COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Building a fair, competitive and stable corporate tax system for the EU
Date: 2016-10-25
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU Member State, European tax cooperation, corporation tax, double taxation, single market, tax avoidance, tax collection, tax harmonisation, tax law, third country

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   EN 

   EUROPEAN COMMISSION  Strasbourg, 25.10.2016  COM(2016) 682 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Building a fair, competitive and stable corporate tax system for the EU   
 
 
1.  INTRODUCTION 

Taxation  is  central  to  the  EU's  work  to  build  a  stronger,  more  competitive  and  fairer 
economy, with a clear social dimension.  Europe needs a tax system that fits its internal 
market  and  that  supports  economic  growth  and  competitiveness,  attracts  investment, 
helps to create jobs, fosters innovation and upholds the European social model. Taxation 
should  provide  stable  revenues  for  public  investment  and  growth-friendly  policies.  It 
should ensure that all businesses enjoy a level-playing field, legal certainty and minimal 
obstacles when operating cross-border. It should be part of a wider tax system in which 
citizens  have  confidence,  because  it  is  fair  and  meets  society's  socio-economic  needs.  
The EU's priorities in taxation are therefore focussed on these goals.  

2.  IMMEDIATE  ACTION  TO  MEET  IMMEDIATE  NEEDS:  REFORMING 

CORPORATE TAXATION 

The Commission has set an ambitious agenda to make corporate taxation fairer and more 
effective;  better  adapted  to  the  modern  economy  and  more  responsive  to  emerging 
challenges in this field. This agenda is advancing rapidly and many important milestones 
have already been met. All of the initiatives announced in the Commission's Action Plan 
for Fair and Effective Taxation1 have now been launched, and many new proposals have 
already been adopted by Member States. The Commission is also pushing the scope of its 
work beyond  the Action Plan.  As shown in  the Communication  on further  measures  to 
enhance  transparency  and  the  fight  against  tax  evasion  and  avoidance,  which  followed 
the  Panama  Papers  revelations,  it  is  ready  to  develop  swift  and  effective  responses  to 
issues as they arise2. In addition, the Commission has carried out state aid investigations 
into  whether  certain  Member  States  granted  tax  advantages  to  selected  multinational 
companies3, to safeguard a fair and competitive environment for all businesses in the EU. 

The  Commission's  first  line  of  action  was  to  increase  tax  transparency,  as  an 
essential foundation for any further reforms. Within a period of 12 months, Member 
States agreed on proposals for the automatic exchange of information on tax rulings4 and 
country-by-country  reports  of  tax-related  information  concerning  multinationals5.  This 
will  bring  a  new  and  unprecedented  level  of  transparency and  cooperation  between  tax 
authorities  in  the  area  of  corporate  taxation.  The  Commission  also  proposed  public 
country-by-country  reporting  for  multinationals,  to  provide  citizens  with  greater 
oversight of companies' tax practices. This proposal, which is currently being negotiated 
by  the  Council  and  the  European  Parliament,  should  help  restore  public  confidence  in 
corporate taxation and ensure that businesses are not faced with a patchwork of national 
public disclosure rules. A proposal to allow tax authorities access to national anti-money 

1 COM (2015) 302 final 

2 COM (2016) 451 final 

3 See notice on the Notion of aid § 169 to 174: 

http://ec.europa.eu/competition/state_aid/modernisation/notice_of_aid_en.pdf 

4 Council Directive (EU) 2015/2376  

5 Council Directive (EU) 2016/881 

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laundering  information6  is  expected  to  be  agreed  before  the  end  of  the  year.  The 
European  Parliament  and  Council  have  also  started  to  work  on  their  positions  on 
proposed  amendments  to  the  Fourth  Anti-Money  Laundering  Directive,  and  should 
advance  swiftly  for  trilogues  to  begin  by  early  2017.  In  addition,  the  Commission  has 
started to examine the most appropriate framework to implement the automatic exchange 
of information on beneficial ownership, at European level, and is exploring the best way 
to increase oversight of enablers and promoters of aggressive tax planning schemes. This 
increased  tax  transparency  across  Europe  will  help  to  expose  aggressive  tax  planners, 
uncover harmful tax practices and stabilise a corporate tax environment built on openness 
and trust.   
In parallel, the Commission is also working to ensure that all companies operating 
in  the  EU  pay  their  taxes  where  profits  and  value  are  generated.  This  principle  is 
essential for fair and effective taxation, but can only be effectively achieved in a Single 
Market  through  common  and  coordinated  measures.  Therefore,  the  Commission 
proposed  a  new  Anti-Tax  Avoidance  Directive7,  setting  out  legally-binding  anti-abuse 
measures for the entire EU, to  block some  of the most  prevalent forms of base erosion 
and profit shifting. This legislation, which Member States adopted in July 2016, allowed 
Member States to implement in a swift, coordinated and coherent way, the commitments 
they  made  under  the  OECD/G20  Base  Erosion  and  Profit  Shifting  (BEPS)  project. 
Member States' preferential regimes and transfer pricing rules are also being reviewed, to 
ensure a common EU approach to new international standards. This is critical to provide 
certainty  for  businesses  as  reforms  are  implemented  and  to  prevent  new  loopholes 
emerging in the Single Market.  

Finally,  the  Commission  has  presented  measures  to  promote  tax  good  governance 
globally,  to  ensure  a  fair  and  level-playing  field  between  the  EU  and  its 
international  partners.  Member  States  have  endorsed  the  new  External  Strategy  for 
Effective  Taxation8,  presented  by the  Commission  in  January  2016,  to  protect  their  tax 
bases against base erosion risks from abroad. A key component of this Strategy is a new 
EU listing process, to deal with non-cooperative tax jurisdictions and encourage all third 
country jurisdictions to meet international tax good governance standards. The first steps 
in  this  listing  process  have  already  been  taken  and  the  common  EU  list  should  be 
finalised  in  2017.  This  will  provide  Member  States  with  a  powerful  tool  to  deal  with 
countries that refuse to play fair in tax matters. The EU's Financial Regulation has also 
been  revised  to  prevent  EU  funds  from  being  routed  through  tax  havens,  and  work  is 
underway  to  strengthen  the  tax  good  governance  clauses  in  EU  agreements  with  third 
countries.  

3.  A POSITIVE, FORWARD-LOOKING AGENDA 

The  initiatives  set  out  above  are  vital  to  protect  Member  States'  tax  bases,  provide  a 
level-playing field for businesses and ensure fair and effective taxation for all taxpayers. 
They address the most pressing problems in corporate taxation today. However, for the 
longer term, there is a need to go further. Short term fixes can soon become outdated, as 
business  models  and  tax  planning  techniques  evolve  faster  than  new  responses  can  be 

6 COM (2016) 452 final 

7 Council Directive (EU) 2016/1164 

8 COM (2016) 24 final 

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devised. In addition, piecemeal updates to international, EU or national tax rules create 
turbulence for both the tax administrations and the businesses that need to adapt to them. 
To  boost  jobs,  growth  and  investment,  it  is  necessary  to  create  a  favourable  tax 
environment for business, by reducing compliance costs and administrative burdens, and 
by ensuring tax certainty. The importance of tax certainty in promoting investment and 
growth has recently been recognised by the G20 leaders, and has become the new global 
focus.  Member  States  need  to  find  a  balance  between  implementing  necessary  reforms 
and providing a steady, clear and predictable tax environment for businesses.  

The EU needs a positive, forward-looking framework for corporate taxation. It must be 
growth-friendly, efficient and fair, and fully support the EU's wider policy priorities, now 
and in the future. This is the rationale behind the Commission's proposal to re-launch the 
Common  Consolidated  Corporate  Tax  Base  (CCCTB).  The  CCCTB  can  meet  the  two 
primary  demands  of  businesses  and  citizens  in  Europe  today  –  sustainable  growth  and 
social  justice  –  and  reinforce  the  EU's  overall  economic  and  social  agenda.  Indeed, 
analysis shows that the CCCTB can lift investment in the EU by up to 3.4% and growth 
by 1.2%9.  

The Commission first proposed the CCCTB in 2011, with a view to enhancing the Single 
Market  for  businesses.  The  proposal  was  ambitious  and  robust,  but  its  magnitude  led 
negotiations  in  the  Council  to  stall.  However,  the  European  Parliament,  businesses, 
stakeholders  and  many  Member  States  retained  strong  support  for  the  idea  of  the 
CCCTB, given the many benefits it had to offer. Moreover, in the past few years, it has 
become clear that the CCCTB offers more than just a business-friendly tax system for a 
stronger Single Market.  

Therefore,  in  the  June  2015  Action  Plan,  the  Commission  announced  that  it  would  re-
launch this important project through a more manageable two-step process. The first step 
focusses  on  securing  the  common  base.  Once  this  is  implemented,  the  more  complex 
aspect  of  consolidation  will  be  introduced.  Many  of  the  most  important  benefits  of  the 
CCCTB lie with the consolidation aspect. Therefore, this second step in the re-launched 
CCCTB  cannot  be  neglected  or  put  aside.  The  work  on  this  Package  will  only  be 
complete once the full CCCTB is in place.  

The  re-launch  of  the  CCCTB  provides  the  opportunity  to  update  the  original  proposal 
and  align  it  with  new  challenges  emerging  in  the  global  tax  environment.    The  most 
notable change is that the CCCTB will be mandatory for all financial accounting groups 
with  consolidated  group  revenues  of  more  than  EUR  750  million.  This  should  help  to 
maximise its potential as an anti-avoidance tool. It also means that businesses will know 
where they stand when it comes to the EU's anti-abuse rules and will not have to make 
unnecessary adjustments. As such, it will help to create a more predictable environment 
for businesses in the EU.  

The Commission has also introduced two new elements into the proposal which directly 
support the EU's wider economic agenda. Research and development costs will be given 
a super-deduction, to encourage R&D and innovation, which are key drivers of growth. 
Moreover,  to  support  small  and  innovative  entrepreneurship,  an  enhanced  super-
deduction will be given to small starting companies without associated enterprises. The 
CCCTB will also address the distortive preferential treatment of debt compared to equity, 

9 Impact Assessment on a Common Consolidated Corporate Tax Base (CCCTB) [SWD (2016) 341] 

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as a contribution to a strong Capital Markets Union and greater financial stability in the 
EU.  

4.  MODERN,  SIMPLE,  CERTAIN:  A  BETTER  AND  MORE  EFFICIENT 

TAX ENVIRONMENT FOR BUSINESSES  

Businesses in the Single Market need a simple, stable and legally certain environment in 
which  to  thrive.  They  should  encounter  minimal  tax  obstacles  when  operating  cross-
border and should not be burdened by unnecessary administrative burdens and costs. The 
EU  needs  a  corporate  tax  framework  adapted  to  the  realities  of  21st  century  business, 
which  encourages  enterprise,  attracts  investors  and  facilitates  all  companies  –  big  and 
small. 

4.1 A Single Corporate Tax System For A Single Market  

The CCCTB will considerably improve the functioning of the Single Market from a 
tax  perspective.  Cross-border  companies  will  benefit  from  a  single  set  of  rules  to 
calculate  their  taxable  profits  in  the  EU,  rather  than  a  medley  of  different  national 
systems. They will be able to file a single tax return for all their EU activities through a 
"One-Stop-Shop"  system,  dealing  with  just  one  Member  State  rather  than  multiple  tax 
authorities.  Consolidation  will  also  mean  that  losses  in  one  Member  State  can  be 
automatically set off against profits in another, thereby allowing cross-border companies 
to enjoy the same treatment as purely domestic ones.  

In  the proposed  Directive to  re-launch  the CCCTB, the Commission has  kept  the same 
ambitious approach to consolidation as was in the original proposal. However, the two-
step approach will delay this advantage. To compensate, the Commission has proposed 
that, until consolidation is agreed, companies should have access to a simple, robust and 
temporary system of cross-border loss offset within the common base.  

The CCCTB will be clear, stable and bound in EU law. It will be unanimously agreed 
by  all  Member  States,  guaranteeing  a  stable  system  which  is  not  prone  to  regular 
changes.  This  will  provide  businesses  with  an  unprecedented  level  of  tax  certainty. 
Companies will no longer have to adjust to the divergent tax rules of each Member State 
as they expand cross-border. They will no longer have to struggle to understand Member 
States'  different  approaches  to  taxing  certain  income.  They  will  no  longer  suffer  high 
administrative and legal costs, to deal with the complexities of transfer pricing. With the 
CCCTB,  the  main  tax  obstacles  for  businesses  in  the  Single  Market  today  will  be 
removed.  

The CCCTB offers major benefits to small  and medium sized enterprises (SMEs), 
as  well  as  large  companies,  in  the  EU.  The  CCCTB  will  only  be  mandatory  for  the 
largest companies. However SMEs and start-ups can opt in to the system if they want to 
benefit from the simplification and cost-savings it offers. Currently, SMEs are estimated 
to spend around 30% of taxes paid on compliance costs, and even more if they expand 
cross-border.  The  CCCTB  will  cut  these  costs  substantially  and  reduce  the  expense  of 
setting  up  a  subsidiary  in  another  Member  State.  These  savings,  together  with  the 
streamlined rules and simpler tax return system, will make it much easier for small and 
young companies to grow and expand in the Single Market.  

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4.2 Improved Tools To Prevent Double Taxation  

Companies must pay their fair share of tax where they make their profits, but they 
should not have to pay more than this. One of the biggest tax obstacles to the Single 
Market is double taxation. 

Disagreements amongst Member States over who has the right to tax certain profits often 
result in companies being taxed twice or more on the same income. Most recent figures 
indicate there are around 900 double taxation disputes ongoing in the EU, with EUR 10.5 
billion at stake. Most Member States have bilateral tax treaties with each other, to relieve 
double taxation and there are procedures to resolve disputes. However, these procedures 
are  long,  costly  and  do  not  always  result  in  an  agreement.  The  multilateral  Arbitration 
Convention,  which  has  been  agreed  between  Member  States,  provides  some  relief. 
However its scope is limited to transfer pricing disputes and there is no recourse to repeal 
the interpretation of the rules.   

For companies within the CCCTB system, double taxation should generally become 
a thing of the past. A single set of rules to calculate business profits, combined with the 
new apportionment formula that clearly distributes taxing rights, will make it clear what 
profits  should  be  taxed  and  where.  However,  cases  may  still  arise,  for  example  when 
there are transfer pricing arrangements between a group entity within and outside the EU, 
and  for  companies  not  within  the  CCCTB.  For  these  cases,  a  more  efficient  system  of 
resolving double taxation disputes is needed.  Moreover, until the CCCTB is agreed, an 
effective system is needed more widely to resolve double taxation disputes.  

The  Commission  has  today  proposed  a  Directive  to  improve  Double  Taxation 
Dispute  Resolution  Mechanisms in the  EU, to  reinforce a fairer, certain and more 
stable  tax  environment.  The  new  rules  will  ensure  that  cases  of  double  taxation  are 
resolved more quickly and more decisively when they arise between Member States. If 
Member States cannot agree on how to resolve a case, the taxpayer can ask its national 
court to set up an Arbitration Committee to deliver a final, binding decision on the case, 
within a fixed timeframe. This will help to avoid incertitude for the businesses involved. 
A wider scope of cases will also be able to benefit from the resolution mechanisms under 
today's proposal. These improvements to Dispute Resolution Mechanisms will save both 
businesses and administrations a considerable amount of time, money and resources and 
will reinforce tax certainty for companies in the EU.   

5.  TRANSPARENT,  EFFECTIVE,  COHERENT:  FAIRER  TAXATION  FOR 

ALL  

Fairness  has  become  a  central  requirement  for  corporate  tax  policy,  in  Europe  and 
internationally. Companies that benefit from the Single Market must pay tax where they 
make their profits and all companies should be treated neutrally for tax purposes. The EU 
needs a corporate tax system that ensures robust defences against corporate tax abuse, a 
level-playing field for businesses and fair burden-sharing for all tax-payers.  

5.1 A Fairer Corporate Tax System  

The  CCCTB  is  the  embodiment  of  a  fair  corporate  tax  system.  It  will  address 
important  weaknesses  in  the  current  tax  framework  which  enable  aggressive  tax 
planning. It will remove mismatches and loopholes between national tax systems, which 
are  exploited  by  tax  avoiders,  as  all  Member  States  will  apply  the  same  rules  for 

6 

 
calculating companies' taxable profits. Transfer pricing, which accounts for around 70% 
of  all  profit-shifting,  will  be  eliminated.  Moreover,  to  strengthen  the  anti-avoidance 
capacity of the CCCTB, it will be mandatory for the largest companies operating in the 
EU.  

The  incentive  for  Member  States  to  engage  in  harmful  tax  competition  will  be 
removed. Member States will no longer need to devote large resources to chasing mobile 
tax  bases,  because  the  CCCTB  apportions  profits  to  ensure  that  taxation  better  reflects 
where the real economic activity takes place. This will allow Member States to re-focus 
investment  and 
taxation,  which 
their  resources  on  growth-friendly 
employment and supports wider socio-economic needs.   

incentivises 

The  CCCTB  will  also  introduce  complete  transparency  on  each  Member  State's 
system and their effective tax rates. Member States have a sovereign right to set their 
own  tax  rates  and  the  CCCTB  does  not  compromise  this  in  any  way.  However,  it  will 
ensure  that  when  a  Member  States  decides  on  its  tax  rate,  this  rate  is  then  effectively 
applied  to  all  companies.  Hidden  preferential  regimes  and  harmful  tax  rulings  will  no 
longer  be  possible.  This  should  increase  citizens'  confidence  in  the  way  companies  are 
taxed and ensure a more level-playing field for all companies in the Single Market.  

5.2 Further Anti-Abuse Measures  

The CCCTB contains anti-abuse provisions to protect Member States against base 
erosion and profit shifting, both within the EU and with respect to third countries. 
This will reinforce its impact as an instrument to prevent tax avoidance. The anti-abuse 
measures within the CCCTB mirror those in the Anti Tax Avoidance Directive (ATAD), 
which were agreed by Member States in July 2016. This will ensure that all companies 
are subject to the same anti-abuse rules, whether they are inside the CCCTB system or 
not.  

The  Commission  has  also  presented  another  proposal  today  to  tackle  hybrid 
mismatches  involving  third  countries,  to  further  reinforce  EU  anti-abuse  provisions 
and  address  external  risks.  The  Anti-Tax  Avoidance  Directive  (ATAD)  already  deals 
with hybrid mismatches within the EU, eliminating a major channel of base erosion and 
profit-shifting.  However,  these  mismatches  are  not  limited  to  the  Single  Market  and  a 
solution is needed to counter-act external risks. When agreeing on the ATAD, Member 
States asked the Commission to bring forward another proposal, to ensure that this gap is 
effectively addressed. The Commission has therefore proposed new measures to address 
a  broad  range  of  mismatches,  including  hybrid  permanent  establishment  mismatches, 
imported mismatches, hybrid transfers and dual resident mismatches, both within the EU 
and in relation to third-countries. Like the measures in the ATAD, the rules in this new 
proposal are in line with the OECD BEPS approach.  

6.  STABLE, SUPPORTIVE, UNBIASED: A MODERN TAX SYSTEM FOR A 

HEALTHY ECONOMY 

The EU needs a corporate tax system shaped to support a more competitive, innovative 
and economically-stable EU. Growth and investment rely on an environment that enables 
business, encourages productive financing and rewards growth-friendly activities such as 
research  and  innovation.  The  CCCTB  will  make  the  EU  a  highly  attractive  market  to 
invest  in,  by  offering  companies  solid  and  predictable  rules,  a  level-playing  field,  and 
reduced  costs  and  administration.  In  addition,  the  Commission  has  reinforced  the 

7 

 
CCCTB  proposal  with  new  provisions  that  specifically  focus  on  growth-promoting 
activities.   

6.1 Better Incentives for Innovation 

The  CCCTB  will  support  Research  and  Development,  which  are  key  drivers  of 
growth  and  competitiveness.  Currently,  the  EU  is  falling  behind  other  advanced 
economies when it comes to investment in research and innovation. Although nearly all 
Member States have some tax incentive for R&D, not all of these are effective and some 
are  even  exploited  by  larger  firms  for  tax  avoidance  purposes.  Divergent  national 
incentives also create a complex tax environment for companies investing in R&D.  

The  CCCTB  will  offer  an  EU-wide  tax  deduction  to  companies  that  invest  in  real 
research activities. This deduction will be even more generous for start-up companies, 
given  their  importance  in  job  creation,  the  promotion  of  healthy  competition  and  the 
establishment of more efficient business models. The R&D incentive will give a boost to 
companies with smaller budgets, to allow them to grow, and will encourage the creation 
and expansion of young, innovative enterprises. It is also designed on the basis of a best 
practice model, so that it can't be used for avoidance purposes.     

6.2 An Investment-Friendly Tax Environment 

The CCCTB will also address distortions in current tax systems that can destabilise 
the  economy.  Most  Member  States'  corporate  tax  systems  favour  debt  by  allowing 
interest  payments  to  be  deducted,  without  granting  similar  treatment  to  equity.  This 
preferential  treatment  encourages  companies  to  take  on  more  debt,  making  them  more 
fragile  and  making  economies  more  prone  to  crises.  This  presents  an  obstacle  to  the 
creation  of  a  stronger  equity  base  in  European  companies.  It  tilts  the  structure  of  the 
financial  market  towards  debt  instruments  and  may  impede  efficient  capital  market 
financing.  This goes against the fundamental goals of the Capital Markets Union and the 
capital base requirements for the Banking Union.  

The  CCCTB  will  remove  the  debt  bias  distortion,  by  offering  an  Allowance  for 
Growth  and  Investment  (AGI).  This  allowance  will  ensure  that  equity  receives  a 
similar level of tax benefits as debt does, creating a more neutral and investment-friendly 
tax  environment.    The  AGI  will  reward  companies  that  strengthen  their  financing 
structures and tap into capital markets10. SMEs, that often struggle to secure loans, will 
particularly benefit from this new provision. Given the positive impact that the AGI will 
have  on both  businesses and the wider economy, the Commission  also invites Member 
State to consider using it for companies outside the CCCTB system too.  

7.  CONCLUSION 

The  Commission  is  proposing  a  comprehensive  response  to  current  and  emerging 
challenges in corporate taxation and a positive new approach to taxing companies in the 
future.  The  CCCTB  will  deliver  notable  improvements  to  the  EU's  corporate  tax 
framework, in terms of simplicity, tax certainty and fairness. It will ensure that corporate 

10     Given the higher risks linked to equity financing compared to debt financing, a risk premium will be 
added to the yield for determining the amount for deduction. Given that increases in the equity base 
may  go  back 10  years,  the reference  yield for deduction will  be  the 10-year  government  benchmark 
bond in the euro area.   

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taxation is aligned to the modern economy and that it supports the goal of a stronger and 
more competitive Single Market.  The proposal  on Double Taxation  Dispute Resolution 
and  the  proposal  to  tackle  hybrid  mismatches  with  third  countries,  which  the 
Commission has also presented today, will further contribute to fairer and more efficient 
corporate  taxation  in  the  EU.  The  Commission  therefore  calls  on  Member  States  to 
swiftly agree on all of the proposals presented today, so that businesses, administrations, 
citizens  and  the  European  economy  can  start  to  enjoy  the  full  advantages  of  this  fair, 
competitive and stable corporate tax environment.  

9