Common Consolidated Corporate Tax Base (CCCTB)
On 25 October 2016 the European Commission presented a package for a major corporate tax reform for the EU. The package includes a proposal for a Common Corporate Tax Base (CCTB), a separate proposal for a consolidation of the tax base (CCCTB), a proposal for an improved system to resolve double taxation disputes in the EU and a proposal aimed at hybrid mismatches between Member States and non EU countries. The latter proposal broadens the scope of the Anti-Tax Avoidance Directive agreed in July 2016 that already addressed mismatches within the EU.
The CCTB proposal and the CCCTB proposal, once adopted, would have a huge impact on both multinationals and tax authorities in the EU. The CCCTB project was first tabled in 2011, but the Member States were unable to reach a final agreement. The re-launched CCCTB proposal has been broken down into a two-step process:
- A proposal for a Common Corporate Tax Base (CCTB) providing for a single set of detailed rules to calculate the taxable income of a company. Next to the rules addressing traditional profit calculation rules, the proposal contains provisions against base erosion and profit shifting (BEPS) in addition to the EU Anti-Tax Avoidance Directive. The latter rules have been inspired by the recommendations of the BEPS project of the OECD. The proposal comes with two specific features to boost the European economy as a whole, namely an allowance for growth and investment (AGI) and a super deduction of R&D expenses. The European Commission advocates an ambitious timetable. The CCTB should in its view already become applicable as from 1 January 2019;
- A proposal for a Common Consolidated Corporate Tax Base (CCCTB) including consolidation and formula apportionment. This would also facilitate cross border offset of losses within a group of EU resident companies (permanent establishments). The CCCTB should be applicable as from 1 January 2021. Especially, this consolidation part of the 2011 proposal met opposition from EU Member States. Nevertheless, the European Commission aims at implementation of both proposals, albeit that for the CCCTB more time is taken.
For the CCTB and/or CCCTB to become a reality, unanimous consent of all EU Member States is required.
Compared to the previous proposal in 2011, the new corporate taxation system will:
- Be mandatory for large multinational groups which have the greatest capacity for aggressive tax planning, making certain that companies with global revenues exceeding € 750 million a year will be taxed where they really make their profits;
- Tackle loopholes currently associated with profit-shifting for tax purposes;
- Encourage companies to finance their activities through equity and by tapping into markets rather than turning to debt;
- Support innovation through tax incentives for Research and Development (R&D) activities which are linked to real economic activity.
Corporate tax rates are not covered by the CCCTB, as these remain an area of national sovereignty. According to the European Commission, the CCCTB will create a more transparent, efficient and fair system for calculating the tax base of cross-border companies, which will substantially reform corporate taxation throughout the EU.
The proposal for a CCTB directive and a CCCTB directive forms part of a broader package to facilitate business in the Single Market and to provide a powerful tool against tax avoidance and the impact of the proposals, once adopted, can hardly be over-estimated.
Please find more in-depth information about this topic on the left side of this page. Should you wish to get in touch with one of our team members, please call one of our CCCTB specialists. Alternatively, you can send us an e-mail and we will respond promptly.