 

-6% 

0% 

0% 

-2% 

-3% 

4% 

2% 

-2% 

0% 

-1% 

0% 

7% 

0% 

Average percentage distribution of apportionment factors within the EU 

BE 

DK 

FR 

DE 

GR 

IR 

IT 

LU 

NL 

PL 

PT 

ES 

SE  UK Other co 

Number 
employees 

of 

8% 

1% 

14% 

8% 

1% 

0% 

6% 

6% 

7% 

3% 

1% 

4% 

4% 

37% 0% 

Payroll 

8% 

1% 

13% 

9% 

0% 

0% 

5% 

6% 

8% 

1% 

0% 

4% 

4% 

41% 0% 

Fixed Assets 

1% 

1% 

11% 

16% 

0% 

4% 

3% 

6% 

10% 

1% 

0% 

3% 

6% 

38% 0% 

Sales 

3% 

0% 

12% 

10% 

0% 

2% 

6% 

6% 

6% 

1% 

0% 

10% 

5% 

30% 0% 

Sharing mechanisms (SM) are as follows:  

•  SM1: Number of employees (1/6), Cost of employees (1/6), Assets (1/3), Sales by Destination (1/3); 

•  SM2: Number of employees (1/4), Cost of employees (1/4), Assets (1/2);  

•  SM3: Number of employees (1/6), Cost of employees (1/6), Assets (1/3), Sales by Origin (1/3);  

•  SM4: Cost of employees (1/3), Assets (1/3), Sales by Destination (1/3);  

•  SM5: Cost of employees (1/2), Assets (1/2). 

Source: PWC survey 

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Examination of compliance costs under different tax scenarios 

Another  questionnaire  was  created  to  estimate  the  corporation  tax  compliance  costs  of 
companies under different tax scenarios:  

- the current national tax system 

- a common corporate tax base (CCTB) and 

- a common consolidated corporate tax base (CCCTB). 

Quantitative survey 

The questionnaire assisted MNCs to establish their cost of corporate income tax compliance, 
within the EU, under current national tax systems. MNCs were provided with a definition of 
compliance and a list of corporate income tax  compliance  activities. The questionnaire  asks 
for data country by country within the EU, for each MNC, covering both internal time spent 
on  tax  compliance  activities  and  feed  paid  to  external  providers  for  compliance  services. 
Internal  time  includes  dedicated  tax  resource  plus  resource  in  the  shadow  tax  department 
(those in business functions such as accounting, finance, shared services and transfer pricing) 
who also undertake corporate income tax compliance activities. 

The  questionnaire  provides  MNCs  with  information  showing  how  the  list  of  compliance 
activities will change in each alternative scenario (CCTB or CCCTB). It then asked MNCs to 
provide  data  on  how  they  expect  the  time  spent  and  the  cost  of  external  advisors  fees  in 
relation  to  these  activities  to  change  under  two  further  scenarios,  a  switch  over  to  a  fully 
consolidated CCCTB and alternatively to the more limited case, the CCTB, where there is no 
consolidation but an implementation of a common tax base calculation in each country. The 
study assumes full implementation of these scenarios across the 27 countries within the EU. A 
copy of the schedule defining and listing corporate income tax compliance activities and how 
they would change across the different scenarios is provided at the end of this Appendix.  

The questionnaire also asked MNCs whether they expect to incur one off costs on the switch 
over to each alternative scenario.  

The compliance cost time measures were later expressed in monetary terms. The method used 
for this analysis is a form of standard cost approach where a standard salary cost by grade of 
staff, and by country was applied. Most of the data were provided by Monks (a specialist unit 
within  PwC  which  deals  with  employee  rewards)  and  partly  came  from  publicly  available 
survey  databases.  The  methodology  used  is  considered  to  underestimate  the  costs  involved, 
rather than to overestimate. 

Electronic questionnaires were provided to MNCs, and data has been gathered in the period 
from 9 April to 3 July 2008. A total of 17 MNCs participated in the study, with subsidiaries in 
26 out of the 27 Member States. They are considered to represent a reasonable cross section 
of  business  tax  payers,  in  terms  of  size  of  business,  industry  sector  and  spread  of  activities 
across the EU. Among the 17 participants, 16 MNCs provided quantitative data on the base 
case scenario, 9 on the CCCTB and the CCTB scenario and 14 provided qualitative data.  

EN 

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Data  was  requested  for  one  year,  and  participants  were  asked  to  assume  a  normal  year  of 
operation in the alternative scenarios, say year 3 of the new regime, rather than a start up year 
for CCTB or CCCTB in the alternative scenarios.  

Three  areas  of  activities  (keeping  the  additional  records  required  for  tax  purposes,  transfer 
pricing documentation and preparing tax computations) are viewed by participants on average 
as the most time consuming activities with regard to the base case national tax systems. 

On  average  for  participants  more  than  30%  of  these  external  costs  relate  to  each  of  the 
preparation of tax returns and transfer pricing documentation. Just over 15% relates to other 
international aspects of the tax regime. 

The  key  findings  from  the  response  to  the  qualitative  questions  were  that  the  majority  of 
companies  find  the  current  regimes  difficult.  The  areas  which  the  greatest  number  of 
participants  found  difficult  were  transfer  pricing  (creating  and  maintaining  transfer  pricing 
documentation  and  facing  several  different  audits  on  transfer  pricing  in  member  states), 
gathering  data  and  calculating  taxable  profits  under  the  tax  rules  in  the  different  member 
states, contacting several different tax administrations and facing several different audits and 
litigation processes, and keeping up to date with the different tax laws and regulations. 

The results for scenario 2 show an important difference between the predicted impact of time 
spent in the country where the principal taxpayer (PTP) and the principal tax authority (PTA) 
are located and in other countries. It is anticipated that the time in the PTP will increase by 
15% and time spent in other countries will reduce by 23%. Overall, a reduction by 8% of time 
spent on tax compliance activities is anticipated. 

Participants  predicted  a  6%  reduction  on  average  in  fees  paid  to  external  providers  for  tax 
compliance services. The main reductions were expected to arise on tax return services and on 
international  aspects  of  the  tax  regime  (other  than  transfer  pricing  documentation). 
Participants also predicted an increase in licence fees for compliance software. 

The qualitative results on the CCCTB show a mixed response from the participants. Seven see 
a  CCCTB  as  less  burdensome  overall,  five  as  more  burdensome  and  one  as  equally 
burdensome.  The  areas  which  the  greatest  number  of  participants  thought  would  be  more 
burdensome  are  keeping  records  for  and  dealing  with  the  formulary  apportionment  and 
gathering data and calculating taxable profits. The majority felt that keeping up to date with 
the rules and regulations, single filing of the tax return and dealing with a single tax authority, 
and applying for clearances and rulings would be less burdensome. 

Qualitative survey 

In  addition  to  providing  'quantitative  data',  participants  were  asked  a  series  of  questions  in 
relation to each of the base case and the two alternative scenarios to establish their views on 
the  current  system  and 
'qualitative  data').  Electronic 
questionnaires were provided to MNCs, and data has been gathered in the period from 9 April 
to 3 July 2008. Participants were asked to identify the following tax compliance activities as 
'An important difficulty', 'A moderate difficulty' or 'Not a difficulty' under the existing system: 

the  alternative  proposals  (ie 

•  Creating  and  maintaining  the  additional  records  required  for  tax  purposes  in  the 

several different EU Member States 

EN 

108 

   EN 

 
•  Creating and maintaining the documentation required for compliance with transfer 

pricing rules in the several different EU Member States 

•  Gathering  data  and  calculating  taxable  profits  under  the  tax  rules  in  the  several 

different EU Member States 

•  Multiple filing of the tax returns for the several different EU Member States 

•  Contacting  several  different  tax  administrations  or  tax  officials  from  the  several 

different EU Member States 

•  Facing several different audits and litigation processes of the several different EU 

Member states 

•  Facing  several  different  audits  relating  to  transfer  pricing  in  the  different  EU 

Member States  

•  Dealing with intra-EU procedures for resolution of transfer pricing disputes 

•  Applying for clearances and rulings from the several different EU Member States 

is: 

•  Keeping  up  to  date  with  the  different  tax  laws  and  regulation  in  the  several 

different EU Member States 

•  Calculating the tax numbers required for financial reporting using the tax rules of 

the several different EU Member States  

•  Implementing our transfer pricing policy to ensure that transactions with relevant 

policies in the different EU Member States are carried out at arm’s length 

•  Overall,  the  costs  of  dealing  with  several  different  national  corporation  tax 

systems within the EU 

'more 
Afterwards,  participants  specified  whether  the  following  activities  would  be 
burdensome', 'less burdensome' or 'equally burdensome' in a CCCTB or CCTB scenario 
as in the current system.  

•  Creating  and  maintaining  the  additional  records  required  for  tax  purposes  for  a 

common consolidated tax base across the EU  

•  Creating  and  maintaining 

the  documentation  required  for 

the  formulary 

apportionment  

•  Gathering data and calculating taxable profits under a CCCTB (or CCTB) system  

•  Single filing of the tax return for all EU income  

•  Contacting a single ‘principal tax administration for all EU activities  

EN 

109 

   EN 

 
•  Audits  and  the  procedures  for  resolving  disputes  with  tax  administrations 

concerning all EU income 

•  Dealing with the formulary apportionment of profits across the EU  

•  Dealing with common procedures for the resolution of profits’ allocation disputes  

•  Applying for clearances and rulings  

•  Keeping up to date with a single set of tax laws and regulations across the EU  

•  Calculating the tax numbers required for financial reporting using the tax rules for 

a CCCTB (or CCTB) 

•  Overall, the requirements of a CCCTB (or CCTB) system  

For both parts of the survey briefings were held with participating MNCs in conference calls, 
and on a one to one basis, to deal with any issues arising in connection with the completion of 
the questionnaires. Help-lines were also available throughout the period and have been well 
used.  Findings  from  the  study  are  factual,  and represent  the  views  of  business  based  on  the 
assumptions  given  to  them  in  the  questionnaire  and  in  supplementary  relevant  documents. 
The data provided by MNCs has been sense checked and queried where relevant to eliminate 
inconsistencies  and  amended  where  there  are  errors,  for  example  where  data  has  been 
incorrectly  entered  in  the  wrong  data  box.  However,  PwC  has  not  verified  or  validated  the 
data  provided  and  does  not  give  any  representations  or  warranties  as  to  the  accuracy  of  the 
results of the study.  

EN 

110 

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Impact  of  corporate  income  tax  reforms  at  EU  level  on  compliance  costs  of  European 
business taxpayers 

Corporate income tax compliance activities and what is expected to change 

Compliance  activities  include  all  activities  relating  to  complying  with  tax  rules  and 
obligations of EU member states. Compliance activities do not include (i) keeping tax books 
or records which are required for financial accounting or reporting purposes or preparing the 
tax entries for the accounts; (ii) tax planning or mitigation; (iii) tax advice (for example to the 
business or on transactions) or (iv) management of the tax team. 

A list of corporate income tax compliance activities under scenario 1, the base case, is given 
below,  together  with  how  these  would  change  in  the  alternative  scenarios.  Participants  are 
asked to provide data for each of the 9 areas of activity. 

Scenario 1: Base case - 
current national tax systems 

What will change - Alternative 
scenario 2 - CCCTB 

What will change - 
Alternative scenario 3 - 
CCTB 

1) Record Keeping 

•  Creating and maintaining 
any additional records 
required for tax purposes 
only. (Does not include 
records which are created 
and maintained primarily 
for accounting purposes) 

•  Creating and maintaining 

records for tax 
depreciation 

2) Transfer pricing 
documentation 

•  Records must be kept in 

•  Records must be kept in 

Euros, requiring translation 
for non Euro countries in 
the EU. 

Euros, requiring 
translation for non Euro 
countries in the EU. 

•  Records required for tax 
depreciation for a single 
pool of assets within the 
EU (if no long term assets 
with a life of 15 years or 
more). 

•  Records required for a 

single pool of assets per 
country (if no long term 
assets with a life of 15 
years or more). 

•  Creating and maintaining 
documentation required 
for compliance with 
transfer pricing, including 
transfer pricing policy, 

•  No transfer pricing 

•  No change to scenario 1, 

documentation will be 
required for transactions 
with consolidated 
companies within the EU. 

base case. 

EN 

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   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
economic analysis and 
legal agreements. 

•  However there will be 

additional record keeping 
requirements for the 
formulary apportionment 

1) Head count and payroll by 

country 

2) Tax net book value of 

tangible property 

3) Third party sales by 

destination country 
within the EU 

3) Preparation of tax 
computations 

(Different rules in 27 
Member States) 

•  Gathering data for tax 
purposes from existing 
records 

•  Calculating taxable profit  

•  Calculating tax 
depreciation 

•  Gathering data for the 

•  Gathering data for the 

CCCTB system 

CCTB system 

•  Single calculation of EU 
taxable profits including 
tax depreciation and 
consolidating country 
profits and losses 

•  Calculations of the 

apportionment of the 
taxable profits between 
taxable entities and 
member states. 

•  Country by country 

calculation of taxable 
profits and of tax 
depreciation but using EU 
wide set of rules. No 
cross country 
consolidation except 
where available under 
current rules in scenario 
1. 

•  Application of controlled 
foreign company rules 

•  Elimination of controlled 
foreign company rules 
within the EU. Single set of 
rules for outbound from the 
EU 

•  Elimination of controlled 
foreign company rules 
within the EU. Single set 
of rules for outbound 
from the EU. 

EN 

112 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•  Application of thin cap 

rules 

•  Common thin cap rules 

•  Common thin cap rules 

within the EU. Single set of 
rules for inbound from 
outside the EU. 

within the EU. Single set 
of rules for inbound from 
outside the EU. 

•  Application of transfer 

pricing rules 

•  Application of the rules 

relating to the taxation of 
foreign profits 

•  Elimination of transfer 

pricing rules for 
consolidated companies 
within the EU. Country by 
country rules for 
transactions with related 
parties outside the EU. 

•  Elimination of taxation of 
foreign profits within the 
EU. Exemption for foreign 
profits outside the EU for 
shareholdings of 10% or 
more (or credit if low tax). 

•  Credit system within or 
outside of the EU for 
shareholdings of less than 
10%. Credits are 
apportioned through the 
formulary apportionment. 
Country by country 
streaming for credits in 
respect of countries outside 
the EU. 

•  Country by country rules 
for all transactions with 
related parties, inside and 
outside the EU. 

•  Elimination of taxation of 
foreign profits within the 
EU. Exemption for 
foreign profits outside the 
EU for shareholdings for 
10% or more (or credit if 
low tax). 

•  Credit system within or 
outside of the EU for 
shareholdings of less than 
10%. Country by country 
streaming for credits in 
respect of countries 
outside the EU. 

•  Self assessment under 

single set of rules, no tax 
claims and elections 
required.  

•  Self assessment country 
by country under single 
set of rules, no tax claims 
and elections required.  

•  Making tax claims and 

elections 

•  Calculations required 

relating to the set off of pre 
CCCTB losses continue to 

•  Calculations required 

relating to the set off of 
pre CCTB losses continue 
to be required under 

EN 

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   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•  Calculations relating to 

set off of losses 

be required under national 
tax rules. 

national tax rules. 

•  No change to scenario 1, 

base case. 

•  No calculations for national 

group consolidation 
required. 

•  Apportionment calculations 
required for companies 
joining and leaving the 
CCCTB group. 

•  Single consolidated tax 

•  Single tax return filed by 

return filed with Principal 
Tax Authority for the entire 
CCCTB group ('one stop-
shop') 

country 

•  Payment of corporate 

income tax by country. 

•  Payment of corporate 
income tax by country 

•  No requirement to withhold 
tax on payments within the 
EU. No change to current 
requirements to withhold 
tax on payments outside the 
EU. 

•  No requirement to 

withhold tax on payments 
within the EU. No change 
to current requirements to 
withhold tax on payments 
outside the EU. 

•  Calculations relating to 

national group 
consolidation 

4) Tax returns and 
payments 

(Different deadlines in 
different Member States) 

•  Completing the tax return 

(multiple filing) 

•  Submitting the return 
form (for each group 
member) 

•  Making corporate income 
tax payments including 
payments on account 

•  Withholding tax at source 

on payments made. 

5) Dealing with the tax 

EN 

114 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
authorities 

(Different processes in the 
27 MS) 

•  Dealing with queries 

raised by tax authorities  

consolidated tax return by a 
Principal Tax Authority 

•  Verification of the 

•  Dealing with tax audits 
and investigations 

•  Central EU ruling body 
gives decisions on 
application of the new 
rules. 

•  Central EU ruling body 
gives decisions on 
application of the new 
rules for calculations of 
taxable profits. 

•  Otherwise no change to 
Scenario 1, base case. 

•  No change to scenario 1, 

base case. 

•  Resolution of tax disputes 
including appeals and tax 
litigation. 

•  New administrative appeal 
process with clear and 
common deadlines against 
decisions of the Principal 
Tax Authority 

•  Judicial appeals governed 
by the rules of the member 
state of the principal tax 
authority. 

6) Mutual agreement 
procedures on transfer 
pricing 

•  Competent authority and / 
or arbitration on transfer 
pricing 

•  Competent authority and 
arbitration procedures 
eliminated within the EU. 
Outside the EU they remain 
as Scenario 1, base case. 

•  No change to Scenario 1, 

base case. 

7) Clearances and rulings 

•  Application for advance 
clearances and rulings on 
the tax treatment of 

•  Advance clearances and 
rulings, just once for the 
whole group of 
consolidated companies not 

•  Advance clearances and 
rulings, just once for all 
the CCTB companies 

EN 

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   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
specific items 

applicable within the EU. 

within the EU. 

•  Advance pricing 
agreements 

•  APAs not applicable within 

the EU. APAs for 
transactions with outside 
the EU will involve the 
Principal Tax Authority. 

•  No change to procedures 
for Advance Pricing 
agreements. 

•  EU wide common tax 

system with less frequent 
changes than with 27 
National Tax Systems. 

•  EU wide common rules 
for calculating taxable 
profits with less frequent 
changes than with 27 
National Tax Systems. 

8) Learning and education 

(Up to 27 different tax 
systems) 

•  Keeping up to date with 
changes to tax rules and 
regulations  

•  Training staff on tax rules 

and obligations 

9) Any other compliance 
activities (please specify) 

EN 

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Annex  8.  The  tax  experts'  study  on  tax  compliance  costs  for  businesses  going  cross-
border  –  comparison  of  current  situation  and  a  situation  after  reform  at  EU 
level of corporate income tax systems 

8.1 

Objective and scope of the study 

The  study  has  provided  empirical  evidence  on  the  possible  impact  on  the  corporate  income 
tax  compliance  costs  of  a  reform  at  EU  level  of  the  corporate  income  tax  system.  It  has 
identified  and  estimated  the  corporate  tax  compliance  costs  for  a  representative  large  and 
medium  standard  company  located  in  the  EU  that  enters  a  market  by  making  a  new 
investment through the set-up of a representative medium subsidiary in another Member State 
under the following three different scenarios: 

–  The  current  situation  with  27  different  national  tax  codes,  current  administrative 

framework and practices  

–  The scenario where a common corporate tax base is in place in all the 27 Member States 

(CCTB)  

–  The  scenario  where  a  common  consolidated  corporate  tax  base  is  in  place  in  all  the  27 

Member States (CCCTB)  

The  study  has  focused  on  the  following  corporate  tax  compliance  costs  for  entering  the 
territory  of  another  Member  State  through  the  establishment  of  a  new  medium  sized 
production entity.  

–  One-off  costs  related  to  learning  the  new  corporate  tax  code  or  search  costs  for  hiring  a 

new tax adviser (only relevant in the current situation scenario); 

–  The re-occurring costs to comply with the annual corporate tax filing requirements: 

1. record keeping for corporate tax purposes only 

2. transfer pricing documentation 

3. preparation of corporate tax computations 

4. filing of tax returns and making corporate tax payments and prepayments 

5. dealing with the tax authorities during corporate tax audits 

6. mutual agreement procedures on transfer pricing 

7. advanced clearances and rulings 

8. learning and education of tax code changes 

9. any other cross-border corporate tax compliance formality 

These  one  off  and  the  re-occurring  costs  have  been  estimated  under  the  three  different 
scenarios featuring the current so-called ACT, the CCTB and the CCCTB regime at the level 
of  the  representative  parent  and  subsidiary.  It  has  been  assumed  that  the  parent  company  is 

EN 

117 

   EN 

 
already  working  for  some  years  under  the  respective  tax  codes.  This  means  that  no  one-off 
costs  for  the  switch  to  the  CCTB  or  CCCTB  should  be  taken  into  account,  when  the  tax 
experts estimate the related compliance time and costs.  

8.2 

Methodology 

The  study  has  been  based  on  the  assessments  of  tax  experts  who  are  part  of  the  European 
network of Deloitte. From their contacts with the tax business Deloitte tax experts are aware 
of  the  internal  costs  of  an  enterprise  when  fulfilling  corporate  tax  compliance.  Moreover, 
Deloitte,  as  one  of  the  major  service  providers  in  corporate  tax,  including  corporate  tax 
compliance,  was  able  to  provide  a  fair  estimate  of  corporate  tax  compliance  costs  that  are 
outsourced under the three different scenarios. 

The defining of a large and a medium sized representative standard parent company and one 
medium representative subsidiary with their relevant characteristics has been done by Deloitte 
Belgium for the entire territory of the European Union. They involved experts from Corporate 
Finance and Transfer Pricing teams of Deloitte.  

The definition of the representative large and medium parent company and the representative 
medium  subsidiary  included  a  simplified  profit  and  loss  account  and  a  balance  sheet.  Both 
have been computed on the basis of the Amadeus database. The individual company datasets 
have been grouped applying the criteria of the European Commission recommendation for the 
delineation  of  small-,  medium-  and  large-sized  companies  concerning  turnover,  number  of 
employees  and  balance  sheet  total.  For  these  data  subsets  the  median  is  calculated  for  each 
item  in  the  profit  and  loss  account  and  the  balance  sheet.  Additionally  the  definition  of  the 
representative investment in a new subsidiary included a description of the relations between 
the parent and the subsidiary that trigger tax compliance obligations.  

In order to avoid asking tax experts in all 27 Member States and with respect to the principle 
of proportionality and the limited financial resources that could be used within the EU budget 
for this study, only 6 Member States were selected to be investigated. As wage levels for the 
taxation clerks and experts fulfilling the compliance obligations are an important determinant 
of compliance costs, it was assumed that the main criterion to select the relevant countries for 
the study would be to cover countries with different wage levels of intergroup and external tax 
advisers. In addition, the size of inbound and outbound FDI was another important factor to 
select the relevant countries for the study.  

Thus, the large and medium parent company were assumed to be located in  

–  high wage country: FR; 

–  medium wage country: ES; 

–  low wage country: HU; 

The medium sized subsidiary were assumed to be located in 

–  high wage country: DE; 

–  medium wage country: EL; 

EN 

118 

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–  low wage country: PL 

The  estimation  of  corporate  tax  compliance  costs  in  the  three  tax  scenarios  has  been  split 
into two steps: the measurement of corporate tax compliance time and the monetarisation of 
total compliance time into compliance costs.  

I) The measurement of compliance time for the different corporate tax compliance activities 
has been done for a large/medium representative parent company located in France, Spain or 
Hungary  making  an  investment  in  a  medium  subsidiary  respectively  located  in  Germany, 
Greece or Poland. The measurement was performed in these 6 Member States on the basis of 
expert  assessment.  Deloitte  Belgium  prepared  a  questionnaire  and  an  additional  learning 
document that explains the proposed single set of tax base rules in the CCTB and CCCTB tax 
scenarios  mainly  based  on  the  elements  described  in  CCCTB  WP57,  CCCTB  WP60  and 
CCCTB WP61 issued by the Commission services. 

In  addition  to  the  compliance  time  the  experts  estimated  to  which  share  the  different 
compliance activities would be done by external companies (outsourced) or internally. For the 
internal  activities  they  estimated  in  addition  which  of  the  activities  were  performed  across 
low/medium/high skill workers. 

The  measurement  has  been  done  at  the  level  of  the  parent  for  the  following  investment 
flows. 

- 

Baseline investment: 

The corporate tax compliance time was measured at the level of a parent located in 
France  (FR),  Spain  (ES)  or  Hungary  (HU),  which  makes  an  investment  in  a 
subsidiary located in Greece (EL).  

- 

Alternative investment: 

In  a  second  step,  the  compliance  time  of  the  parent  was  measured  for  sensitivity 
analysis  under  an  alternative  investment  scenario.  The  purpose  of  this  sensitivity 
analysis  was  to  assess  whether  the  location  of  the  investment  has  any  bearing  on 
corporate tax compliance time, that is, it should answer the question: does the time 
needed for corporate tax compliance change depending on where the parent company 
invests?  In  this  alternative  scenario  the  parent,  located  in  FR,  ES  and  HU  was 
assumed  to  make  an  investment  in  subsidiaries  located  in  Germany  and  Poland, 
instead of Greece.  

Furthermore, the measurement has been done at the level of the subsidiary for the following 
investment flows. 

- 

Baseline investment: 

In the subsidiary baseline investment scenario the corporate tax compliance time was 
measured  for  a  multinational  group  with  a  medium-sized  subsidiary  located  in 
Germany (DE), Greece (EL) and Poland (PL) taking in consideration that the parent 
entity, large or medium sized, is located in Spain (ES).  

- 

Alternative investment: 

EN 

119 

   EN 

 
Similar  to  the  case  above,  the  purpose  of  this  sensitivity  analysis  was  to  assess 
whether the location of the parent has any bearing on the corporate tax compliance 
time of the whole group, that is, it should answer the question: does the time needed 
for  corporate  tax  compliance  for  the  whole  group  change  depending  on  where  the 
parent company is located? Thus, in this alternative scenario, the subsidiaries located 
in DE, EL and PL will be held by a parent, large or medium size, located in FR and 
HU, instead of ES.  

Additionally,  the  measurement  provided  further  sensitivity  analysis  based  on  additional 
questions: 

•  What would be the changes if the parent and the subsidiary belonged to different 

industrial sectors and  

•  What would be the changes in compliance time if the investing company was just 

a single company. 

II) The monetarisation of the total compliance time in the baseline and alternative investment 
flows was done by multiplying it with the appropriate wage level. It considered which share 
of the total compliance time would be outsourced and which share would be dealt internally in 
the  group.  The  country  experts  determined  the  average  wage  level  for  the  external  advisors 
per hour. For the in-house part the experts determined how the compliance tasks are allocated 
to low-medium-high skill employees in the parent or subsidiary in order to apply appropriate 
wage levels based on statistical evidence (which one?) .  

The measurement data of time and cost for the 10 corporate tax compliance task at the level of 
the  parent  and  the  subsidiary  was  consolidated  by  summing  up  the  compliance  time  of  the 
parent and the subsidiary to obtain the result on a group level for all three scenarios. For the 
analysis  of  the  CCCTB  it  was  assumed  that  the  parent  entity  would  file  the  consolidated 
return  and  has  the  contacts  with  Principal  Tax  Authority.  Under  this  assumption  the 
subsidiary  would  only  perform  residual  corporate  compliance  tasks.  For  sensitivity 
measurement purposes also data from the respective country teams were requested in case the 
aforementioned functions would be switched between the parent and the subsidiary. 

EN 

120 

   EN 

 
Annex  9.  The  assessment  of  the  possible  administrative  costs  for  national  tax 
administrations  in  the  EU  linked  to  the  implementation  of  reforms  at  the  EU-
level of corporate taxation systems 

Member States – through the CCCTB Working Group- were asked to answer to this "ad hoc 
questionnaire" prepared by the Commission Services. This questionnaire invited national tax 
administrations to provide information on the present size of tax-related administrative costs 
as well as the variation of different types of administrative costs following the implementation 
of the different policy options. The methodology used is in line with the model of 'assessment 
of administrative costs of legislation', in this case for public authorities, as described in Annex 
10 of the Impact Assessment Guidelines. 

EUROPEAN COMMISSION 
DIRECTORATE-GENERAL  
TAXATION AND CUSTOMS UNION 
Analyses and tax policies 
Analysis and coordination of tax policies 

Brussels, 11 September 2007 
TAXUD E1, AAG/AB 

Annex to CCCTB\WP\058\doc\en 
Orig. EN DRAFT 

THE ASSESSMENT OF THE POSSIBLE ADMINISTRATIVE COSTS  

FOR NATIONAL TAX ADMINISTRATIONS IN THE EU  

LINKED TO THE IMPLEMENTATION OF REFORMS AT THE EU-LEVEL OF 
CORPORATE TAXATION SYSTEMS  

Explanatory note 

The  European  Commission  intends  to  tackle  most  of  the  existing  cross-border  tax  obstacles 
within  the  single  market  by  proposing  a  new  system  of  corporate  taxation  in  the  EU, 
according to which a new set of rules will govern the calculation of firms’ corporate tax bases. 
In  accordance  with  current  practice,  such  a  Commission  legislative  proposal  has  to  be 
accompanied  by  an  Impact  Assessment  (IA)112,  which  should  provide  a  description  of  the 
existing  company  tax  obstacles,  define  a  number  of  objectives  to  be  achieved  by  the  tax 
reforms, subject to analysis several alternative policy options that could address the existing 
problems  and  assess  their  respective  economic,  environmental  and  social  impacts.  In  that 
regard, the possible impact on the tax administrations’ costs of each of the alternative policy 
options  for  reform  (compared  to  the  current  situation)  is  an  important  effect  that  the  IA 
exercise should try to evaluate. 

112 

SEC(2005) 791, 15.06.2005, with March 2006 update. 

EN 

121 

   EN 

 
 
 
 
 
 
                                                 
The following scenarios are proposed as possible alternative tax policy options that could be 
subject to analysis in the IA: (i) an optional Common Corporate Tax Base (CCTB) for which 
only  (but  all)  'EU  multinational  groups'  are  assumed  to  opt,  (ii)  a  CCTB  that  all  EU-based 
companies  subject  to  corporate  taxation  are  assumed  to  adopt,  (iii)  an  optional  Common 
Consolidated  Corporate  Tax  Base  (CCCTB)  for  which  only  (but  all)  groups  qualifying  for 
consolidation are assumed to opt, and (iv) a CCCTB that all EU-based companies subject to 
corporate taxation are assumed to adopt113. 

In  order  to  assess  the  impacts  of  each  of  these  policy  options  on  tax  administrations’  costs, 
compared  to  the  current  situation  or  ‘no  change’  scenario,  the  following  draft  questionnaire 
has  been  designed.  It  is  intended  to  collect  from  tax  administrations  information  on  the 
administrative  costs  that  the  27  Member  States'  (MS)  national  tax  administrations  may 
incur/save  following  the  implementation  of  a  new  system  of  calculating  the  corporate  tax 
bases, as defined by the previous alternative policy options. 

We  should  be  grateful  if  you  would  answer  as  many  of  the  questions  as  possible.  No 
individual  replies  will  be  published  or  made  available  to  the  public.  Costs  should  be 
representative for the whole of your administration and the currency used should be indicated. 
Please use separate sheets of paper if you wish to make further comments. 

You  are  invited  to  submit  your  comments  to  the  European  Commission  no  later  than 
(date)…….., preferably by e-mail to:  

European Commission 

DG Taxation and Customs Union 

Contact person: Mr./Ms. XXX 

E-mail: XX 

Phone: XX 

113 

The definitions of 'EU multinational groups' and 'groups qualifying for consolidation' can be found in 
CCCTB/WP057 and CCCTB/WP058. 

EN 

122 

   EN 

 
                                                 
DRAFT QUESTIONNAIRE ON THE POSSIBLE ADMINISTRATIVE COSTS  

FOR NATIONAL TAX ADMINISTRATIONS IN THE EU  

LINKED TO THE IMPLEMENTATION OF REFORMS AT THE EU-LEVEL OF 
CORPORATE TAXATION SYSTEMS  

Contact information: 

Country:…................................................................................………….................... 

Name of national tax administration:…............................…………........................... 

Contact person (in case of technical questions):….....................…….....................… 

Tel. (incl. country code):…...................................................... ................................... 

E-mail:…...................................................... ............................................................... 

Q.1. Which is the currency that you will use when giving cost estimates?............ 

* GENERAL ASSESSMENT OF TAX ADMINISTRATION COSTS LINKED TO THE 
CURRENT SYSTEM OF CORPORATE TAXATION 

Q.2.  Can  you  estimate  in  monetary  terms  the  average  annual  costs  of  running  the 
current national system of corporate taxation in your country (during the period 2002-
2006)? 

ANNUAL LABOUR COSTS 

N° of 
employees (*) 

Average annual 
salary 

TOTAL  

LABOUR 
COSTS 

ANNUAL 
OVERHEAD 
COSTS 
(equipments, 
supplies, etc) 

TOTAL 
ANNUAL 
COSTS 

(*)  Number  of  employees  (in  full-time  equivalents)  who  work  directly  and  indirectly  in  the 
corporate taxation section currently (both federal and subcentral levels). 

*  ASSESSMENT  OF  TAX  ADMINISTRATION  COSTS  LINKED  TO  THE 
ALTERNATIVE POLICY OPTIONS FOR TAX REFORM 

Q.3.  One  off-costs  (i.e.  costs  that  occur  only  once,  at  the  implementation  stage  when 
switching to the relevant alternative policy option): Choose the one-off actions from the list 
below that you think would occur with the corresponding tax reform and give a cost estimate 
for each of the alternative policy options (if possible, with a breakdown between labour costs 
and other costs). For those actions that you do not expect to occur mark "N.A." 

One-off actions 

LABOUR COSTS 

OTHER COSTS  TOTAL COSTS 

EN 

123 

   EN 

 
Familiarising/training 
A) 
employees  and  companies 
with the new tax system 

1)  CCTB:  only  (but  all)  EU 
multinational groups opt in 

2) 
all 
CCTB: 
companies adopt it 

EU-based 

3)  CCCTB:  only  (but  all)  EU 
groups 
for 
consolidation opt in 

qualifying 

4)  CCCTB: 
companies adopt it 

all  EU-based 

B)  Adaptation/construction 
of informatics systems 

1)  CCTB:  only  (but  all)  EU 
multinational groups opt in 

2) 
all 
CCTB: 
companies adopt it 

EU-based 

3)  CCCTB:  only  (but  all)  EU 
groups 
for 
consolidation opt in 

qualifying 

4)  CCCTB: 
companies adopt it 

all  EU-based 

C) Other significant one-off 
costs: 

* ……………………. 

1)  CCTB:  only  (but  all)  EU 
multinational groups opt in 

2) 
all 
CCTB: 
companies adopt it 

EU-based 

3)  CCCTB:  only  (but  all)  EU 
groups 
for 
consolidation opt in 

qualifying 

4)  CCCTB: 
companies adopt it 

all  EU-based 

* …………………… 

1)  CCTB:  only  (but  all)  EU 

EN 

124 

   EN 

 
 
 
 
 
 
 
 
 
 
 
multinational groups opt in 

2) 
all 
CCTB: 
companies adopt it 

EU-based 

3)  CCCTB:  only  (but  all)  EU 
groups 
for 
consolidation opt in 

qualifying 

4)  CCCTB: 
companies adopt it 

all  EU-based 

If you have additional comments on the above, please elaborate here: 

…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………… 

Q.4.  Do  you  think  that  the  one-off  costs  associated  with  the  alternative  policy  options 
would depend on the number of companies opting for the reform? 

NO 

YES, to a small extent 

YES, to certain extent  YES, to a large extent 

Further comments on the above: 

…………………………………………………………………………………………………
…………………………………………………………………………… 

Q.5. Recurring -costs (i.e. costs that are repeated in subsequent years). The following tries 
to assess just those categories of recurring costs that would be affected by a switch to any 
of  the  alternative  policy  options  (either  because  they  would  increase  or  decrease  with 
respect  to  the  current  situation).  The  average114/expected115  annual  amount  of  each  of 
these  categories  of  recurring  costs  should  be  reported  for  each  of  the  policy  options, 
including the ‘no change scenario’ (if possible, with a breakdown between labour costs and 
other  costs).  This  will  enable  to  calculate  the additional  costs  or  savings  of  each  alternative 
option compared to the current system. 

114 
115 

In the ‘no change’ scenario for the period 2002-2006. 
In the alternative policy options. 

EN 

125 

   EN 

 
 
 
 
 
 
                                                 
Categories  of  recurring-costs  that  could  be 
affected by a tax reform: 

LABOUR 
COSTS 

OTHER 
COSTS 

TOTAL 
COSTS 

A) General management of the system116  

1) No change 

2) CCTB: only (but all) EU multinational groups opt in 

3) CCTB: all EU-based companies adopt it 

4)  CCCTB:  only  (but  all)  EU  groups  qualifying  for 
consolidation opt in 

5) CCCTB: all EU-based companies adopt it 

B) Coordination with other tax administrations  

1) No change 

2) CCTB: only (but all) EU multinational groups opt in 

3) CCTB: all EU-based companies adopt it 

4)  CCCTB:  only  (but  all)  EU  groups  qualifying  for 
consolidation opt in 

5) CCCTB: all EU-based companies adopt it 

C) Costs related to intra-EU transfer pricing 

(monitoring, resolving disputes, etc)  

1) No change 

2) CCTB: only (but all) EU multinational groups opt in 

3) CCTB: all EU-based companies adopt it 

4)  CCCTB:  only  (but  all)  EU  groups  qualifying  for 
consolidation opt in 

5) CCCTB: all EU-based companies adopt it 

LABOUR 
COSTS 

OTHER 
COSTS 

TOTAL 
COSTS 

116 

In  particular,  take  into  account  in  the  assessment  of  these  costs  that  the  policy  options  1),  3)  and  5) 
require the management of just one system of corporate taxation (either the national one under 1) or the 
EU  common  one  under  3)  and  5))  while  options  2)  and  4)  require  the  management  of  two  different 
systems of corporate taxation (the national one together with the EU common one). 

EN 

126 

   EN 

 
 
 
 
 
 
 
 
                                                 
Significant recurring costs that may be affected 

(saved/increased) by a switch to any of the 

alternative policy options: 

*………………… 

1) No change 

2) CCTB: only (but all) EU multinational groups opt in 

3) CCTB: all EU-based companies adopt it 

4)  CCCTB:  only  (but  all)  EU  groups  qualifying  for 
consolidation opt in 

5) CCCTB: all EU-based companies adopt it 

*………………… 

1) No change 

2) CCTB: only (but all) EU multinational groups opt in 

3) CCTB: all EU-based companies adopt it 

4)  CCCTB:  only  (but  all)  EU  groups  qualifying  for 
consolidation opt in 

5) CCCTB: all EU-based companies adopt it 

If you have additional comments on the above, please elaborate here: 

…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………… 

Q.6. Do you expect the recurring costs that would be affected by any of the alternative 
policy options to increase/decrease in the future (beyond inflation), for instance because 
of  organisational  or  technological  adaptations?  In  case,  please  express  changes  in 
percentage 

YES 

NO

DO NOT 
KNOW 

Decline Increase 

EN 

127 

   EN 

 
 
 
 
 
 
 
1) No change 

2)  CCTB:  only/all  EU 
multinational groups opt in 

3)  CCTB:  all  EU-based 
companies adopt it 

4)  CCCTB:  only/all  EU 
for 
groups 
consolidation opt in 

qualifying 

5)  CCCTB:  all  EU-based 
companies adopt it 

Q.7. Do you think that the recurring costs associated with the alternative policy options 
would depend on the number of companies opting for the reform? 

NO 

YES, to a small extent 

YES, to certain extent  YES, to a large extent 

* GENERAL QUESTIONS 

Q.8.  Please  describe  how  (if  applicable)  you  assess  the  administration  costs’ 
increments/savings of domestic tax reforms. 

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
……………………………………………………… 

Q.9.  Please  comment  on  any  other  issues  that  you  consider  relevant  to  the 
administration  costs  that  would  be  incurred/saved  as  a  result  of  the  tax  changes.  Give 
specific examples and explain the associated costs. 

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
……………………………………………………… 

EN 

128 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
Annex 10. The CORTAX model  

The CORTAX model is a computable general equilibrium model for the EU, describing the 
macro-economic  implications  of  tax  reforms.  The  calibration  of  CORTAX  is  based  on  the 
ORBIS  database,  which  contains  micro  information  from  European  firms.  This  Annex 
discusses the features of CORTAX and demonstrates how ORBIS is used in its calibration. 

Structure of CORTAX 

CORTAX  is  an  applied  general  equilibrium  model  that  describes  the  27  countries  of  the 
European Union, plus the US and Japan. It is designed to simulate the economic implications 
of  unilateral  and  multilateral  corporate  tax  policies  as  well  as  the  harmonisation  of  these 
policies. The model is heavily inspired by the OECDTAX-model of Sørensen (2001; 2004ab; 
2007).  An  earlier  version  of  CORTAX  was  used  for  European  tax  policy  analysis  in 
Bettendorf et al. (2006, 2007) and Van der Horst et al. (2007). A detailed description of the 
structure  and  parameterisation  of  the  model  can  be  found  in  Bettendorf  and  van  der  Horst 
(2008).  

The  structure  of  each  country  is  the  same.  Countries  are  linked  to  each  other  via  trade  in 
goods  markets,  international  capital  markets  and  multinational  firms.  Below,  the  model 
structure of each country is discussed in more detail as well as the international linkages. 

Households 

Following the overlapping generations model of Diamond, households are assumed to live for 
two periods. One may interpret one period to cover 40 years. Behaviour within each 40-year 
period is assumed to be constant.  

Households make their decisions regarding work, consumption and saving by maximizing a 
life-time utility function subject to an intertemporal budget constraint. When young (i.e. the 
first  period),  households  choose  to  allocate  their  time  between  leisure  and  work.  When  old 
(i.e. the second period) household do not work but only consume. Young households receive 
after-tax wage income and lump-sum transfers. This income at a young age is allocated over 
consumption  and  savings.  Savings  are  invested  in  a  mix  of  bonds  and  stocks,  which  are 
assumed  to  be  imperfect  substitutes  and  which  yield  different  rates  of  return.  In  the  second 
period, households are retired. Consumption at old age is financed by the assets saved from 
the first period plus an after-tax rate of return and by lump-sum transfers. Moreover, the older 
generation  is  assumed  to  own  the  fixed  factor  used  by  firms.  Therefore,  the  old  receive  the 
economic rents.  

Household  optimization  yields  expressions  for  labour  supply,  savings  and  the  optimal  asset 
portfolio. Asset returns are determined on world markets and residence-based taxes on capital 
are  not  explored  in  this  study.  Therefore,  saving  distortions  are  not  affected  by  the  policies 
explored  here.  The  most  important  distortions  in  household  behaviour  are  related  to  the 
consumption/leisure choice. Labour supply behaviour in CORTAX is governed by the usual 
income and substitution effects. In particular, a higher income tends to raise the demand for 
leisure and thus reduces labour supply. A higher wage rate for a given level of income raises 
the price of leisure and thus tends to cause substitution from leisure into consumption. This 
increases  labour  supply.  Most  empirical  studies  suggest  that  substitution  effects  dominate 
income effects so that the uncompensated elasticity of labour supply is positive.  

EN 

129 

   EN 

 
Firms 

CORTAX distinguishes between two types of firms: domestic firms and multinationals. One 
representative  domestic  firm  and  one  representative  multinational  headquarter  is  located  in 
each country. The multinational owns a subsidiary in each foreign country. With 29 countries 
in  CORTAX,  there  are  thus  30  different  firms  operating  in  each  country,  namely  the 
representative  domestic  firm,  the  representative  headquarter  and  28  subsidiaries  that  are 
owned by the headquarters in the other countries.  

Each  firm  is  assumed  to  maximise  its  value  subject  to  the  accumulation  constraints  and  a 
production  function.  Thereby,  the  multinational  considers  the  sum  of  the  values  of  its 
headquarter  and  all  subsidiaries.  The  production  function  features  three  primary  factors: 
labour,  capital  and  a  location-specific  fixed  factor  (e.g.  land).  Labour  is  immobile  across 
borders  and  wages  are  determined  on  national  labour  markets.  Capital  is  assumed  to  be 
perfectly  mobile  internationally  so  that  the  return  to  capital  (after  source  taxes)  is  given  for 
each  country  on  the  world  capital  market.  The  location-specific  fixed  factor  is  supplied 
inelastically. Its income reflects an economic rent. Rents earned by subsidiaries accrue to the 
headquarter  in  the  parent  country,  which  is  assumed  to  wholly  own  the  subsidiary.  The 
multinational enterprises are assumed to be wholly owned by households in the origin county. 
It  implies  that  countries  can  partly  export  the  tax  burden  to  households  abroad  by  taxing 
subsidiaries.  

In calibrating the model of the firm, capital and labour parameters are determined by national 
accounts data on labour and capital income shares. The fixed factor is – somewhat arbitrarily 
–  set  at  2.5%  of  value-added  in  each  country.  This  value  ensures  that  CORTAX  yields  a 
reasonable value for the corporate tax-to-GDP ratio. A sensitivity analysis with respect to the 
size of the fixed factor is performed. 

The initial size of subsidiaries in CORTAX is determined by data on bilateral foreign direct 
investment (FDI)  stocks. In  particular, these stocks determine the size of the fixed factor in 
each subsidiary. Given the fixed factor, multinationals decide on how much capital and labour 
to employ in each of their foreign subsidiaries. For domestic firms and multinational parents, 
the  size  of  the  fixed  factor  is  calibrated  at  a  fixed  proportion  of  output  so  that  reasonable 
figures for aggregate corporate tax revenues are obtained. 

Firms finance their investment by issuing bonds and by retaining earnings (issuing new shares 
is excluded in CORTAX). The optimal financial structure depends on the difference between 
the after-tax cost  of debt and equity. A  corner solution is ruled out by including a financial 
distress cost associated with high debt positions. The marginal cost of debt finance increases 
in the debt share. 

One  important  difference  between  production  in  a  domestic  firm  and  production  in  a 
multinational  firm  is  that  foreign  subsidiaries  need  intermediate  inputs  in  producing  output. 
These  intermediate  inputs  are  supplied  by  the  parent  company.  As  there  is  only  one 
homogeneous good in the model, the arms-length price for this intermediate input is equal to 
the market price of the numeraire good, i.e. equal to one. However, the parent company can 
charge a transfer price for intra-company deliveries that deviates from this arms-length price. 
In particular, a headquarter company has an incentive to set an artificially low (high) transfer 
price for supplies to subsidiaries in countries that feature a lower (higher) statutory corporate 
tax rate. In this way, the multinational is able to shift profits from high to low-tax countries, 
thereby reducing its overall tax liability. To ensure an interior solution, a convex cost function 

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is  specified  to  capture  the  costs  associated  with  manipulated  transfer  pricing.  Hence,  profit 
shifting  to  countries  with  very  low  corporate  tax  rates  becomes  increasingly  costly  at  the 
margin. 

CORTAX captures the costs that firms incur to comply with the corporate tax system. These 
costs  are  modelled  as  a  share  of  the  labour  force  in  companies  that  are  required  for  tax 
administration efforts. This overhead labour is specified as a fixed fraction of the number of 
workers in the production process. Therefore, compliance costs increase proportionally in the 
payroll of the firm. 

Losses and loss carry forward 

In  CORTAX,  representative  firms  are  equal  ex-ante.  Ex-post,  however,  firms  differ  due  to 
random shocks. Random shocks are assumed to occur in output or, equivalently, in the value 
of sales. In the good outcome, the revenue from sales is larger than in the bad outcome. In the 
latter  case,  profits  become  negative.  Hence,  ex-post  there  are  both  profit  making  firms  and 
loss  making  firms.  Still,  as  firms  are  equal  ex-ante,  the  possibility  of  different  ex-post 
outcomes introduces ex-ante uncertainty. It is assumed that firms are risk neutral and decide 
on  their  optimal  levels  of  investment,  employment,  debt  shares,  and  transfer  prices  before 
knowing whether they are subject to a negative shock. Hence, they base their input decisions 
on  expected  output  values  and  expected  marginal  productivities.  The  probabilities  of  profit 
and loss are assumed to be independent so that shocks for a firm are not correlated between 
years. 

In today’s corporate tax regimes in Europe, losses can be carried forward and offset against 
future  profits  within  the  same  country.  It  implies  that  losses  are  treated  asymmetric  from 
profits for two reasons. First, the year at which losses can be offset is usually bounded so that 
some  losses  cannot  be  offset  against  future  profits.  Second,  firms  can  only  carry  forward 
nominal losses, i.e. without indexation. Due to discounting, the value of these losses declines 
over  time.  In  CORTAX,  it  is  assumed  that  losses  can  be  carried  forward  one  year.  If  the 
company  makes  a  loss  in  two  consecutive  years,  the  first-year  loss  dries  up  and  cannot  be 
offset against profits in the future. Although this may underestimate the current opportunities 
for  loss  compensation  (losses  can  usually  be  carried  forward  more  than  one  year),  the 
assumption  of  uncorrelated  shocks  tends  to  overestimate  the  amount  of  losses  that  can  be 
offset. 

Government 

Government behaviour in CORTAX is exogenous, hence, the government does not optimize 
its policies and exogenous tax and expenditure parameters are simply modified. In performing 
simulations with CORTAX, the government budget is balanced, i.e. the government does not 
run  a  surplus  or  deficit  after  a  reform.  On  the  revenue-side  of  the  government  budget 
constraint, tax revenues consist of indirect taxes on consumption and direct taxes on various 
sources of income: corporate income, labour income, dividends, capital gains and interest. On 
the expenditure side of the constraint, there is government consumption, interest payments on 
public  debt  and  lump-sum  transfers.  Government  consumption  and  public  debt  are  kept 
constant as a fraction of GDP. The initial labour and consumption tax rates are calibrated by 
using  effective  taxes  computed  from  Eurostat  (2007).  The  initial  rates  determine  the 
distortions induced by changes in labour and consumption taxes. 

Equilibrium 

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Equilibrium  must  hold  on  each  market.  On  the  goods  market,  a  homogenous  good  that  is 
traded on a perfectly competitive world market is assumed. Thereby, countries cannot exert 
market power so that the terms of trade is fixed. The goods price acts as a numeraire in the 
model. On asset markets, bonds of different origins are perfect substitutes and can be freely 
traded  on  world  markets.  Accordingly,  the  return  to  these  assets  is  fixed  for  an  individual 
country. The same holds for equity. Debt and equity are, however, imperfect substitutes. The 
current account equals the change in the net foreign asset position for each country (including 
rest of the world), due to Walras law.  

As  labour  is  immobile  internationally,  wages  are  determined  nationally.  In  the  version  of 
CORTAX  used  in  this  study,  the  national  labour  markets  are  competitive  so  that  wage 
adjustments ensure equality between labour supply and demand. 

Welfare 

Compensating  variation  is  computed  to  measure  the  welfare  effects  of  policy  changes.  The 
compensating  variation  is  equal  to  the  transfer  that  should  be  provided  to  households  to 
maintain  their  utility  at  the  pre-reform  level.  A  positive  compensating  variation  implies  a 
welfare loss, i.e. an excess burden from taxation. In presenting the welfare effects of reforms, 
a  minus  has  been  put  for  the  compensating  variation  so  that  a  positive  value  denotes  an 
increase in welfare. This is denoted by the welfare effect and expressed in terms of GDP. 

The  welfare  effects  of  a  tax  reform  differ  from  the  impact  on  economic  aggregates  such  as 
private  consumption  or  gross  domestic  product.  This  is  because  utility  depends  also  on 
leisure.  More  employment  may  raise  income,  consumption  and  gross  domestic  product,  but 
the  decline  in  leisure  reduces  these  benefits  in  terms  of  welfare.  Moreover,  an  increase  in 
gross  domestic  product  may  be  accompanied  by  an  inflow  of  foreign  capital,  the  return  of 
which  flows  to  foreign  owners,  rather  than  domestic  residents.  It  is  also  why  GDP  differs 
from  gross  national  income,  which  is  generally  perceived  to  be  a  better  proxy  for  national 
welfare. Welfare may also be affected by multinational profit shifting which raises income but 
leaves the gross domestic product unchanged. 

Extensions: tax havens and discrete location 

An  important  element  in  corporate  tax  analysis  is  the  distortionary  impact  of  high  statutory 
corporate tax rates. The basic CORTAX model captures the impact of high corporate tax rates 
on  transfer  price  manipulation  of  multinationals  among  the  29  countries.  Yet,  this  may 
underestimate  the  extent  to  which  high  corporate  tax  rates  erode  corporate  tax  bases.  The 
reason is twofold. First, high tax rates may affect the discrete location of profitable investment 
by  multinationals.  Recent  literature  stresses  that  this  decision  margin  is  relevant  (see  e.g. 
Devereux and Griffith, 2003; Devereux and Lockwood, 2006; De Mooij and Ederveen, 2008). 
Second,  CORTAX  ignores  profit  shifting  vis  a  vis  countries  outside  the  group  of  29,  most 
notably outside tax havens. To capture these two mechanisms, CORTAX has been extended 
by modelling outside tax havens and discrete location choices. This section discusses the main 
features of these two extensions.  

Outside tax havens 

Profit  shifting  in  the  basic  version  of  CORTAX  occurs  via  transfer  pricing  within 
multinational groups in the 29 countries in the model. This profit shifting is  proportional to 
initial  FDI  stocks.  Yet,  not  all  forms  of  profit  shifting  are  linked  to  FDI.  Indeed, 

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multinationals have a variety of other ways to  shift  profits to  low-tax  locations, such as  via 
royalty payments, cost and income allocations or debt shifting. Moreover, profit shifting will 
not be restricted to the 29 countries modelled in CORTAX. Especially shifting to outside tax 
havens might be relevant in practice.  

To  remedy  these  shortcomings  of  CORTAX,  a  simple  but  straightforward  extension  by 
modelling an outside tax haven has been introduced. The idea is that multinationals face an 
extra decision margin, namely how much effort to put in shifting profits to the tax haven. On 
the  one  hand,  these  efforts  create  a  cost  for  the  multinational,  e.g.  to  set  up  a  tax  haven 
subsidiary,  deal  with  tax  haven  authorities  and  settle  possible  disputes  with  the  home  fiscal 
authority. These costs are assumed to increase in a convex way with the amount of effort. On 
the other hand, profit shifting yields a benefit to the firm that is proportional to the difference 
between the statutory corporate tax rate in the country where it operates and the corporate tax 
rate  in  the  outside  tax  haven.  This  benefit  is  a  proportional  reduction  in  the  tax  base  in  the 
home country of the company. In the optimum, multinationals set the marginal benefit from 
profit  shifting  equal  to  its  marginal  cost.  The inclusion  of  a  tax  haven  implies  that  a  higher 
corporate  tax  rate  in  a  country  induces  a  larger  erosion  of  its  corporate  tax  base  via  more 
substantial profit shifting. 

Discrete location 

In  the  basic  version  of  CORTAX,  rents  are  due  to  a  location-specific  fixed  factor  in 
production.  Yet,  many  rents  are  not  location-specific  but  firms-specific,  e.g.  due  to  brand 
names,  patents  or  market  power  in  the  entire  single  market.  Firm-specific  rents  may  well 
move  across  international  borders.  A  tax  on  rents  may  therefore  change  the  location  of 
production  (Devereux  and  Griffith,  2003).  To  capture  mobile  rents  in  CORTAX,  a 
straightforward extension has been provided by making the size of the fixed factor owned by 
multinationals dependent on the statutory tax rate. In this way, CORTAX captures the impact 
of the corporate tax system on the discrete location choice of profitable investment.117  

In modelling the impact of tax rates on the location choice of multinationals, two cases have 
been  considered.  First,  non-European  multinationals  are  assumed  to  invest  in  Europe, 
irrespective of the tax on rents, but the precise location within Europe is responsive to tax. In 
terms of the model, it is assumed that the firm-specific fixed factor of multinationals is fixed 
within  the  European  Union,  but  it  is  not  fixed  for  an  individual  country.  The  firm-specific 
rents are thus mobile within the EU, but not between Europe and other parts of the world. One 
motivation  for  this  assumption  is  that  Europe  is  a  relatively  closed  market  where 
multinationals  need  to  be  present,  irrespective  of  tax.118  Second,  the  case  where  the  firm-
specific  fixed  factor  is  mobile  also  between  Europe  and  the  rest  of  the  world  has  been 
considered.  In  that  case,  also  investment  from  Japan  and  the  US  can  respond  to  the  mean 
corporate tax rate adopted in European countries.  

117 

118 

The average effective tax rate (EATR) can be computed as a weighted average of the effective marginal 
tax and the statutory tax (Devereux and Griffith, 2003). By including an endogenous impact of statutory 
tax  rates  on  mobile  economic  rents,  CORTAX  captures  both  components  of  the  EATR  separately. 
Together, the model thus contains the impact of the EATR on investment. 
Another  motivation  is  that  Japan  and  the  US  adopt  tax  credit  systems  which  render  the  tax  rate  in 
Europe less important as investors are ultimately taxed at the rate in their home country. It implies that 
multinational firms who decide about location choice consider the statutory tax in a country relative to 
the European average. Only if a country reduces its tax rate below the European average will it become 
more attractive as a location for profitable investment projects. 

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Calibration of CORTAX 

CORTAX  is  calibrated  for  the  27  Member  States  of  the  European  Union  plus  the  US  and 
Japan.  Data  for  2005  is  used  to  replicate  aggregates  from  national  accounts  data,  such  as 
consumption shares, labour-income shares, the average number of hours worked and foreign 
direct  investment.  Moreover,  extensive  use  of  information  from  the  ORBIS  database  (see 
Annex 3) has been made. A full description of the calibration process is given in Bettendorf 
and Van der Horst (2006).  

As a first exercise, calibration allows one to calculate the welfare effects of loss consolidation 
relative to loss carry forward (see section 5.1.2). To this purpose, the average loss probability 
has  been  calculated  from  the  ORBIS  database  as  equal  to  around  0.2.  Hence,  the  aggregate 
ratio  of  loss/profit  equals  ¼.  As  the  ratio  of  loss/profit  probabilities  matches  the  aggregate 
loss/profit ratio, the average loss in a loss-making firm is assumed to be equal to the average 
profit in a profit making firm. These values and assumptions are adopted in the calibration of 
CORTAX.  The  simulations  show  that,  given  the  share  of  multinationals  in  the  EU  and  the 
level  of  rates,  consolidation  alone  would  reduce  the  corporate  tax  burden  by  15%119.  In  the 
steady state equilibrium of CORTAX, the reduction in the tax base is smaller because losses 
can be carried forward from the past. All in all, the decline in the aggregate total economy tax 
base in the steady state would be 4.5%120.  

Secondly,  it  has  been  possible  to  calculate  the  welfare  effects  of  alternative  sharing 
mechanisms under the CCCTB taking into account firms' behavioural reactions. Table A.15 
reports  the  impacts  on  the  distribution  of  tax  revenues,  whereas  the  welfare  effects  are 
depicted in Figure A.3. Finally, panels a-d in Table A.16 show the effects of the alternative 
policy options on welfare, GDP, investment and employment, respectively.  

119 

120 

To  illustrate  how  much  the  corporate  tax  burden  will  fall  under  loss  consolidation,  the  following 
example is considered in the CGE model. Suppose there are 100 firms. Among them, 80 make a profit 
of  1000  and  20  make  a  loss  of  1000  (this  corresponds  to  the  loss  probabilities  and  the  loss  size 
estimated  from  the  ORBIS  database  and  used  for  calibration  in  CORTAX).  The  total  taxable  base  of 
profit  making  firms  is  therefore  80  000  if  the  losses  cannot  be  offset  and  60  000  if  losses  are  offset 
immediately. Under loss consolidation, the tax base is thus 25% smaller. As the tax reduction applies 
only  to  multinational  firms,  this  is  applied  to  the  share  of  multinationals  in  the  economy,  which  is 
approximately 60% in Europe. Hence, the final value of 15% is obtained.  
In CORTAX, 80% of the previous-year losses (i.e. the probability of profit) can be offset against profits 
in the next year (the other 20% dry up because no profits are made or the period for loss compensation 
expires).  In  the  example,  this  equals  a  loss  compensation  of  16  000.  Yet,  these  profits  need  to  be 
discounted at, say 5% interest, which reduces its current value to 15 200. Compared to immediate loss 
offset under consolidation of 20 000, the value of losses drops by 4 800. It implies a reduction of the 
corporate  tax  base  by  4  800  /  64  800  =  7.5%  when  moving  from  loss  carry  forward  to  loss 
consolidation. Using the share of multinationals (60% of all companies), the decline in the aggregate tax 
base of 4.5% is found. 

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Figure A.3: Welfare effects of alternative apportionment formulae 

Welfare effects of alternative apportionment formulae

EU 

Romania 
Bulgaria 
Slovenia 
Slovakia 
Poland 
Malta 
Lithuania 
Latvia 
Hungary 
Estonia 
Czech Republic 
Cyprus 
UK 
Sweden 
Spain 
Portugal 
Netherlands 
Luxembourg 
Italy 
Ireland 
Greece 
Germany 
France 
Finland 
Denmark 
Belgium 
Austria 

-1 

-0,6 

-0,4

-0,2

0

0,2

0,4 

0,6 

Sharing mechanism 5: payroll (1/2) and capital (1/2)
Sharing mechanism 4: payroll (1/3), capital (1/3) and sales (1/3)
Sharing mechanism 3: employment (1/4), payroll (1/4) and capital (1/2)
Sharing mechanism 2: employment (1/6), payroll (1/6), capital (1/3) and sales (1/3) 
Sharing mechanism 1: employment (1/3), capital (1/3) and sales (1/3)

Notes:  the  graph  uses  the  CCCTB-WG20  definition  of  the  tax  base,  assumes  that  the  CCCTB  system  is 
compulsory for all firms and is based on the basic version of CORTAX, which does not include tax havens and 
discrete location choices.  

Source: simulation based on CORTAX. 

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135 

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Tables A.15 a-d: Changes in welfare, employment, investment and GDP from optional 
and compulsory CCTB and CCCTB, WG 20 and 25 

16.a – welfare (expressed as %GDP) 

Optional 

Compulsory 

Optional 

Compulsory 

 CCTB 

 CCTB 

CCCTB 

CCCTB 

WG-20  WG-25  WG-20  WG-25  WG-20  WG-25  WG-20  WG-25 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

-0.04 

0.47 

-0.02 

-0.02 

-0.02 

0.01 

0.04 

0.01 

-0.04 

-0.01 

0.06 

-0.04 

-0.05 

-0.16 

0.02 

-0.07 

0.31 

-0.05 

0.01 

-0.12 

-0.01 

0.01 

-0.04 

0.04 

-0.02 

-0.03 

-0.02 

EU total 

0.01 

-0.03 

0.42 

-0.01 

-0.02 

-0.01 

0.01 

0.04 

0.02 

-0.04 

-0.01 

0.06 

-0.03 

-0.03 

-0.14 

0.02 

-0.06 

0.21 

-0.04 

0.00 

-0.11 

0.00 

0.01 

-0.03 

0.04 

-0.01 

-0.02 

-0.02 

0.01 

-0.04

0.89

-0.05

-0.01

-0.02

-0.07

-0.09

-0.47

-0.05

-0.08

-0.01

-0.16

-0.04

-0.09

-0.06

-0.26

0.86

-0.18

-0.04

0.01

0.02

-0.05

-0.13

-0.02

-0.06

-0.14

-0.01

-0.01

Source: simulation based on CORTAX. 

-0.19

-0.17

-0.15 

-0.11

1.18

0.09

0.02

-0.01

0.08

-0.01

0.13

-0.10

-0.10

-0.07

-0.08

-0.02

-0.74

0.05

-0.04

-1.60

-0.03

0.46

-0.82

0.04

0.40

0.08

0.06

0.02

-0.02

0.18

0.02

1.21

0.10

0.01

0.01

0.08

0.00

0.15

-0.11

-0.09

-0.09

-0.06

0.00

-0.73

0.06

-0.03

-1.71

-0.01

0.42

-0.82

0.06

0.41

0.10

0.06

0.04

0.00

0.18

0.02

1.08 

0.05 

0.11 

-0.03 

0.03 

-0.11 

-0.35 

-0.12 

-0.15 

-0.13 

-0.19 

-0.02 

-0.67 

-0.01 

-0.23 

0.17 

-0.16 

0.49 

-0.60 

0.06 

0.35 

-0.02 

0.07 

-0.01 

-0.13 

0.22 

0.00 

1.11

0.07

0.10

0.01

0.06

-0.09

-0.32

-0.11

-0.12

-0.14

-0.15

0.02

-0.65

0.01

-0.20

-0.07

-0.13

0.45

-0.63

0.11

0.37

0.01

0.08

0.03

-0.08

0.22

0.02

-0.01

0.86

-0.02

-0.01

0.01

-0.05

-0.07

-0.45

-0.03

-0.06

0.00

-0.11

0.00

-0.06

-0.04

-0.23

0.62

-0.16

-0.03

0.00

0.06

-0.04

-0.11

-0.01

-0.03

-0.10

-0.01

0.00

136 

EN 

   EN 

 
  
15.b – Employment (%) 

Optional 

Compulsory 

Optional 

Compulsory 

 CCTB 

 CCTB 

CCCTB 

CCCTB 

WG-20  WG-25  WG-20  WG-25  WG-20  WG-25  WG-20  WG-25 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

0.00 

-0.91 

-0.02 

-0.02 

-0.01 

-0.06 

-0.07 

-0.03 

-0.01 

-0.06 

-0.07 

-0.03 

0.01 

0.06 

-0.06 

-0.04 

-0.56 

-0.03 

-0.06 

0.02 

0.00 

-0.03 

-0.02 

-0.06 

-0.02 

-0.04 

-0.01 

EU total 

-0.05 

0.01 

-0.90 

-0.01 

-0.02 

0.00 

-0.04 

-0.07 

-0.03 

0.01 

-0.04 

-0.07 

-0.03 

0.02 

0.06 

-0.05 

-0.03 

-0.41 

-0.02 

-0.04 

0.03 

0.01 

-0.02 

-0.02 

-0.06 

-0.01 

-0.03 

-0.01 

-0.04 

-0.03

-1.12

-0.03

-0.06

-0.03

-0.15

-0.13

-0.05

-0.03

-0.12

-0.18

-0.12

0.02

-0.05

-0.18

-0.12

-1.21

-0.09

-0.08

-0.21

0.01

-0.06

-0.06

-0.13

-0.05

-0.08

-0.08

-0.13

Source: simulation based on CORTAX.  

0.00

-0.15

-0.01

-0.21

0.01

0.02

-0.09

-0.02

0.06

-0.05

-0.04

-0.01

-0.01

-0.15

-0.02

-0.04

2.20

-0.05

0.14

0.05

0.01

-0.08

-0.03

-0.06

-0.03

-0.05

-0.04

-0.01

0.01

-0.16

0.00

-0.20

0.03

0.04

-0.08

-0.02

0.09

-0.04

-0.03

0.00

0.00

-0.14

-0.01

-0.04

2.55

-0.05

0.18

0.08

0.03

-0.08

-0.02

-0.05

-0.01

-0.03

-0.03

0.00

-0.05 

-0.51 

-0.03 

-0.30 

0.04 

-0.06 

-0.15 

-0.08 

0.10 

-0.09 

-0.09 

-0.08 

0.00 

-0.30 

-0.12 

-0.13 

1.11 

-0.12 

0.10 

-0.30 

0.04 

-0.15 

-0.07 

-0.15 

-0.06 

-0.07 

-0.12 

-0.08 

-0.01

-0.50

-0.02

-0.29

0.07

-0.02

-0.13

-0.07

0.14

-0.06

-0.06

-0.05

0.02

-0.28

-0.09

-0.11

1.60

-0.10

0.15

-0.22

0.07

-0.14

-0.06

-0.13

-0.03

-0.04

-0.10

-0.05

0.00

-1.11

-0.02

-0.04

-0.01

-0.11

-0.12

-0.05

0.00

-0.09

-0.16

-0.10

0.03

-0.04

-0.15

-0.11

-0.90

-0.08

-0.06

-0.15

0.04

-0.05

-0.05

-0.11

-0.03

-0.06

-0.06

-0.10

137 

EN 

   EN 

 
  
15.c – investment (%) 

Optional 

Compulsory 

Optional 

Compulsory 

 CCTB 

 CCTB 

CCCTB 

CCCTB 

WG-20  WG-25  WG-20  WG-25  WG-20  WG-25  WG-20  WG-25 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

EU total 

-0.11 

-4.61 

-0.16 

-0.16 

-0.13 

-0.52 

-0.84 

-0.88 

-0.16 

-0.52 

-0.79 

-0.36 

0.00 

-0.14 

-0.59 

-0.57 

-2.26 

-0.40 

-0.56 

-0.47 

0.05 

-0.59 

-0.36 

-0.77 

-0.22 

-0.43 

-0.61 

-0.54 

0.02 

-4.58 

-0.10 

-0.11 

0.00 

-0.39 

-0.75 

-0.84 

-0.03 

-0.40 

-0.72 

-0.28 

0.10 

-0.06 

-0.48 

-0.52 

-1.82 

-0.35 

-0.41 

-0.33 

0.16 

-0.47 

-0.29 

-0.66 

-0.11 

-0.33 

-0.48 

-0.44 

-0.31

-5.92

-0.33

-0.31

-0.24

-1.42

-1.74

-2.62

-0.36

-1.13

-1.84

-1.23

0.07

-0.39

-1.73

-1.82

-3.20

-1.25

-0.91

-1.08

0.22

-1.35

-1.03

-1.55

-0.56

-0.97

-1.49

-1.25

Source: simulation based on CORTAX.  

0.04

-5.84

-0.20

-0.22

0.07

-1.06

-1.55

-2.52

-0.06

-0.88

-1.66

-0.95

0.31

-0.24

-1.40

-1.66

-2.54

-1.09

-0.64

-0.77

0.52

-1.07

-0.84

-1.31

-0.26

-0.73

-1.17

-0.97

-0.69

-3.05

-0.53

-1.45

-0.65

-0.54

-1.78

-1.80

-0.40

-1.31

-1.40

-0.66

-0.68

-1.87

-0.78

-0.87

-0.07

-0.72

1.58

-1.97

-0.33

-1.13

-0.69

-1.33

-0.44

-0.97

-0.93

-0.88

-0.53

-2.89

-0.44

-1.41

-0.46

-0.38

-1.66

-1.66

-0.25

-1.17

-1.34

-0.58

-0.52

-1.78

-0.65

-0.79

0.94

-0.65

1.70

-1.84

-0.17

-0.93

-0.57

-1.18

-0.28

-0.80

-0.77

-0.74

-1.05 

-5.05 

-0.66 

-1.76 

-0.62 

-1.29 

-2.62 

-3.55 

-0.50 

-1.79 

-2.40 

-1.52 

-0.57 

-3.03 

-1.86 

-2.12 

0.77 

-1.58 

1.59 

-3.33 

-0.09 

-1.62 

-1.29 

-2.08 

-0.74 

-1.43 

-1.73 

-1.55 

-0.65

-4.82

-0.50

-1.67

-0.25

-0.91

-2.39

-3.35

-0.20

-1.50

-2.24

-1.21

-0.27

-2.81

-1.51

-1.93

1.85

-1.40

1.83

-2.99

0.25

-1.28

-1.05

-1.81

-0.39

-1.12

-1.39

-1.25

EN 

138 

   EN 

 
  
15.d – GDP (%) 

Optional 

Compulsory 

Optional 

Compulsory 

 CCTB 

 CCTB 

CCCTB 

CCCTB 

WG-20  WG-25  WG-20  WG-25  WG-20  WG-25  WG-20  WG-25 

AT 

BE 

BG 

CY 

CZ 

DE 

DK 

EE 

ES 

FI 

FR 

GR 

HU 

IE 

IT 

LT 

LU 

LV 

MT 

NL 

PL 

PT 

RO 

SE 

SI 

SK 

UK 

EU total 

-0.11 

0.17 

-0.11 

-0.20 

-0.13 

-0.03 

0.05 

0.44 

-0.12 

-0.17 

0.10 

-0.14 

-0.18 

-0.34 

-0.03 

-0.15 

-1.17 

-0.13 

-0.14 

-0.21 

-0.10 

0.01 

-0.10 

0.06 

-0.09 

-0.17 

0.05 

-0.04 

-0.09 

0.04 

-0.08 

-0.15 

-0.09 

-0.04 

0.06 

0.45 

-0.10 

-0.14 

0.10 

-0.11 

-0.14 

-0.28 

-0.03 

-0.13 

-0.93 

-0.11 

-0.11 

-0.18 

-0.06 

0.01 

-0.08 

0.06 

-0.07 

-0.13 

0.03 

-0.03 

-0.21

1.08

-0.18

-0.28

-0.20

-0.37

-0.30

-0.23

-0.22

-0.43

-0.29

-0.50

-0.18

-0.54

-0.43

-0.58

-2.08

-0.44

-0.28

-0.58

-0.04

-0.14

-0.30

-0.17

-0.22

-0.41

-0.04

-0.25

Source: simulation based on CORTAX.  

-0.11

1.04

-0.12

-0.22

-0.08

-0.29

-0.25

-0.19

-0.14

-0.34

-0.25

-0.39

-0.10

-0.46

-0.35

-0.52

-1.65

-0.38

-0.20

-0.47

0.06

-0.11

-0.24

-0.13

-0.13

-0.31

-0.04

-0.18

-0.60

2.12

-0.76

-1.38

-0.48

0.26

-0.73

-1.08

-0.03

-0.53

-0.15

-0.27

-0.92

-3.19

0.06

-0.45

0.69

-0.46

0.84

-1.69

-0.42

-0.52

-0.58

-0.34

-0.31

-0.76

-0.02

-0.17

-0.55

2.10

-0.75

-1.38

-0.42

0.29

-0.72

-1.06

0.00

-0.49

-0.15

-0.24

-0.89

-3.16

0.08

-0.43

1.17

-0.44

0.86

-1.65

-0.37

-0.50

-0.56

-0.35

-0.27

-0.72

-0.05

-0.15

-0.64 

0.91 

-0.76 

-1.51 

-0.44 

0.08 

-1.02 

-1.84 

0.09 

-0.72 

-0.31 

-0.63 

-0.85 

-3.35 

-0.24 

-0.90 

0.13 

-0.78 

0.88 

-1.96 

-0.31 

-0.63 

-0.74 

-0.52 

-0.40 

-0.97 

-0.12 

-0.32 

-0.52

0.92

-0.71

-1.49

-0.31

0.17

-0.97

-1.78

0.17

-0.63

-0.28

-0.50

-0.78

-3.28

-0.15

-0.83

0.73

-0.72

0.94

-1.85

-0.20

-0.58

-0.68

-0.49

-0.29

-0.86

-0.12

-0.25

EN 

139 

   EN 

 
  
Annex 11. CCCTB WG working paper 4 and annex 

EUROPEAN COMMISSION 
DIRECTORATE-GENERAL TAXATION AND CUSTOMS UNION 
Analyses and tax policies 
Analysis and Coordination of tax policies 

Brussels, 28 October 2004 
Taxud E1 MH/  

CCCTB/WP\004\doc\en 
Orig. EN 

C O M M O N   C O N S O L I D A T E D   C O R P O R A T E   T A X  
B A S E   W O R K I N G   G R O U P   ( C C C T B   W G )  

ASSETS AND TAX DEPRECIATION 

Meeting to be held on Tuesday 23 November 2004 

Centre de Conférences Albert Borschette 
Rue Froissart 36 - 1040 Brussels 

WORKING DOCUMENT 

B-1049 Bruxelles / B-1049 Brussel - Belgium. Office: MO59 06/075.  
Telephone: (32-2) 299.11.11; direct line (32-2) 298.41.16. Fax: (32-2) 295.63.77. 
E-mail: taxud-e1@cec.eu.int 

EN 

140 

   EN 

 
 
 
 
 
I. 

1. 

2. 

3. 

ASSETS AND TAX DEPRECIATION 

Purpose of this paper 

The treatment of assets and their depreciation is one of the main structural elements 
of  the  existing  national  tax  bases  and  will  be  of  any  Common  Consolidated 
Corporate Tax Base (CCCTB). As the CCCTB solution is intended to replace up to 
25 national tax bases (at least for those companies who make use of it) it has to be 
agreed  by  up  to  25  Member  States  (MS).  Currently  assets  and  depreciation  are 
generally  subject  to  different  rules  in  each  MS  in  the  taxation  accounts,  and  to 
varying degrees, in the financial accounts as well. However, the general objectives of 
both  tax  and  accounting  rules  are  often  broadly  similar  and  in  the  consolidated 
accounts of certain listed companies as from 2005 the same accounting rules will be 
applied  across  the  EU  –  the  International  Accounting  Standards  and  International 
Financial Reporting Standards (IAS) which have been endorsed for use in the EU. 

The objective of this paper is to identify the key issues and some possible solutions 
for the tax depreciation of assets. As the first such paper on structural elements it also 
serves as a sort of 'test' of the working methods outlined in the work programme. The 
starting  point  for  discussion  is  generally  the  accounting  treatment  permitted  in  the 
relevant  IAS.  The  use  of  these  IAS  definitions,  such  as  those  in  IAS  16,  does  not 
imply  that  the  tax  treatment  should  necessarily  be  the  same  as  the  one  agreed  for 
accounting purposes. By starting from the IAS definition the paper aims to use terms 
which should already be familiar to MS. Whether tax solutions can be derived from 
the  IAS  accounting  treatment  requires  specific  analysis  on  a  case  by  case  basis.  In 
addition to the IAS analysis the paper also refers to some of the different approaches 
taken  by  individual  MS  in  their  national  tax  legislation.  These  references  illustrate 
how the general accounting rules could be clarified, or amended, to take into account 
specific  tax  concerns  and  objectives.  The  sheer  number  of  existing  different 
treatments across the EU also illustrates the scale of the task of achieving a CCCTB, 
and  gives  an  indication  of  the  possibilities  for  simplification  that  a  CCCTB  could 
bring  if  consensus  can  eventually  be  achieved.  Tables  with  more  details  on 
depreciation schemes and practices currently applied in MS are annexed. 

The  principle  issues  in  both  accounting  and  taxation  for  assets  are  their  definition, 
the  timing  of  the  recognition  of  the  assets,  the  determination  of  their  valuation  or 
carrying amounts, and the depreciation charges to be recognised in relation to them. 
Recognised  assets  cannot  be  immediately  expensed  and  they  are  depreciated  only 
when  certain  conditions  are  met  (eg.  in  taxation  after  a  business  purpose  test).  The 
depreciation  of  assets  is  a  measure  which  allocates  the  costs  of  the  asset  to  the 
periods of time over which an asset is expected to be used by the enterprise (useful 
life). Assets are generally classified as either tangible or intangible, and within these 
two groups there are often further sub-divisions. This paper concentrates on the sub-
set within tangible assets of 'property, plant and equipment' and considers each of the 
principle issues in turn before suggesting some possible solutions for discussion. 

II. 

Assets, qualifying assets 

EN 

141 

   EN 

 
4. 

5. 

6. 

7. 

Resources held and controlled by an enterprise for use in the production or supply of 
goods  or  services,  for  rental  to  others  or  for  administrative  purposes  which  are 
expected  to  be  used  during  more  than  one  period  are  recognised  as  assets121. 
Tangible, intangible and financial assets are distinguished. As noted above this paper 
elaborates  further  on  tangible  assets  (hereafter  assets),  specifically  property,  plant 
and equipment. Intangible and financial assets will be discussed separately at a later 
stage. 

For  accounting  purposes  an  item  of  property,  plant  and  equipment  should  be 
recognised  as  an  asset  when  it  is  probable  that  future  economic  benefit  associated 
with the asset will flow to the enterprise and the cost of the asset to the enterprise can 
be measured reliably122. For tax purposes this definition is in principle accepted, but 
some of its elements are further developed. Assets subject to normal wear and tear, 
with  a  limited  useful  life  and  serving  the  realization  of  profits  qualify  for  tax 
depreciation in most MS. A direct link between the asset and the realization of profits 
('business  purpose  test')  is  explicitly  required  and  underlined  in  most  MS.  A 
minimum useful life is also fixed in some MS (e. g. 1 or 3 years).  

Assets that are not subject to wear and tear, i. e. assets that generally do not change 
(decrease)  their  value  over  time  are  not  in  principle  depreciable  for  tax  purposes. 
Land is often explicitly excluded. The value of land can be written down only if the 
fair market value has fallen permanently below the acquisition cost. 

Assets of minor value or assets with a very short useful life may be expensed (100% 
of  their  cost  may  be  written  off)  in  the  year  of  acquisition  in  most  MS  for  both 
accounting  and  tax  purposes.  Whereas  in  accounting  this  is  often  based  on  the 
materiality principle, tax law gives more detailed guidance on what "minor value" or 
a  "very  short  useful  life"  is.  Guidance  on  what  constitutes  minor  value  may  come 
from existing or standard practice in both tax and accounting, but for tax purposes it 
is more often determined by specific tax legislation. Generally a statutory definition 
satisfies  legality  and  transparency  requirements  while  the  determination  of  minor 
value by reference to existing or standard practice is more flexible and often reflects 
the material, or immaterial, character of the case in question. Minor value currently 
ranges  between  EUR  200  and  1,300  in  MS,  although  the  upper  figure  seems  to  be 
rather exceptional (Czech Republic). Assets with a very short useful life regardless of 
acquisition  costs  are  expensed  in  some  MS  (Denmark,  Finland,  Luxemburg, 
Sweden).  A  very  short  useful  life  is  determined  as  1  –  3  years  in  these  MS. 
Sometimes the total value of assets so expensed may not exceed a certain limit per 
tax year (Finland). 

III.  Valuation of asset and depreciable basis 

8. 

In  accounting  an  asset  is  initially  measured  at  its  cost.  The  cost  of  an  item  of 
property,  plant  and  equipment  comprises  its  purchase  price  and  any  directly 
attributable costs of bringing the asset to the working condition for its intended use. 
Cost is understood as the amount of cash equivalents paid or the fair value of other 
consideration  given  to  acquire  an  asset  at  the  time  of  its  acquisition  or 

121 
122 

IAS 16 Para 6., IAS 38 Para 7. 
IAS 16 Para 7. 

EN 

142 

   EN 

 
                                                 
9. 

10. 

construction123. Tax solutions are derived from this principle, but may disallow some 
kinds  of  directly  attributable  costs  from  being  included  in  the  acquisition  costs. 
Historical,  production  or  acquisition  costs  (hereafter  acquisition  cost)  are  generally 
distinguished  for  tax  purposes  depending  on  whether  an  asset  is  purchased  from  a 
third  party,  produced  by  the  enterprise  itself  or  acquired  by  other  means  than 
purchase for monetary payment or in exchange for other benefits. Detailed rules on 
acceptable ways and procedures if assets are acquired for non monetary payment and 
the determination of a fair value are frequent in taxation. The acquisition cost for tax 
purposes is restricted for some assets (e. g. cars) generally as a result of a particular 
public policy applied in some MS (e. g. Belgium). 

Subsequent  to  initial  recognition  an  asset  is  carried  at  its  acquisition  costs  less  any 
accumulated depreciation. Acquisition costs decreased by depreciation charges give 
the  residual  value  of  an  asset.  Accounting  also  requires  devaluation  of  an  asset  in 
case of any accumulated impairment losses and alternatively revaluation of an asset 
on  a  regular  basis  if  its  fair  value  increases124.  Recognition  of  such  changes  in  the 
residual  value  of  a  depreciable  asset  for  tax  purposes  is  rather  exceptional  and  its 
impact  on  the  tax  base  is  usually  excluded.  On  the  other  hand  some  MS  require 
taxpayers  to  revalue  their  assets  regularly  for  tax  purposes  as  well  (e.  g.  Greece, 
Hungary)125. It is currently proposed that revaluation and devaluation of assets will 
be further discussed at a later stage, under the tentative heading of Capital Gains. 

If subsequent expenditure relating to an asset that has already been recognised (and 
has  already  been  depreciated)  is  incurred,  in  accounting  it  should  be  added  to  the 
carrying  amount  of  the  asset  when  it  is  probable  that  future  economic  benefits,  in 
excess  to  the  originally  assessed  standard  of  performance  of  the  existing  asset  will 
flow  to  the  enterprise.  All  other  subsequent  expenditure  is  to  be  recognised  as  an 
expense in the period in which it is incurred. Subsequent expenditure on an asset is 
recognised in case of modification of an asset to extend its useful life or increase in 
its  capacity,  upgrading  machine  parts  to  achieve  a  substantial  improvement  in  the 
quality  of  output  or  adoption  of  a  new  production  processes  enabling  a  substantial 
reduction  in  previously  assessed  operating  costs.  Expenditure  on  repairs  or 
maintenance of an asset made to restore or maintain the future economic benefits that 
an enterprise can expect from the originally assessed standard of performance of the 
asset is expensed when incurred126. For the distinction whether it should be treated as 
an expense or as an asset it is important whether a new asset has been created by a 
subsequent  expenditure.  If  so,  it  should  be  recognised  as  an  asset  and  depreciated 
(either separately or as an increased residual value of the original asset) otherwise it 
can  be  fully  expensed  in  the  year  when  this  expenditure  incurred.  Tax  systems 
generally apply similar, although in some cases stricter, rules to distinguish between 
capital expenditure on assets eligible for tax depreciation over a number of years and 
revenue  expenditure  which  is  immediately  deductible  for  tax  purposes  in  full.  As 
already mentioned some of them require companies to increase the residual value of 
the  asset  by  the  subsequent  expenditure  and  others  recognise  a  subsequent 
expenditure as a new distinct asset and depreciate it separately. For the appraisal of 

123 
124 
125 
126 

IAS 16 Para 6. and 15. 
IAS 16 Para 28. and 29. 
Unrealized gain is taxable under special tax in Greece. 
IAS 16. Para 23. and following 

EN 

143 

   EN 

 
                                                 
the subsequent expenditure the same method should be applicable as was applied in 
case of originally acquired asset. 

IV. 

Purpose of depreciation 

11. 

12. 

13. 

Costs  of  assets  acquired  or  produced  and  used  by  companies  for  their  business  are 
expensed  over  the  period  for  which  the  asset  is  supposed  to  bring  proceeds  to  a 
company through depreciation charges. The overall expenditure on the asset is thus 
systematically spread out to the asset's useful life.  

The depreciable amount of an asset should be allocated on a systematic basis over its 
useful  life.  The  depreciation  charge  for  each  period  should  be  recognised  as  an 
expense  unless  it  is  included  in  the  carrying  amount  of  another  asset127.  This 
accounting principle is also recognised in tax depreciation. Tax solutions tend to be 
prescriptive as regards the method and the amount (either as a precise or a maximum 
amount)  of  the  depreciation  charge  and  leave  much  less  room  for  the  taxpayer's 
judgement and interpretation of the general rule.  

Tax  systems  may  occasionally  introduce  special  depreciation  schemes  that  do  not 
necessarily  follow  this  principal  purpose  of  depreciation.  The  allocation  of  assets' 
acquisition  costs  are  then  spread  out  over  a  statutory  period  shorter  (occasionally 
longer) than the assets' useful lives. Tax rules may provide for faster depreciation in 
order  to  promote  and  support  a  particular  sector  of  economic  activity,  or  activity 
within  a  particular  region  or  designated  area.  Such  measures  have  an  incentive 
character. Members of the group might therefore wish to postpone discussion of this 
aspect to a later stage of the discussions when special incentive schemes in general 
are addressed.128 

V. 

The right to claim depreciation 

14. 

15. 

16. 

With regard to the question of who is entitled to claim depreciation charges two main 
approaches (with several variations) exist. According to the first one only the legal 
owner  is allowed  to  depreciate assets. The second one gives the right to depreciate 
the asset to the person bearing the risk of the wear and tear of an asset regardless the 
legal title that such a person has to the asset ('economic owner'). 

In accounting terms a holder of an asset is generally supposed to recognise an asset 
in the balance sheet. Accordingly the lessee should recognise finance leases as assets 
and liabilities in his balance sheet at amounts equal at the inception of the lease to the 
fair  value  of  the  leased  property  or,  if  lower,  at  the  present  value  of  the  minimum 
lease payments129. However a broad discussion on this topic has been ongoing. 

Different solutions (in both tax and accounting at national level) have been adopted 
for  leases,  financial  leases  and  usufruct  holdings  as  well  as  for  purchases  of  assets 
with  a  clause  reserving  ownership  to  a  seller  until  the  payment  of  full  price 
('reservation of title'). The purchaser is often allowed to depreciate the asset from the 
moment  when  he  starts  to  use  it  for  business,  but  if  ownership  is  not  subsequently 

127 
128 
129 

IAS 16 Para 41. 
Draft Work Plan, II, the last indent, CCCTB/WP/003 
IAS 17 Para 12. 

EN 

144 

   EN 

 
                                                 
acquired  any  claimed  depreciation  charges  have  to  be  recaptured.  Some  MS  who 
apply  in  principle  the  legal  ownership  approach  allow  an  economic  owner  (e.  g.  a 
lessee)  to  depreciate  the  asset  under  certain  conditions,  e.  g.  if  they  qualify  as  the 
beneficial owner of the leased asset (Austria). 

17. 

In most cases the legal successor is allowed to continue depreciation commenced by 
his predecessor (company reorganisations - mergers, acquisitions).  

VI. 

Timing 

18. 

19. 

20. 

21. 

22. 

In accounting an asset is depreciated over its useful life. The useful life of an asset is 
defined in terms of the asset's expected utility to the enterprise. The estimation of the 
useful  life  of  an  asset  is  a  matter  of  judgement  based  on  the  experience  of  the 
enterprise  with  similar  assets130.  Whereas  accounting  leaves  the  door  open  for 
judgement  of  each  individual  case  as  much  as  possible  tax  law  prefers  to  fix 
applicable principles. Actual practices are further discussed in section VII. 

Companies  depreciate  assets  on  an  annual  basis  in  all  MS.  Different  approaches 
occur in respect to the first year depreciation charge, the interruption of depreciation 
and the year in which an asset is alienated or sold. 

A  full  annual  tax  depreciation  charge  applies  in  a  tax  year  in  which  the  asset  is 
acquired or produced, even though the asset is held for only part of that year in some 
MS. In others if the asset in question is owned for more than 6 months full annual tax 
depreciation charge is allowed and if less, 50% of an annual tax depreciation charge 
can  be  deducted  (e.  g.  Austria,  Germany).  Another  possibility  is  to  use  50%  of  an 
annual depreciation charge regardless of when the asset is acquired (e. g. Italy) or to 
create  a  special  rate  for  the  first  year,  which  can  lead  to  approximately  the  same 
result of 50% (Czech Republic). An accrual basis (1/12 for each month) could also 
be a solution for the first year. This approach is applied by several MS in case of tax 
year longer or shorter than 12 calendar months. For consistency a similar rule should 
be adopted for the year when the asset is alienated or sold (a full charge, 50% of the 
normal amount or the accrual basis). 

If a depreciable asset is sold or otherwise alienated, the difference between the sale 
price  and  the  tax  residual  value  (acquisition  value  minus  depreciation  applied)  is 
subject to corporate income taxation or capital gains taxation. The various methods 
used in MS will be analysed when the taxation of capital gains discussed. Roll over 
relief is granted for some kinds of asset especially if replaced by a new one. 

Some MS allow companies to interrupt depreciation under certain conditions (Czech 
Republic,  Lithuania,  Latvia)  thus  allowing  taxpayers  to  optimize  their  tax  base  for 
example to facilitate the utilization of allowances and credits that cannot be carried 
forward  to  following  years.  This  sort  of  approach  illustrates  how  in  some  MS  the 
underlying  purpose  of  tax  depreciation  is  subtly  different  from  that  of  accounting 
depreciation.  In  accounting  the  accent  is  on  correctly  matching  expenses  and 
revenues  in  accordance  with  the  judgement  of  the  enterprise,  whereas  in  taxation 
there is less flexibility over the maximum amount of depreciation in any given year, 

130 

IAS 16 Para 41. and 44. 

EN 

145 

   EN 

 
                                                 
but  more  flexibility  as  regards  the  minimum  amount.  However,  most  MS  do  make 
depreciation compulsory in both profit and loss tax years (Belgium, Cyprus, France, 
Germany,  Greece,  Luxemburg,  and  Netherlands)  and  some  MS  actually  impose  a 
sanction on taxpayers who do not claim depreciation charges properly (France).  

VII.  Methods and mechanics 

23. 

24. 

25. 

26. 

27. 

A variety of depreciation methods can be used to allocate the depreciable amount of 
an asset on a systematic basis over its useful life. Accounting rules do not prescribe 
exact methods for the depreciation of particular assets. The depreciation method used 
should reflect the pattern in which the asset's economic benefits are consumed by the 
enterprise127. The choice of the actual method is however a matter of judgement in 
the application of the established accounting principles. 

As  already  mentioned  in  previous  sections  the  level  of  judgement  to  be  applied  is 
much  lower  in  the  tax  area.  Tax  depreciation  rules  tend  to  be  much  more  specific. 
They fix a compulsory method in most cases. If a taxpayer believes that the statutory 
method does not reflect the actual situation a special scheme may be granted by tax 
authorities or approved by the court in some MS. It is sometimes possible to apply 
for an increase in the statutory (maximum statutory) depreciation charge in cases of 
more intensive use of an asset than is normal in the sector of activity or in case of 
extraordinary wear and tear (e. g. Belgium, Italy, Spain). 

Some MS fix just maximum depreciation charges and the taxpayer is allowed to use 
any  rate  within  the  range  between  zero  and  the  maximum  rate.  Such  a  measure 
makes  the  system  very  flexible,  but  as  outlined  above  is  sensitive  to  tax  planning 
techniques. 

Assets may be depreciated on an individual or pool basis. The latter approach allows 
the  addition  of  the  depreciable  bases  of  all  assets  and  the  calculation  of  the 
depreciation  charge  as  an  overall  figure.  Some  MS  recognise  only  one  group  of 
assets (pool) covering essentially all depreciable assets (e. g. any plant, machinery or 
equipment), others categorise the assets in several groups (pools) and apply different 
rates to each  of them. A significant number of MS (e. g. Belgium, Germany, Italy, 
Spain)  require  companies  to  depreciate  (and  record)  each  asset  separately  on  an 
individual  basis.  The  calculation  of  the  depreciation  charge  on  the  pool  basis  is 
simpler than if it has to be calculated separately for each particular asset. However in 
case of sale or alienation of an asset a special rule for the calculation of the residual 
value  of  the  sold  or  alienated  asset  is  needed  under  the  pool  method.  On  the  other 
hand the individual method of depreciation gives residual values of any asset at any 
time  during  the  course  of  depreciation.  A  different  regime  for  the  taxation  of  any 
capital  gains  earned  on  the  sale  of  an  asset  or  the  recapture  of  'excessive'  tax 
depreciation may follow from the application of these two methods. 

Straight line or declining balance methods are two of the most common methods for 
the calculation of a depreciation charge. Under the straight line method the useful life 
of an asset (or pool of assets) is fixed at a certain number of years. The acquisition 
value (the depreciable basis) is spread out accordingly; usually at a flat rate (i. e. the 
same amount is deducted every year at a rate of 1/number of years). There exists an 
accelerated variation of the straight line method, under which the asset is depreciated 
at higher rates at the beginning of the asset's useful life. The base for the calculation 

EN 

146 

   EN 

 
28. 

29. 

30. 

31. 

32. 

33. 

of  the  depreciation  charge  is  the  acquisition  price  of  the  asset  in  all  depreciation 
years. 

Under  the  declining  balance  method  rates  are  usually  higher  than  those  used  for 
straight  line,  but  they  apply  to  the  acquisition  value  only  in  the  first  year  of 
depreciation and in the following years they apply to the residual value of the asset. 
The  asset  is  depreciated  more  quickly  at the beginning of  its  useful  life than under 
straight  line  method  but  its  acquisition  value  is  theoretically  never  expensed  up  to 
100%. The declining balance method may be modified to a double declining balance 
method, when the basis for depreciation for every following year is calculated as the 
residual value minus double the annual depreciation charge. Another modification of 
the  double  declining  method  is  also  sometimes  applied  which  is  more  a  hybrid 
method  combining  features  of  both  straight  line  and  declining  balance  methods.  It 
also derives the depreciation base from the residual value of the asset, but calculates 
the  annual  charges  in  a  way  that  allows  the  taxpayer  to  deduct  100%  of  the 
acquisition costs by the end of useful life of the asset131. 

In  respect  to  the  combination  of  pool/individual  depreciation  with  straight  line  or 
declining  balance  methods,  it  is  worth  noting  that  the  use  of  the  declining  balance 
method and its variations if assets are depreciated on an individual basis may become 
cumbersome  and  potentially  inefficient,  especially  in  the  later  stages  of  an  asset's 
useful life. The basis for depreciation (tax residual value) of each asset becomes very 
low as do the depreciation charges while individual records of each asset have to be 
kept.  If  the  individual  concept  of  depreciation  of  assets  is  applied,  a  straight  line 
method (with or without accelerated rate schemes) seems to be more appropriate. 

The  declining  balance  method  may  be  also  used  as  an  optional  method  or  as  a 
method  reserved  only  for  some  types  of  assets.  However  practices  applied  in  MS 
differ  rather  widely.  Some  MS  do  not  recognize  the  declining  balance  method 
whatsoever  and  the  straight  line  basis  is  the  only  method  for  the  depreciation  of 
assets (e. g. Austria). 

Other  methods  such  as  the  depletion  method  are  applicable  in  certain  sectors  (  eg 
natural resources) but are not considered in any detail in this paper. 

If two or more methods are allowed to be used in respect of the same kind of asset, 
rules  determining  when  a  taxpayer  is  allowed  to  change  depreciation  method  are 
necessary. Some MS make any change conditional upon meeting certain conditions; 
others prohibit any change in method at all once a choice has been made. 

The differences in the rates currently applicable to different kinds of assets in MS are 
rarely very large. As discussed above MS in principle set rates for different types of 
assets primarily according to the length of an asset's useful life. However the number 
of  different  rates  and  the  number  of  different  categories  of  assets  for  depreciation 
purposes vary considerably among MS. 

131 

If  a  useful  life  of  an  asset  is  e.  g.  fixed  as  4  years,  the  first  year  depreciation  charge  is  acquisition 
value/4, and the following years' charges are calculated as a double residual value/(5 minus number of 
years in which the asset has already been depreciated). 

EN 

147 

   EN 

 
                                                 
34. 

35. 

36. 

37. 

All  MS  distinguish  between  movable  (e.  g.  plant,  machinery,  equipment)  and 
immovable (e. g. buildings) assets for the purpose of tax depreciation. Depreciation 
rates for immovables range between 1% and 20%, while the most frequent range is 2 
–  5%.  Different  rates  for  different  types  of  buildings  (office,  residential)  are  often 
applicable.  

The remaining tangible assets are further categorised into several groups (up to five, 
or occasionally practically on an individual asset basis) by MS, or the same treatment 
is applicable to all of them (pooled). It would be difficult and a little bit misleading to 
generalize in respect of the applicable rates in this area, since many specific rates are 
given for a number of assets in some MS.  

To  be  deductible  for  tax  purposes,  the  amounts  depreciated  must  be  recorded 
transparently by the company. Whether the tax depreciation charges are registered as 
adjustments  to a  company's  accounting depreciation plan (when they are different), 
taken  to  be  equal  to  the  accounting  depreciation  or  deducted  separately  after  the 
accounting depreciation charges have been added back to the company's accounting 
profit depends on the degree of 'dependency' between the financial accounts and the 
tax accounts, which varies across the EU. 

A common approach to tax depreciation implies a common approach to dependency 
of  the  tax  treatment  on  accounting:  either  dependency  is  weakened  to  permit  the 
common  depreciation  rules,  or  the  accounting  rules  are  amended  to  permit 
depreciation  in  line  with  the  common  tax  depreciation  rules.  Where  there  is  little 
dependency, i. e. the linkages between the financial accounts and the tax accounts are 
not  very  strong,  changing  from  existing  national  rules  on  tax  depreciation  to  a 
common  approach  to  tax  depreciation  has  little  impact  on  financial  accounting. 
However,  where  links  are  strong,  this  change  has  implications  for  the  financial 
accounts. If national tax depreciation rules are changed to a newly defined common 
approach,  national  accounting  rules  would  have  to  be  amended  accordingly. 
Although the treatment of assets and tax depreciation is an obvious example of how 
the issue of tax and accounting dependency needs to be resolved, the same question 
arises with other structural elements such as provisions. 

VIII.  General solutions 

38. 

39. 

The CCCTB aims to provide MS with a complete solution for the tax depreciation of 
assets and should not in principle be subject to any modifications made by national 
laws.  Ideally  the  system  would  replace  up  to  25  different  tax  depreciation schemes 
with one. 

Tax  depreciation  rules  currently  applicable  in  MS  are  often  similar  in  essential 
principles, but different in details, especially in respect of the categorisation of assets 
for tax purposes and the various schemes applicable to them. The reasoning behind 
some  aspects  of  the  25  systems  have  been  developing  over  many  years.  These 
national systems are an important starting point for an EU-wide scheme, but all these 
different  elements  cannot  simply  be  combined  together  without  some  changes.  In 
order  to  reach  consensus  participating  members  will  have  to  be  open  to  new 
innovative  solutions  seeking  an  accurate,  simple,  transparent  and  neutral  scheme 
which reflects economic reality and measures the profit of companies on a relatively 

EN 

148 

   EN 

 
objective base, even if such solutions lead to a change in the traditional methods in 
some MS. 

40. 

In order to create a complete and functional set of rules it will be necessary to agree 
and  elaborate  on  the  following  issues.  In  order  to  progress  it  is  suggested  that 
solutions for the general rules should be examined in the first instance. 

EN 

149 

   EN 

 
General rule   

Specific rule 

A 

DETERMINATION OF ASSETS  
QUALIFYING FOR TAX DEPRECIATION 

● Expenses 
● Non depreciable assets 
● Assets of minor value 

B 

DETERMINATION OF DEPRECIABLE BASE 

C 

WHO IS ELIGIBLE TO CLAIM TAX  
DEPRECIATION CHARGES 

D 

TIMING OF TAX DEPRECIATION 

● Acquisition for non monetary payment 
● Second-hand property 
●Subsequent expenditure treatment 

●'Economic' (beneficial) ownership e. g. 
financial lease 
● Purchase with the clause reserving 
ownership 
● Subsequent expenditure on rented asset 
● Legal successor 

● First year, last year (if an asset sold) rule 
● Tax year longer or shorter than 12 months 

E 

MECHANICS OF TAX DEPRECIATION 

● Methods 
● Rates 

F 

G 

SALE OF THE ASSET, TAX VALUE 

RELATION BETWEEN ACCOUNTING  
AND TAX DEPRECIATION (DEPENDENCY) 

H 

RECORDING OF DEPRECIATION 

EN 

150 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. DETERMINATION OF ASSETS QUALIFYING FOR TAX DEPRECIATION 

41. 

The accounting solution creates a good starting point as it is accepted in most MS. 
Assets with a limited useful life recognised in the balance sheet of a company should 
in  principle  be  depreciated  for  tax  purposes.  As  the  aim  of  CCCTB  is  to  measure 
business  profits  of  companies  it  is  advisable  to  ensure  that  only  the  costs  of  assets 
used  for  business  purposes  will  affect  the  tax  base.  A  business  purpose  test  should 
therefore be added. 

► 

Do members agree that only assets acquired and used for business purposes shall be 
depreciable for tax purposes? 

B. DETERMINATION OF DEPRECIABLE BASIS 

42. 

► 

Historical, acquisition or production costs seem to be the most appropriate basis for 
tax depreciation. For the determination of the actual costs the simplest solution seems 
to be to follow the accounting one.  

Do members of the group think that more specific guidance should be given on what 
costs  should  be/should  not  be  included  in  the  acquisition  price  or  could  the 
accounting rules be accepted as a general basis? 

C. WHO IS ELIGIBLE TO CLAIM TAX DEPRECIATION CHARGES 

43. 

44. 

A 'legal owner' rule is the simpler, but the more formalistic solution. The "economic 
owner"  approach  better  reflects  the  real  relation  between  the  asset  and  business  in 
which it is used. On the other hand it requires the creation of a set of rules to define 
and  identify  the  economic  owner.  Special  rules  for  the  depreciation  of  the  asset  by 
the beneficial owner would be in line with the principle substance over form132; on 
the other hand depreciation by the legal owner is more in line with the simplicity133 
principle. 

A  legal  successor  should  be  allowed  to  continue  depreciation  commenced  by  his 
predecessor.  Companies  are  mainly  affected  in  the  case  of  reorganisations  (e.  g. 
mergers, acquisitions). The determination of situations when depreciation is not to be 
recaptured even if the owner of the asset has changed could be done in line with the 
'Merger'  Directive  on  the  common  system  of  taxation  applicable  to  mergers, 
divisions,  transfers  of  assets  and  exchanges  of  shares  concerning  companies  of 
different Member States. 

► 

Would  members  agree  that  only  the  legal  owner  shall  be  in  principle  entitled  to 
depreciate an asset? Will it be necessary to adopt exceptions to this rule? 

D. TIMING OF TAX DEPRECIATION 

132 
133 

Commission Working Document on General Tax Principles, Para 26, CCCTB/WP/001. 
Commission Working Document on General Tax Principles, Para 17, CCCTB/WP/001. 

EN 

151 

   EN 

 
 
                                                 
45. 

46. 

47. 

48. 

The recognition of the acquisition costs of an asset for tax purposes should primarily 
relate to the actual useful life of the asset. This principle as applied in accounting is 
further  developed  by  the  company  itself  for  each  particular  asset.  Tax  systems 
traditionally  tend  to  decrease  the  element  of  permissible  judgement  and  provide 
taxpayers  with  fixed  rules  for  different  categories  of  assets.  This  approach  closely 
corresponds with the principle of certainty and effectiveness. The difficulty is to find 
the best balance between simplicity and accuracy.  

Different  schemes  for  movable  and  immovable  assets  will  probably  be  necessary. 
Any  further  differentiation  within  each  of  the  two  groups  should  however  be 
thoroughly considered and justified in order to avoid unnecessary complications and 
conflicts with the simplicity and transparency principles. 

Tax  depreciation  charges  should  be  claimed  on  an  annual  basis.  Tax  depreciation 
should  probably  be  compulsory  in  both  profit  and  loss  years,  although  it  is 
recognised that flexibility here is linked in some cases to loss carry-forward rules and 
the treatment of foreign tax credits. 

Rules  for  the  first  year,  the  year  in  which  an  asset  is  sold  or  alienated  and  for  tax 
years longer or shorter than 12 months are needed. Any of the currently applicable 
solutions (full depreciation charge or 50% or combination of the two) could be used. 
This is an example of where there does not seem to be a particular point of principle 
involved  or  a  best  practice  identified,  in  which  case  the  solution  that  members  can 
agree on most easily is probably the most appropriate one. 

► 

Would members of the group like to comment on this issue and proposed solutions? 

E. MECHANICS OF TAX DEPRECIATION 

49. 

► 

► 

Various  methods  and  rates  are  currently  applicable  in  MS  and  it  is  not  possible  to 
combine  them  all  together.  It  will  be  necessary  to  establish  a  common  approach 
agreed  by  all  participating  MS.  As  a  starting  point  for  a  common  solution 
depreciation  of  immovable  property  (buildings)  on  an  individual  basis  under  the 
straight  line  method  and  for  movable  property  (plant,  machinery,  equipment)  on  a 
pool  basis  under  the  declining  balance  method  could  be  envisaged.  Movable  assets 
could  be  divided  into  three  categories  according  to  their  useful  life  (e.  g.  4,  8  and 
12.5 years). The choice of different methods for the same type of asset should not be 
possible  as  it  seems  to  create  unnecessary  complications  and  requires  additional 
considerations  concerning  whether  or  not  companies  can  'change  their  mind'  etc. 
Depreciation  rates  could  be  fixed  to  correspond  with  the  length  of  the  estimated 
useful  life  of  each  category  of  assets  (i.  e.  in  the  above  example  25%,  12,5%  and 
8%).  

The above example solution illustrates the sort of framework that could be applied. 
Do  members  have  any  comments  on  such  an  approach  or  do  they  have  other 
suggestions? 

Could  members  of  the  group  comment  on  what  elements  of  the  framework  are 
particularly  important  for  them  and  what  sort  of  framework  they  might  find 
acceptable? 

EN 

152 

   EN 

 
F. SALE OF ASSET, TAX VALUE 

50. 

This issue should be analysed in line with the solutions for any capital gains taxation; 
therefore it will be discussed in more detail later. 

G. RELATION BETWEEN ACCOUNTING AND TAX DEPRECIATION 

51. 

To the extent that the rules for accounting depreciation charges differ across the EU 
accounting  depreciation  charges  should  be  tax  non  deductible.  It  would  permit  to 
introduce  a  common  EU-wide  set  of  rules  for  calculating  tax  depreciation  charges 
(see also H below). 

► 

Could members of the group agree with this approach? 

H. RECORDING OF TAX DEPRECIATION 

52. 

The  amounts  depreciated  for  tax  purposes  shall  be  recorded  transparently  by  the 
company.  Tax  depreciation  charges  may  be  registered  as  adjustments  of  the 
accounting depreciation plan or accounting depreciation charges may be added back 
to company's accounting profit and tax depreciation charges deducted afterwards and 
registered separately.  

► 

Do members of the group have a preference for any of above mentioned solutions? 

GENERAL QUESTIONS: 

► 

► 

Do members believe that all of the issues important for tax depreciation are identified 
in this document? Do members wish to add anything? 

Do members think that some of specific issues should be delegated to a subgroup in 
order to elaborate on them in more detail? 

EN 

153 

   EN 

 
Annex 1 - Draft summary tables of main tax depreciation rules for fixed assets in Member States – after revision 

IAS/ 

Member 
state 

Non 
depreciable 
assets 

IAS 

Land134  

Immediate 
write off 

Right to 
depreciate 

Base 

Method, rate 

Irregularities 

Movable 
(machinery) 

Immovable 
(buildings) 

Intangibles 

Subject 
to 
materiality. 

Essentially 
ownership 
test. 

lessee 

The 
under 
certain 
conditions.
135  

asset 

An 
not 
expected 
to  be  used 
for  more 
than 
one 
period 
(useful  life 
of  <  1  year 
= write off) 

Historic cost, 
unless 
the 
alternative 
treatment  of 
revaluation 
applied 

on 

Depreciation  to  be 
allocated 
a 
basis 
systematic 
over  asset's  useful 
life136  

As for machinery 

See IAS 38 

Rules  on  impairment  of 
assets139 

The  useful  life  is  a 
matter 
of 
judgement.137  

Range  of  methods 
e.  g.  straight  line, 
declining  balance 
etc.  The  choice  of 
method 
be 
based  on  expected 
pattern of economic 
arising 
benefits 
from the asset.138 

to 

134 
135 

136 
137 
138 

IAS 16 Para 45 
The lessee should recognise finance leases as assets and liabilities in his balance sheet at amounts equal at the inception of the lease to the fair value of the leased property 
or, if lower, at the present value of the minimum lease payments – IAS 17 
IAS 16 Para 41 
IAS 16 Para 44 
IAS 16 Para 45 

EN 

154 

EN 

 
  
 
 
 
 
                                                 
AT 

Land 

(Participations 
of +20%)  

Assets 
below EUR 
400 
per 
item 

Essentially 
legal 
the 
owner, 
the 
lessee only if 
qualifies  as 
a  beneficial 
owner. 

Historical, 
acquisition 
or 
production 
costs. 

Straight 
method 

line 

Straight line method 

10% - 20% 

3%  buildings  serving 
the  business  of  a 
company; 

Same  rules  as  for 
movable property, if 
intangible 
asset 
depreciable 

Personal  cars  minimum 
8 years. 

Historic 
buildings up to 10%. 

renovation  of 

Goodwill 15 years 

Special rules 
for economic 
(beneficial) 
ownership. 

Special  write  off  for 
obsolesce 

2.5% 
buildings 
serving  the  business 
of 
or 
insurance company 

bank 

a 

2% other buildings.  

Natural 
resources 
subject to exhaustion (in 
case of mines quarries)  

to 

actual 
according 
proportional  depletion  of 
the asset 

legal 
in 
of 
and 

Essentially 
the 
owner, 
case 
“lease 
similar 
rights”, 
lessee 

the 

BE 

Land 

Other 
assets 
have 
unlimited 

fixed 
that 
an 

for 

Possible 
only 
indirectly 
attributable 
costs 
of 
production 
and 
for 
costs 

139 

IAS 36 

EN 

if 

the 

Land  only 
fair 
market  value  has  gone 
permanently  below  the 
acquisition cost. 

Historical, 
acquisition, 
production 
or 
contribution 
costs. 

Machinery:  straigth 
line  Method 
or 
declining  balance 
method  (excluding 
cars  and  assets 
used  by  lessee)  - 
10 
- 
Declining  balance 

33¨% 

– 

Straight  line  method 
or  declining  balance 
(excluding 
method 
by 
assets 
lessee) 

used 

Straight-line only 

According 
expected use  

to 

minimum 5 years (3 
years for R&D) 

Exceptional depreciation 
for 
extraordinary 
technical  wear  and  tear 
and for economic loss of 
value  due 
to  natural 
calamities 

155 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                                                                                    
useful life (e.g. 
some works of 
art) 

to 

related 
the 
creation  of 
a company 

is  a  double  rate  of 
straight  line  with  a 
maximum  of  40% 
of 
the  historical 
cost. 

Accelerated 
depreciation  schemes140 
and 
investment 
allowances  as  incentive 
measures 

Cars:  only  75%  of  the 
cost  price  on  straight 
line only 

CZ 

Land 

Works of art 

Tangibles 
below  CZK 
40,000 
(EUR 
1,300)  per 
item 

Intangibles 
below  CZK 
60,000 
(EUR 
1,880)  per 
item 

Legal  owner 
(lessor) in all 
cases 

Historical, 
acquisition 
or 
production 
costs. 

Straight-line 
method  or  straight 
line method with an 
rate 
accelerated 
plan. 

Straight-line method 

Straight-line 

16.66% 

Cars  depreciable  only 
up 
to  CZK  900,000 
(EUR 30,000) 

30 – 50 years142 

Individual basis. 

Special  schemes 
reconstruction 
historical buildings. 

for 
of 

4  –  20 
according 
type of an asset141 

years 
the 

to 

140 

141 

EN 

Special schemes for ships, plant and machinery used for scientific research, real property purchased, demolished and rebuilt for bank premise, works of art, such as statues, 
frescos, etc., made by residents of Belgium and incorporated in a building, the costs related to the creation of a company. Accelerated depreciation means depreciation which 
does  not  represent,  either  in  economic  or  fiscal  sense,  a  reasonable  spreading  out  of  costs  or  provision  for  an  extraordinary  loss  in  value;  can  not  exceed  100%  of  the 
depreciable base. 
Fixed assets are divided into five groups with maximum depreciation periods of 4, 6, 12, 20, 30, 50. The fifth and the sixth group includes buildings only, some items in the 
forth group refer to immovable as well. 

156 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                                                                                    
CY 

Land 

(Goodwill) 

Computer 
application 
software 
costing  up 
to £1.000. 

Expenditur
e on 
Scientific 
Research 
of non-
capital 
nature 

Legal owner. 

The 
lessee 
may  qualify 
under 
certain 
circumstanc
es 
in 
(e.g. 
the  case  of 
finance 
leases 
lessee).143 

the 

Historical, 
acquisition 
or 
production 
costs.144 

line 
- 
Straight 
applying 
method 
rates 
various 
ranging 
from10% 
το  25%  according 
to  the  type  of  plant 
& machinery.  

Straight-line method 

25/33 years145 

In the case of ships 
- 
straight 
line 
applying 
method 
various 
rates 
ranging  from  4.5% 
to12.5%. 

Patent 
Patents, 
Rights  and  Rights 
Intellectual 
on 
are 
property, 
depreciated 
in  a 
reasonable  manner 
(to  the  satisfaction 
of  the  Director  of 
the 
Inland 
Revenue)  over  the 
life  of 
economic 
such  Patents  or 
Rights. 

Expenditure 
Scientific Research 146 

on 

Motor  Vehicles  that  can 
be  classified  as  private 
Motor 
(in 
Vehicles 
the 
accordance  with 
legislation 
for  Motor 
Vehicles)  are  not  tax 
depreciable.  

special 

A 
scheme 
applies  for  the  depletion 
of 
natural  mineral 
resources. 

Fixed  assets  transferred 
under reorganization are 
depreciated  in  the  same 
manner 
the 
as 
reorganization  did  not 
take place. 

if 

142 
143 
144 

145 
146 

30 years residential buildings, 50 years administrative buildings. 
In the case of rented immovable property where the tenant incurs the cost of erection of the building, both the landlord and the tenant have the right claim tax depreciation. 
In the case of second hand buildings tax depreciation can be claimed on the residual value of the asset (cost minus the tax depreciation given) over the remaining tax life of 
the building from date of erection. Second hand ships over the remaining useful economic life in accordance with the certificate from the shipping authority. Additional 
capital expenditure on ships is depreciated over the remaining useful economic life of the ship. 
25 years for industrial or hotel buildings, 33 years for any other building 
Expenditure on Scientific Research on Plant, Machinery and Buildings including employees’ dwellings are depreciated using the rates stated under the method rate above 
for Movable Machinery and Immovable Buildings. Any other Expenditure on Scientific Research of a capital nature is depreciated over 6 (six) years on a straight - line 
method. 

EN 

157 

EN 

 
  
 
 
 
 
 
 
 
                                                                                                                                                                                                                                                    
Movable, 
independe
ntly  usable 
economic 
goods  up 
to  

€ 410 

(without 
VAT) 

DE 

Real  

Property 

Participating 

Interests 

Financial 

Assets 

Economic  

Owner 

Historical 
Acquisition 
or  

Straight-line, 
declining  balance, 
or  sum-of-the-units 
depreciation. 

Straight-line 
depreciation 
2% - 3%  

Construction 
Costs 

Straight-line 
depreciation  over 
the 
life. 
useful 
Good  will  over  15 
years. 

Declining balance  

depreciation 
for 
certain buildings used 
for 
residential 
purposes. 

Individual 
valuation. 

Depreciation  over 
the  useful  life  (tax 
depreciation tables) 

be 

taken 

Unplanned  depreciation 
for 
to 
economic 
goods 
(without  limitation)  for 
a 
there 
which 
is 
probable 
lasting 
reduction in value. 

for 
Deductions 
extraordinary 
technical 
or  economic  wear  and 
tear are allowed. 

in  addition 

depreciation 
Special 
in  principle 
allowed 
only 
to 
straight-line  or  sum-of-
the-units 
tax 
depreciation. 

Exception: 
special 
depreciation  for  SMEs 
(§ 7g Income Tax Law) 
is 
in 
also  possible 
to  declining 
addition 
balance 
tax 
depreciation. 

Deduction  for  depletion 
in regard to minerals. 

EN 

158 

EN 

 
  
 
 
 
 
 
 
 
 
 
DK 

Land 

Housing 
property  and 
hospitals 

Legal  owner 
(lessor) 

Assets 
below  DKK 
11,000  per 
item. 

Historical, 
acquisition 
or 
production 
costs. 

Assets with 
life 
useful 
longer 
not 
than 
3 
years. 

A 
lessee 
may  qualify 
to 
and  opt 
depreciate 
an 
under 
certain 
conditions  

asset 

EE147 

EL 

Assets 
below EUR 
600 
per 
item. 

Legal owner, 
(lessor) in all 
cases 

Acquisition 
or 
production 
costs 
value 
reappraisal.
148 

or 
after 

Declining  balance 
method. 

Straight –line method 

Straight-line  

Computer software 

14,3%  

may  be  written  off 
immediately 

Pool basis 

5  

max 25 %  

(detailed  rules  for 
types  of 
different 
assets) 

= IAS 

Straight 
line 
method or declining 
method 
balance 
according 
the 
to 
type of an asset. 

2 – 40% 

R&D  plant,  machinery 
and  equipment  may  be 
written off immediately 

Straight line method 

Straight line,  

Patents 5% 

Research 
and 
development  costs  may 
be written off in the year 
when they incurred. 

5 - 8% 

Trademarks 10% 

12% 

to 

up 
temporary 
constructions 

goodwill 5 years 

for 

Computer hardware and 
software  may  be  written 
off 
the  year  when 
acquired  under  certain 
conditions 

in 

147 

148 

EN 

Business profits are not taxable under traditional concept in Estonia. The depreciation scheme does not have a direct impact on the taxable base for corporate income tax 
purposes. 
Since 1992 companies are required to revalue fixed assets every four years. The capital gain arising from revaluation is subject to a special tax. 

159 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
ES 

Land 

No 
minimum  

Legal  owner 
(lessor)  

Acquisition 
or 
production 
costs 

Straight 
declining balance  

line 

Straight line 1 -3% 

Straight 
useful life 

line  over 

5 -12% 

10% 

Special  schemes 
taxpayers 
from tax incentives. 

for 
benefiting 

-  increased  charges  for 
intensively  used 
very 
assets 

FI 

Land 

(Securities 

Participations) 

lessee 
A 
may  qualify 
under 
certain 
conditions 
(e. 
financial 
lease) 

g. 

Legal  owner 
(lessor) 

Assets with 
life 
useful 
longer 
not 
than 
3 
years. 

Assets 
below EUR 
per 
850 
item. 

total 
The 
value 
of 
assets  so 
expensed 
may 
exceed 
EUR  2,500 

not 

Historical, 
acquisition 
or 
production 
costs. 

Declining  balance 
method  

Declining 
method 

balance 

Straight 
years 

line  10 

Natural 
depletion methods 

resources 

Pool basis 

Residential 
administrative 
buildings 4% 

and 

Goodwill  may  be 
expensed  directly  if 
the probable period 
of  use  does  not 
exceed 3 years 

Land  only  if  decrease  in 
value  is  substantial  and 
justified by taxpayer 

may 
any 

Taxpayer 
choose 
depreciation 
percentage 
between  0%  and 
25% annually 

Commercial 
industrial 
7% 

and 
buildings 

Light construction and 
building 
for 
research 20% 

used 

Accelerated 
scheme 
available  for  SMEs  in 
respect  of  investment  in 
most of the northern and 
from 
eastern  Finland 
1998  –  2003  (increase 
by 50% for the first three 
years) 

EN 

160 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
per 
year. 

tax 

FR 

Land 

Assets 
below EUR 
500 
per 
item 
(excluding 
VAT). 

Legal  owner 
(lessor) in all 
cases 

Historical, 
acquisition 
or 
production 
costs. 

Straight 
method 

line 

Straight line method 

Declining  method 
specified 
for 
assets.  

Depreciable 
basis 
spread  over  asset's 
-5% 
life 
useful 
generally accepted) 

(2 

Depreciable  basis 
spread over asset's 
useful life 

(Generally 
accepted 
rates 
range  between  2 
and  25%  according 
to  the  type  of  the 
under 
asset, 
declining  balance 
method  1,  5  –  2,  5 
the 
multiple 

of 

Straight 
spread 
useful 
asset depreciable) 

over 
life  (if 

line, 
its 
the 

Special  scheme  for  cars 
and some boats.149 

Investment  allowances 
for shipping companies. 

of 

Exceptional depreciation 
in  the  form  of  an  initial 
100% 
deduction 
available 
for  software, 
energy-saving 
and 
equipment 
for 
equipment 
pollution, 
preventing 
noise 
and 
reduction 
certain medical research 
equipment. 

Start  up  costs  special 
scheme. 

Accelerated 
schemes 
for  subscriptions  to  the 
capital  of  approved  film 
and audio-visual finance 
finance 
companies  or 

149 

EN 

The acquisition value of automobiles which are used for business purposes, such as buses and taxis, may be depreciated by applying the following maximum depreciation 
rates to the acquisition value over 5 successive years: 25%, 20%, 20%, 15% and 15%. If this depreciation method is used instead of the main depreciation rule, the profit on 
the  sale  or  other  transfer  of  assets  at  prices  in  excess  of  the  net  book  value  is  deemed  to  be  taxable  income  in  the  year  of  the  sale  or  transfer.  The  acquisition  value  of 
pleasure boats (i.e. boats not directly used in business) is depreciable over a 10-year period at the minimum by applying the straight-line depreciation method. Hence, the 
maximum annual rate of depreciation for pleasure boats is 10%. It should, however, be noted that if the boat has initially been purchased for entertainment purposes, only 
50% of the original purchase price is deductible. 

161 

EN 

 
  
 
 
 
 
 
 
 
                                                 
straight line rates). 

innovation 
companies 
and  for  industrial  and 
buildings 
commercial 
constructed 
in  certain 
economically  depressed 
regions 

Cars  only  up  to  EUR 
18,300 

Special  rules 
estate leasing 

for  real 

HU 

Land 

Forests 

Investments 
not put in use 

Assets 
below  HUF 
50,000 
(EUR  200) 
per item. 

Legal owner 

A 
lessee 
may  qualify 
under 
certain 
conditions 
(e. 
financial 
lease). 

g. 

Acquisition 
or 
production 
costs.  

Straight-line 
method 

Straight-line method 

14,  5%,  33%  and 
50%  according  to 
type of the asset150 

2% - 6% according to 
durability  of  building 
and 
construction 
material  (brick,  stone, 
steel,  light  metal,  rig 
timber, etc.) 

151 

No 
tax 
specific 
rules,  according  to 
the 
useful 
asset 

life  of 

Value  of  land  can  be 
written  down  only  if  the 
fair  market  value  has 
gone permanently below 
the acquisition cost 

Goodwill  minimum 
of 5 years 

Tangible  assets  with  an 
acquisition or production 
cost  not  exceeding  HUF 
200,000  (EUR  810)  per 

150 

EN 

The rate of 14.5% is general, the following assets may be depreciated according to accounting rules or, optionally, at a rate of 33%: 
- control engineering (automation) and general purpose computer technology products and equipment; industrial robots; solar panels; protective devices against noise; office 
equipment; machinery used for environmental protection; and programme-controlled machines in general, gauging and testing equipment.  
Alternatively, a 50% depreciation rate may be applied to:  
- general computer technology equipment; tangible assets newly acquired or produced in 2003 or 2004 and normally subject to depreciation at 14.5% or 33%; intellectual 
property or the capitalized value of experimental development acquired or created in 2003 or 2004; and machines and equipment used exclusively for film or video 
production.  
A rate of 20% applies to motor vehicles. For leased plants recorded between the lessor's assets, the accelerated tax depreciation rate is 5% and for such machinery and 
equipment, 30%.  

162 

EN 

 
  
 
 
 
 
 
 
 
 
 
                                                 
Works  of  art, 
etc. 

IE 

Under 
scrutiny 

Historical, 
acquisition 
or 
production 
costs. 

Person  who 
the 
bears 
burden 
of 
and 
wear 
tear  of 
the 
asset, 
Essentially 
the 
owner, 
exceptionally 
the lessee. 

item may be depreciated 
the 
to 
according 
accounting rules 

Straight 
method 

line 

Straight line method  

Patents  over  their 
residual life max 17 
years. 

Special  scheme  for  tax 
incentive scheme areas 

Pool basis 

-  industrial  buildings 
4% 

Software  over  7 
years. 

7  years  (first  six 
years 
the 
seventh year 10%) 

15% 

-  certain  buildings 
over 7 years  

motor vehicles 20% 

IT 

Land 

Assets 
below EUR 
520152. 

Legal  owner 
(lessor) 

Straight 
method 

Historical, 
acquisition 
or 
production 
costs. 

line 

Straight line method 

Trademarks 10% 

3% - 5% according to 
the sector of activity. 

Patents 33,3% 

(except 
created  by 
itself) 

Goodwill 
that 
company 
10% 

More  intensive  use  may 
higher 
justify 
depreciation charges. 

Person 
the 
carrying 
in 
business 
case 
of 
usufruct  or 
ed 
rent 
enterprise 

- 
10% 
according 
type of an asset. 

to 

40% 
the 

151 

152 

EN 

Special rates apply to agricultural constructions (3%, 5% and 10%), railway constructions (4% and 7%), bridges (4%), power lines, oil and water pipelines (4%, 6% and 8%) 
and waste storage (20%). For leased buildings accounted for as the lessor's assets, the accelerated tax depreciation rate is 5%. 
EUR 516,46 

163 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                                                                                    
LT 

(lessee, 
holder 
usufruct) 

of 

Legal  owner 
(lessor) in all 
cases. 

Historical 
acquisition 
or 
production 
cost. 

Straight 
line 
method or declining 
balance method  

3  –  15 
according 
type of an asset. 

to 

years 
the 

Straight line method  

Straight line 15% 

Declining-balance 
method  may  be  used 
certain 
when 
conditions are met. 

– 

8 
years 
20 
according to the type. 

LU 

Land 

Assets 

Economic 
owner153. 

Works of art 

Financial 
assets. 

with 
life 

- 
useful 
not 
exceeding 
1 year 

or 

not 

- 
exceeding 
EUR  870 
(excluding 

Historical 
acquisition 
or 
production 
cost. 

Straight 
line 
method or declining 
balance154  method 
if 
statutory 
conditions met. 

Straight line method 

Straight 
method. 

line 

1,5  %  -  3  %  office 
buildings. 

Useful life. 

Useful life 

(3 % - 40 %) 

according 

to 

the 

4  %  -  5  %  industrial 
buildings. 

on 

With  the  approval  of  the 
authorities, 
tax 
depreciation 
the 
basis  of  asset  utilization 
may  be  applied  in  the 
case  of  assets 
the 
annual  use  of  which 
fluctuates widely. 

Extraordinary 
depreciation is permitted 
if  justified  by  excessive 

153 

154 

EN 

For tax purposes, assets are attributed to the economic owner, even if he is not the legal owner. The economic owner of an asset is in general the person who bears the 
economic risk and has the economic benefit of the asset (i.e. financial lease). In all cases, the economic owner is entitled to the depreciation. 
The declining-balance method may be used only for certain tangible assets (not buildings) provided the owner is also the effective user of the assets. Under the declining-
balance method, a fixed percentage of the book value is depreciated each year. The declining-balance method rate may not exceed three times the rate applicable under the 
straight-line method, nor 30 %. Consequently, if the straight-line depreciation rate is 15 %, the maximum rate under the declining-balance method will be 30 %. However, for 
assets used in research, the rate may not exceed four times the rate applicable under the straight line method, nor 40 %. 

164 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
VAT). 

In the latter 
case, 
the 
owner 
must 
the 
effective 
user  of  the 
asset. 

be 

type of an asset. 

flats 
rented 
6  % 
(during  a  fixed  period 
of  6  years  following 
completion). 

LU 

Land 

Assets 

Economic 
owner155. 

Works of art 

Financial 

with 
life 

- 
useful 
not 

Historical 
acquisition 
or 
production 
cost. 

Straight 
line 
method or declining 
balance156  method 
if 
statutory 
conditions met. 

Straight line method 

Straight 
method. 

line 

1,5  %  -  3  %  office 

wear  and  tear  (technical 
as well as economic). 

Non  depreciable  assets 
can  be  written  down 
only  if  the  fair  market 
value 
gone 
has 
permanently  below  the 
acquisition cost. 

Natural 
resources, 
mines,  etc. :  depletion 
method. 

Special  depreciation  for 
investments  tending  to 
the 
the  protection  of 
the 
environment, 
realization  of  energy 
savings and the creation 
of 
for 
employment 
handicapped workers. 

With  the  approval  of  the 
tax 
authorities, 
the 
depreciation 
basis  of  asset  utilization 
may  be  applied  in  the 
the 
case  of  assets 

on 

155 

156 

EN 

For tax purposes, assets are attributed to the economic owner, even if he is not the legal owner. The economic owner of an asset is in general the person who bears the 
economic risk and has the economic benefit of the asset (i.e. financial lease). In all cases, the economic owner is entitled to the depreciation. 
The declining-balance method may be used only for certain tangible assets (not buildings) provided the owner is also the effective user of the assets. Under the declining-
balance method, a fixed percentage of the book value is depreciated each year. The declining-balance method rate may not exceed three times the rate applicable under the 
straight-line method, nor 30 %. Consequently, if the straight-line depreciation rate is 15 %, the maximum rate under the declining-balance method will be 30 %. However, for 
assets used in research, the rate may not exceed four times the rate applicable under the straight line method, nor 40 %. 

165 

EN 

 
  
 
 
 
 
                                                 
assets. 

exceeding 
1 year 

or 

not 

- 
exceeding 
EUR  870 
(excluding 
VAT). 

In the latter 
case, 
the 
owner 
must 
the 
effective 
user  of  the 
asset. 

be 

buildings. 

Useful life. 

annual  use  of  which 
fluctuates widely. 

Useful life 

(3 % - 40 %) 

4  %  -  5  %  industrial 
buildings. 

according 
type of an asset. 

to 

the 

6  % 
flats 
rented 
(during  a  fixed  period 
of  6  years  following 
completion). 

Extraordinary 
depreciation is permitted 
if  justified  by  excessive 
wear  and  tear  (technical 
as well as economic). 

Non  depreciable  assets 
can  be  written  down 
only  if  the  fair  market 
value 
gone 
has 
permanently  below  the 
acquisition cost. 

Natural 
resources, 
mines,  etc. :  depletion 
method. 

Special  depreciation  for 
investments  tending  to 
the 
the  protection  of 
environment, 
the 
realization  of  energy 
savings and the creation 
of 
for 
employment 
handicapped workers. 

LV 

Land, works of 
art and 
antiques, 
jewellery 

Legal owner. 

Historical 

Declining balance 

Declining balance 

Straight line 

Research and 

A lessee 

acquisition 

Method 

method 

in cases of  

or 

development costs 

100% in the year when 

EN 

166 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
financial 

production 

15% - 70% 

Individual basis 

incurred 

leasing 

cost. 

depending on the 

Patents, licences, 

type of asset 

10% 

trademarks 20% 

Concessions 10% 

(assets are divided 

into five 

depreciation 

categories, for most 
of 

them  depreciation 
calculated on 

a pool basis) 

MT 

Under 
scrutiny 

Acquisition 
or 
production 
costs. 

Straight-line 
method 

Straight-line method 

straight-line 

8% 

6,6 – 25% 

2% 

Industrial  buildings  and 
initial 
structures, 
10% 
deduction 
allowable 
first 
in 
year  in  addition  to  the 
annual deduction 

the 

of 

EN 

167 

EN 

Depreciable  amount  in 
case  of  motor  vehicles 
to  MTL  3,000 
limited 
(EUR  7,000) 
if  not 
commercial vehicles 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NL 

Land 

(Participations 

Securities) 

Assets 
below EUR 
450. 

Economic 
owner, i.e. e. 
person 
bearing 
the 
risk  ob  wear 
and  tear  of 
the asset. 

Historical 
acquisition 
or 
production 
cost. 

Declining  balance 
method 

Straight line method 

2 – 4% 

-  Machinery  and 
equipment  10%  - 
20% 

Computer 
- 
equipment  25%  - 
33% 

Accelerated  scheme  for 
R&D 

Accelerated 
depreciation  allowed  for 
assets 
certain 
(environmentally  friendly 
investments) 

Straight 
line, 
declining  balance 
the 
provided 
in 
method 
with 
accordance 
sound 
business 
practice 

is 

Rate  depends  on 
useful 
the 
asset,  patents  and 
concessions 20%) 

life  of 

on 

Depreciation 
the 
basis  of  asset's  usage 
for  assets  with  great 
variety in annual use 

Acquisition 
or 
production 
costs. 

- Trucks 30% 

Straight-line 
method 

7-30% 

Assets 
below 
3.500  PLN 
(ca. 
850 
EUR) 

Legal owner 

A 
lessee 
may  qualify 
under 
certain 
conditions 
(e. 
financial 

g. 

Straight-line method 

straight-line 

20 – 50% 

1,5/2,5/4,5/10/14/20% 

Development  costs 
3 years 

Random depreciation as 
a tax incentive 157 

Statutory 
apply: 

option 

to 

1)  declining  balance 
method, 

2)  increase  or  decrease 
the  rates  contained  in 
statutory 
of 
depreciation rates, 

list 

PL 

land  and 
to 

1) 
the 
right 
perpetual 
usufruct 
land; 

of 

2) 
buildings, 
accommodatio
ns, 
constructions 
and 
treated 

devices 
as 

157 

EN 

"Random" depreciation means that the taxpayer can choose between depreciation from 0% to 100% in order to equalize the tax burden over various years. It is even possible 
to entirely stop depreciation if this is favorable for the taxpayer's tax position. Unlike normal depreciation, random depreciation is even possible before the moment of utilizing 
the asset although not from a higher amount than was actually paid on the asset. 

168 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
lease) 

cooperative 
housing 
resources  or 
resources 
used for social 
and 
educational 
activity 
conducted  by 
housing 
cooperatives; 

3) works of art 
and  museum 
exhibits; 

3) 
determination 
depreciation rates  

individual 
of 

4) value of the 
firm  if  it  is  the 
result  of  a 
different 
process 
purchase 
acceptance 
for  use 
consideration 
(leasing); 

than 
or 

for 

5)  component 
assets  which 
are  not  used 
to 
due 
cessation 
of 
the  economic 
in 
activity 
such 
which 
assets  were 
used. 

EN 

169 

EN 

 
  
 
PT 

Land158 

Assets 
below EUR 
200. 

Legal  owner 
(lessor),  

Tourism  boats 
and 
airplanes159  

Some 
intangible 
assets 

lessee 

A 
under 
certain 
conditions 
(e. 
financial 
lease) 

g. 

Acquisition 
or 
production 
cost  or  a 
regularised 
net 
when 
revaluation 
legally 
authorized. 

value 

line 
Straight 
method or declining 
balance method160  

Straight-line method 

Individual basis161 

12,5%162 

Individual basis 

2% office buildings 

5% 
buildings 

industrial 

line 

Straight 
method 

3 

3,3% software 

rest  over  useful  life 
of 
(or 
time 
if 
exclusive  use) 
depreciable 

The light passenger 
vehicles 
are 
depreciable only up 
the  acquisition 
to 
value 
€ 
of 
29.927,87 

SE 

Land 

Legal  owner 
(lessor).  

Machinery 
or 
equipment 
with  useful 

Historical, 
acquisition 
or 
production 

Straight 
line 
method or declining 
balance method. 

Straight line  

The  same  rules  as 
the 
for 
ones 
machinery 

Enterprise  can  show 
that  the  market  value  of 
the  assets  is  lower  than 
the residual value of the 

158 
159 
160 

161 

162 

In case of buildings 25% of their value is deemed to be land. 
Except when used for public transportation or operational leasing. 
Declining balance method is only allowed to newly acquired movable assets and is not applicable neither to light vehicle passengers (except when used in public transport or 
rented) nor to furniture. 
Assets of the precisely same type (except light passenger vehicles), to  which the same method applies and  which  were acquired  in the same date should be depreciated 
together. 
The depreciation rate of 12,5% applies to non-specified machinery, but specific depreciation rates are established which depend on the type of asset and the activity branch 
in which it is used. 

EN 

170 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
asset 
(after 
depreciation)  and  claim 
.  
excess depreciation

164

costs. 

Individual basis 

Pool basis 

2-5% 

30% 
declining 
balance  or  20% 
straight line. 

declining 
the 
if 

25% 
balance 
taxable 
depreciations  differ 
from  the  ones  in 
the accounts. 

Acquisition 
or 
production 
costs. 

Legal owner; 

lessee in the 
case 
of 
financial 
leasing. 

Straight-line method 

Straight-line method 

Straight-line 
method 

25% 

5% 

10% 

Exceptions: 

–  cars: 12,5% 

–  computers 
computer 
equiptment: 50% 

and 

less 
life 
3 
than 
years 
or 
below  SEK 
5,000 (VAT 
exclusive)
163. 

Tangible 
fixed 
asset 
whose  useful 
life  is  longer 
one 
than 
year 
and 
whose 
individual 
historical cost 
not 
does 
exceed 
the 
tolar 
equivalent  of 
500  EUR  is 
recognised 
as  expense 
at the time of 

of 

and 

Land 
other 
natural 
wealth, 
assets 
cultural, 
historical  or 
artistic 
importance, 
lower 
construction 
of  railways, 
roads, 
airports etc., 
assets 
that 
are 
permanently 
out  of  use 
other 
and 

Higher limit up to SEK 20,000 per item may be permitted for large companies. The amount may not be material in relation to the company’s result or financial position. 
Value for tax purposes does not exceed the highest acceptable value under Swedish accounting standards. 

171 

EN 

SI 

163 
164 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                                                                                    
transfer 

the 
into use. 

assets 
that 
can be used 
for unlimited 
period 
of 
time. 

SI 

Under 
scrutiny 

Legal  owner 
(lessor) 

Acquisition 
or 
production 
costs. 

Straight-line 
method 

Straight-line method 

straight-line 

20% 

25% 

5% 

SK 

Land 

Assets 
below  SKK 
20,000 
(EUR 500). 

Legal  owner 
(lessor) in all 
cases. 

Acquisition 
or 
production 
costs. 

Straight 
line 
method or declining 
balance method 

Straight line method 

Straight-line 
method 

Works of art 

Individual basis 

20% 

Individual basis 

6 -16,6% 

3,3 – 5% 

UK 

and 
non-

Land 
most 
industrial 
buildings 

Very  short 
life assets 

Legal  owner 
(lessor) 
under 
scrutiny. 

Acquisition 
or 
production 
costs. 

Declining  balance 
method 

Straight line method 

Accountancy 
treatment subject to 
option 
4% 
for 
straight-line. 

Various 
allowances. 

first-year 

In  case  of 
industrial 
buildings 
person  with 
the  relevant 
interest. 

on 
is 

Relief 
buildings 
limited, 
viewing 
successive 
owners 
of 
the  building 
to 
together, 

Pool basis  

Individual basis 

25% 

4% 

6%  (on  assets  with 
expected  life  of  25 

Relief  for  buildings  is 
industrial 
limited 
certain 
buildings, 

to 

scheme 

Special 
for 
assets  used  for  mineral 
extraction. 

Capping  of  write-down 
allowances  on  most 
business  cars  at  £3000 

EN 

172 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
the  original 
its 
cost  of 
construction. 

years plus) 

hotels, 
commercial 
buildings in enterprise 
zones and agricultural 
buildings. 

a year. 

EN 

173 

EN 

 
  
 
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EN 

175 

   EN 

 
List of abbreviations and technical terms  

CCCTB 

CCTB 

CGE 

FA 

LSE 

MNC 

MNE 

PE 

PTA 

SA 

SME 

Common Consolidated Corporate Tax Base  

Common Corporate Tax Base  

Computable General Equilibrium 

Formulary Apportionment  

Large-sized enterprise  

Multinational Corporation 

Multinational Enterprise 

Permanent Establishment  

Principal Tax Authority  

Separate Accounting  

Small and medium-sized enterprise  

EN 

176 

   EN