Member States must find an equitable and balanced formula, urges the EESC
Multinational companies are subject to different tax rules across the European Union. This, together with the use of aggressive tax planning results in lower tax revenues for EU Member States, which affects public revenue, and therefore – ultimately – European citizens.
Corporate taxation: A complex issue
In re-launching and modifying its proposals from 2011 on a Common Consolidated Corporate Tax Base (CCCTB) the European Commission aims to create a single rulebook for companies and to combat aggressive tax planning, by attributing companies' income where the value is created, as well as to contribute to growth, competitiveness and fairness in the single market.
The European Economic and Social Committee (EESC) is the first institution to have adopted a position on the proposals and to make recommendations for a more effective and more achievable CCCTB. In its opinion, adopted during its September Plenary, the EESC endorses the aims of the Commission proposals as well as the creation of a single set of rules to calculate companies' taxable profits in the EU. The EESC believes that a CCCTB could generate benefits for companies, citizens and Member States, if it delivers simplicity and certainty of corporate taxation on the one hand, and reduces tax barriers and complexity on the other.
Two stages to be completed
Because of the sensitive nature of the issues as regards subsidiarity and state sovereignty, the EESC recommends making the greatest of efforts to achieve the CCCTB by consensus. It urges the EC and the Member States to pursue speedy completion of the proposed stages. "We understand the reasons behind the two-stage approach but we shouldn't find ourselves in a situation where we do the first bit but not the second. Thus we ask for a seamless link between the two stages. The second stage must be introduced as soon as we have an agreement on a common base", said Michael Mc Loughlin, rapporteur of the EESC opinion.
An equitable and balanced CCCTB
The EESC draws attention to the need for the CCCTB to address the challenges of the digital economy and proposes to consider including intellectual property in the apportionment formula. "The value of intellectual property is very difficult to assess but companies use it for trading within their structures, a typical practice leading to aggressive tax planning", stated McLoughlin.
In addition, the sales by destination key may also need changes. From the Committee's point of view, the destination key must ensure equitable implementation. "The formula should avoid systematically unbalanced effects. Smaller exporting Member States should not lose substantial amounts of taxable income to larger consuming ones", argued the rapporteur.
The EESC also recommends undertaking a detailed assessment on a Member State by Member State basis to examine the impact of a CCCTB on investment attractiveness, job retention and creation for each country.
An effective CCCTB will contribute to fair competition and growth
At its September Plenary the Committee also adopted an own initiative opinion on A favourable tax system for fair competition and growth, which also welcomes a CCCTB. “The CCCTB can represent a first step in a unified tax regime for all corporations in Europe. We really believe that it contributes to the ease of doing business. Companies will be able to develop their investment easily all over Europe because they don’t have to spend money on evaluating the tax regimes and policies in a new location, when they are trying to develop a new investment”, argued Petru Sorin Dandea, rapporteur of the opinion.
The EESC paper calls on the Member States to step up their efforts for combating aggressive tax planning and tax avoidance, pursuing the development of effective rules on a global stage. “When carrying out tax reforms, Member States should shift the tax burden from labour to harmful financial or environmental practices and should avoid using tax rulings that are not justified by the economic substance of the transactions. Tax revenue is an important source of public investment. That’s why we have to ensure fair taxation in Europe”, stressed Petru Sorin Dandea.
The EESC will continue its work on tax harmonisation and simplification as well as on the fight against tax fraud, following the aim to create a fair and competitive EMU, free of tax barriers. Currently, the EESC is working on related opinions on Disincentives to tax avoidance or evasion and Wealth inequality in Europe.
For more information on the opinions please consult our webpage.