Is your business having difficulty filing tax returns in multiple EU states? Tax systems across the EU vary greatly. This creates a lot of headaches for companies doing business in more than one EU country. This is because how taxable profits are calculated and the percentage rates applied to taxable profits differ vastly state to state. To manage these different tax systems businesses often have invest heavily in both time and monetary resources. These systems can even act as a deterrent for companies in doing business in some locations.
The EU Commission has put forward a proposal for a Common Consolidated Corporate Tax Base (CCCTB). This essentially involves a single set of rules for the calculation of taxable profits for corporate tax purposes across the EU. In addition, companies would be able to file one tax return in respect of all their EU business. The rules also allow for consolidation of profits and losses across the various jurisdictions i.e. the offset of profits and losses. The consolidated profit would then be apportioned to the various member states in which the company does business and taxed accordingly resulting in each member state receiving their share of the tax. The member state in which the majority of the company's business is done has the responsibility for co-ordinating the operation.
The intention is to reduce costs for such business in order to assist in the creation of jobs, the improvement of products and services and the reduction of prices for the consumer. It is also agued that this will reduce the risk of over-taxation.
The CCCTB will not be compulsory and companies will be able to choose between this or the existing arrangement (if they opt for this system, however, it must be for a minimum of 5 years). Each country will still determine their own tax rate. It is hoped that the proposal will be adopted by the member states by 2013.
An impact assessment was carried out and according to this the CCCTB will result in a reduction of the tax base across the EU (including a reduction in Ireland's tax base). Furthermore, the European Commission have advised that it will result in a reduction in compliance costs, expansion costs etc.
It all sounds good, but the proposal has not been met by rounds of applause by all! In fact there appears to have been very little in the way of positive feedback in Ireland on the matter.
The Irish Taxation Institute has done some research on this matter and has concluded that compliance costs will actually increase as a result of CCCTB. They also determined that the tax administration costs would outweigh any benefits from the reduced need for transfer pricing. Furthermore, according to the Institute's research the effective tax rates for businesses will increase if the CCCTB is implemented!
Ibec has suggested that this is not likely to make Europe more attractive as an investment location as it will actually result in further complicating the corporate tax systems of Europe.
There is also a fear that down the line there will be a move towards a single tax rate across Europe and that this represents the first step towards this. There will undoubtedly be a lot more discussions regarding this over the coming weeks and we will provide further updates in this respect.