Four years after failing to formulate common company tax rules across Europe, the EU is set to tackle the low-tax arrangements of states that have benefited the likes of Amazon, Starbucks and Apple.
The European Commission is due on Wednesday (17 June) to set out plans for a so-called common consolidated corporate tax base (CCCTB), after its previous attempt met member state opposition to what is still a matter of national sovereignty.
Yet corporate taxes have remained in the headlines because of the way multinationals can legally reduce their bills by basing themselves in low-tax centres. And the EU is already investigating the tax arrangements of Apple, Starbucks and Amazon in some member states.
It said in June last year those investigations are at an advanced stage, and decisions could be announced in coming months.
In a paper to be published on Wednesday, the Commission says its latest CCCTB proposal in 2011 was for an optional system, which limited its effectiveness as a tool for preventing profit shifting by cross-border companies.
“The Commission will therefore work on a proposal to make the CCCTB compulsory, at least for multinational enterprises,” it says in the document, which could still face last-minute changes ahead of publication.
The plans are designed to prevent “aggressive” tax planning, such as artificially shifting profits to a country where rates are lowest, or beneficial tax rulings can be secured.
Chas Roy-Chowdhury, head of taxation at accounting body ACCA, said the plan would likely end up in the form of enhanced cooperation.
“The main thing is to make sure that any CCCTB tax regime is fully compatible with global initiatives and that we need as many member states involved as possible,” Roy-Chowdhury said.
The Commission says it would advocate a step-by-step approach. “The primary focus should be on securing the common tax base,” the document said.
“The Commission will present a new legislative proposal as soon as possible … introducing the mandatory element and providing for a staged approach to the CCCTB.”
The proposal could also address the more favourable treatment currently given to corporate debt over shares.
Catherine Olier, Oxfam’s EU policy advisor, said, “The European Commission has wasted a unique opportunity to revive proposals to tackle corporate tax dodging abandoned by member states. The result is a watered down version that lacks teeth, and leaves us wondering how many more scandals are needed for Europe to finally take corporate tax dodging seriously.”
BusinessEurope President, Emma Marcegaglia, said, "European business fully shares the European Commission’s objective to fight tax fraud and evasion as it creates competitive distortions at the expense of the vast majority of businesses who paid nearly €2 trillion of taxes in the EU in 2012. But efforts to fight fraud and evasion must not undermine the principle of fair tax competition whereby EU member states are able to set their own tax policies and rates within the international rules that they have agreed on.”
Tove Maria Ryding, tax justice coordinator of the European Network on Debt and Development, said, “It seems that the European Commission wants to postpone Christmas but make sure that big business gets its presents now. The option of offsetting profits in one country with losses made in another country could create a whole new playing field for tax speculation and lower tax payments. For a package that was meant to address the low tax payments of transnational companies this is highly worrying. It also means multinational corporations will now have even more privileges that are not available to national small and medium enterprises.”
The European Commission has long sought to harmonise national corporate tax systems, claiming that this will contribute to its goal of creating more growth and jobs in Europe and boosting the competitiveness of EU companies.
Currently, there are 28 different systems in Europe for calculating a company's taxable earnings, making it costly and burdensome for businesses to operate in several member states. The Commission says creating a single tax base will encourage cross-border activities and investments.
The idea of a common consolidated corporate tax base (CCCTB) was initially voiced in a 2001 communication but progress has been slow due to member states' reluctance to allow the Commission to encroach upon their national sovereignty in this area.
When a first progress report was debated in 2006, 12 countries were in favour and seven – Ireland, the UK, Lithuania, Latvia, Slovakia, Malta and Cyprus – were against. The rest were still undecided.
The Commission's latest attempt dates back to 2011, when EU leaders talked about greater fiscal and social harmonisation in the eurozone to tackle the sovereign debt crisis. But again, the proposals ran into resistance from member states.
The Commission now hopes to ride on the public outcry over tax evasion by multinational companies to revive the debate over the CCCTB.
Competition Commissioner Margrethe Vestager said the 'Luxleaks' scandal involving leaked tax documents from Luxembourg have sparked a broader debate in the EU which she hopes will help pass the long-standing proposal.
- DG Tax: Common Tax Base