The proposed Common Corporate Tax Base (“CCTB”) and Common EU Consolidated Corporate Tax Base (“CCCTB”) have been approved by the EU’s Economics and Monetary Committee (announcement here). The European Parliament’s briefing from September 2017 is available here.
The aim of the CCTB is to create a single set of rules for calculating a company’s taxable profits in each EU jurisdiction and the CCCTB aims to consolidate profits and then use a formula to apportion these among EU jurisdictions. It is currently intended that the new regime would only apply to corporations with a consolidated turnover in excess of €750 million. However, MEPs would like to expand the CCTB and CCCTB to include all companies within seven years.
The intention is that these measures would reduce uncertainty (eg by eliminating EU transfer pricing and reducing the risk of double taxation) and lower administrative burdens, while creating a link between where profits are taxed and where they are generated. There would also be a single tax authority.
Allocating profits to the jurisdictions from which they arise would prevent business in the digital economy from structuring their affairs to take advantage of favourable tax treatment in other EU jurisdictions and there is growing pressure to tax profits of the digital economy where ‘value is created’.
The proposals will be put before the March European Parliament plenary session. The MEPs will then have the opportunity to vote on the proposals and, if a majority approve, will submit them to the European Council for its consideration.
Given that the legislative process is still in early stages, it is probable that the CCTB/CCCTB proposals, if approved, would not take effect until after the UK has left the EU. The applicability of any EU tax measures will depend on the outcome of on-going Brexit negotiations (bearing in mind the European Council’s guidelines for Brexit negotiations have specifically noted the importance of “a level playing field” for tax matters). UK businesses that operate in the EU will need to carefully consider whether they are still subject to EU tax provisions post-Brexit.
For more information in respect of changes affecting the digital economy and tax consolidation, please see our articles Europe Taxing the Digital Economy: could a turnover tax be on the horizon? (here), Taxing the Digital Economy: first steps by the UK (here), Public Input on Taxing the Digital Economy (here), Public Country-by-Country Reporting; Taxpayers' Rights (here), and Tax transparency - the UK goes the extra mile (here).