Abstract

The European Commission is currently working on a legislative draft to harmonise corporate income tax provisions for multinational groups of companies throughout the European Union. For that purpose the European Commission has installed a working group with the mission to draft a set of rules providing for a Common Consolidated Corporate Tax Base (CCCTB). Each group member will be responsible for determining a preliminary income (pre-consolidation income); these preliminary incomes will then be consolidated to form the CCCTB and finally this consolidated overall group income will be apportioned to each group member using a micro economic factor based formula. The situs state of the particular group member will then apply its statutory corporate tax rate on the apportioned tax base. This paper evaluates the effects of this prospective apportionment procedure on any given corporate group entity and finds that the share of the group’s income allocated to a particular entity using the apportionment formula does regularly not equal the pre-consolidation income of the respective group entity. These differences potentially lead to an over taxation or an under taxation of the particular group member. The benefits of the joint taxation therefore will only be accrued by profit-making group members. This paper furthermore analyzes group taxation systems currently applied by EU-Member States and OECD-Member States with respect to the methods and techniques used to allocate the benefits of the joint taxation within the whole group. The paper further finds that no such used technique is directly applicable for the CCCTB-concept and develops therefore a distinct benefit sharing method for CCCTB groups.

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