The concepts of Common Corporate Tax Base (CCTB) and Common Consolidated Corporate Tax Base (CCCTB) once again emerge as a perceived solution to tax the Member States via a “digital presence” and commonality in computing tax liabilities of the EU Member States.
These proposals have emerged in prior years, now with a digital presence emphasis, although such measures have required a unanimous vote which is difficult to achieve. However, this trend is always worth watching as the public perception may help to sway those countries that strive to protect their sovereignty over taxation.
The EU Council has provided a Directive that would introduce legislation ensuring the EU maintains its leadership role in anti-BEPS recommendations, as well as providing good tax governance for the rest of the world. EY’s summary of the Directive is provided for reference:
Automatic exchange of tax rulings would be effective 1/1/2017.
Changes would be introduced for the EU Code of Conduct.
EU anti-BEPS proposal to include the following BEPS Actions:
2: Hybrid mismatches
3: CFC rules
4: Interest limitations
6: General anti-abuse rule (noting its inclusion for the Royalty & Interest Directive, similar to the Parent-Subsidiary Directive)
7: PE status
13: Country-by-Country (CbC) reporting
Common Corp. Tax Base (absent later consolidation phase) proposal to be introduced in 2016
The EU continues its pace to maintain its global lead in addressing anti-BEPS concerns, which will impact non-EU countries around the world. Thereby, it provides another set of rules that would be mandated to achieve EU conformity.
The European Commission (EC) and European Parliament (EP), including the TAXE Committee on Rulings established by the EP, have recently endorsed many provisions that would normally require the unanimity of approval by the Member States. Knowing this has not resulted in success with prior initiatives, a renewed focus may be taking place re: Article 116 of the Treaty on the Functioning of the European Union (TFEU) which empowers the EC/EP to issue a Directive accordingly.
Article 116 TFEU:
Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member Sates is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.
If such consultation does not result in an agreement eliminating the distortion in question, the EP and the EC, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives. Any other appropriate measures provided for in the Treaties may be adopted.
The TFEU is the same legal mechanism used to address State Aid, and may also be the choice of implementation to establish Directives for one or more of the following initiatives:
EU Common Corporate Tax Base (CCTB)
Country-by-Country (CbC) reporting, public disclosure
Tax rulings, (redacted) public disclosure
Permanent Establishment (PE) definition
Anti-BEPS Directive, transforming OECD “soft law” into an EU legislative framework
Interest & Royalty Directive requiring confirmation of EU tax being paid elsewhere
EU Dispute Resolution approach
Everyone should monitor the EC, EP and TAXE for continuing developments, as they may form the basis for new global standards to enact the intent of BEPS initiatives.