The European Commission in its ongoing efforts to further tighten controls and diminish tax avoidance, in October has re-launched its proposals for a new legislation recommending the formation of a regional corporate tax regime applicable to all member states as a Single Market, for fairer, simpler, more effective taxation in the EU. It aims at boosting tax transparency and creating an even playing field for all businesses across the EU.
According to the proposed legislation legal entities that are tax-residents in a European country and have annual turnover of more than €750 million will be taxed based on a Single Market, for the purpose of calculation of taxable profits, therefore adhering to a single set of rules used to calculate companies’ taxable profits in the EU. This will be mandatory and is set to further combat tax avoidance in large businesses across the EU. The proposed rules would apply to EU-resident companies and permanent establishments (PEs) situated in the EU.
The new proposed legislation has two steps, the establishment of a common corporate tax base (CCTB) and a common consolidated corporate tax base (CCCTB).
The common corporate tax base would establish an alternative and unique methodology, to determine where a company actually makes its money, based on the following elements:
Once the above are agreed and established, then the CCCTB would set the conditions for a central tax group to be formed, and set the path for a consolidated tax base to the respective Member States (with rules on entering and leaving the group, as well as the treatment of losses).
The objective of this proposed amendment is to simplify the tax reporting and collection of tax revenue for companies that operate in different countries.
The CCCTB also outlines proposals for anti-tax avoidance and anti-abuse provisions, as well as proposed directives for dispute resolution and double taxation, with focus on improving mechanisms in the EU. The goal is to create a transparent, and effective tax regime that will be simpler and more cost effective for all within the EU.