Taxation: a common consolidated corporate tax base

Direct taxation is a matter for which individual Member States have a particularly strong interest as it not only governs the revenue available to each Member State but is also inextricably linked to their social and other policy choices. This is reflected in the fact that powers in this area can only be exercised by the EU if Member States unanimously agree. Therefore the principle of subsidiarity in this area needs to be exercised with particular rigour. In the past the Commission has made plain its hope of introducing harmonisation of direct taxation for companies, in particular by establishing a “Common Consolidated Corporate Tax Base” (CCCTB). In March 2011, it sought, with a proposed Council Directive, to introduce a CCCTB, which would have provided for a single set of harmonised rules for calculating the tax base for taxable profits of companies resident in Member States, allowed companies to opt into this CCCTB or to continue to operate within national tax systems, allowed groups of companies to calculate their total EU-wide consolidated profit for tax purposes, provided for that profit to be allocated to companies making up the group on the basis of an apportionment formula composed of sales, payroll, number of employees and assets in each Member State, and provided that Member States would then tax the profit apportioned to companies in their Member State at their own corporation tax rate. This House and seven other national parliament chambers issued reasoned opinions that this proposal failed to comply with the principle of subsidiarity. Achieving agreement on the proposal proved very difficult so the Commission has now formally withdrawn it and replaced it with two proposed Council Directives. One would introduce as a first step a common corporate tax base (CCTB) with application from 1 January 2019 and the other would introduce as a second step a CCCTB with application from 1 January 2021. Although the two proposals would largely repeat the content of the original proposal, the system would only be mandatory for companies in large groups. For others it would be voluntary. The Commission has also proposed additional provisions concerning allowances for growth and investment and for research and development and to address a bias, inherent in present taxation rules, towards debt for investment, rather than equity.