Common Consolidated Corporate Tax Base

Wednesday 23 March 2011

On March 16, 2011, the European Commission proposed a common system for the development of a Common Consolidated Corporate Tax base in the European Union. The proposal comes after several consultations and working papers over the past years.

The proposal aims to offer not just large corporations but also small-and-medium-sized cross border enterprises, a choice for the application of the tax legislation of a single Member State for the calculation of the entire corporate tax base for all the European operations of such enterprise. This system would allow consolidation of profits and losses from various European operations. Furthermore the proposal encompasses filing only a single corporate tax return in one Member State, rather than all individual states where such company has operations. A formula based on the assets, turnover and average employment would be subsequently applied to determine the amount of tax due in the various Member States based on their respective corporate income tax rates.

The proposal would result in significant reduction of the administrative burdens, high compliance costs and legal uncertainties that companies currently face when operating in more than one Member State. It could also result in reducing the need for complicated transfer pricing documentation. However the proposal contains strong anti-avoidance and abuse rules, in line with legislation in force in most Member States, most to ensure that companies cannot artificially shift profits from one Member State to another.

It is important to note that the proposal is still subject to approval by the European Council following the opinion of the European Parliament. Also, the European Commission stressed that this proposal is not intended to lead to a common corporate income tax (rate). 
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