Common Consolidated Corporate Tax Base Research Articles

Tracing Capital: Toward a Neutral Specialized Formula for Financial Institutions under Common Consolidated Corporate Tax Base (CCCTB)

Common Consolidated Corporate Tax Base (CCCTB) is an ambitious tax reform project under EU law, to harmonize corporate income tax base on a group basis at the EU level, and use a pre-determined formulary apportionment mechanism (i.e. a formula consisting the sales factor, the asset factor and the labour factor) to allocate taxing rights between EU Member States. The standard formula is based on the business model of the manufacturing industry and is not completely suitable for the financial industry. The current CCCTB Proposal has a special formula apportioning pan-EU taxable income a multinational taxpayer in the financial industry but there are some problems in it. This paper compares the financial industry formula in the USA state taxation and argues that, the role of the monetary capital is the key criterion to design the financial industry formula under the CCCTB. Based on this rationale, the financial industry formula should include a special rule for the asset factor to include the financial assets and a special rule for the sales factor. Such formula would be suitable not only to multinational groups consisting of pure financial institutions but also to multinational groups consisting of both financial and non-financial institutions.

Corporate Income Tax as a Genuine Own Resource

This article proposes an original review of the literature on tax competition, and provides new evidence concerning different types of footloose capital: the intensity of strategic interactions is three time stronger for nancial assets than for less mobile capital (e.g. industrial buildings). We also present tax optimization techniques used by Multi-National Firms (MNFs) and document some case studies regarding the foregone tax revenue due to evasion. Amounts saved by rms are comparable to the annual contributions to the EU budget by countries like the UK, Ireland, the Netherlands or Luxembourg. We estimate that the total revenue losses for the EU governments due to corporate tax avoidance amount to almost 100 billion €. After this description of the failure of the current system of taxation, this article analyzes alternative schemes such as the Common Consolidated Corporate Tax Base (CCCTB) and concludes with the outlook of a European corporate income as a genuine own resource for the EU budget.

The European Commission Proposal for a 3% ‘Call Rate’ as a New Suggestion for a EUCIT: An Assessment Against the Criteria for a Fair Taxation

The European Commission’s proposal for a 3% ‘call rate’ on the Common Consolidated Corporate Tax Base (CCCTB), to be introduced after the CCCTB itself, has been submitted with the draft budget for 2021–2027 for allowing the EU to rely on a new ‘own resource’. This proposal would lead to a situation where uniform rules on the tax base at EU level would be accompanied by a uniform (however minimal) tax rate at EU level. Accordingly, without mentioning the ‘European Union Company Income Tax’ (EUCIT) suggestion which was initially put forward as one of the alternatives for a comprehensive business taxation scheme, the proposal for a 3% call rate can be considered as a step forward towards the EUCIT itself. If the 3% call rate proposal were assessed against the classical canons for ‘fair taxation’ – equity, neutrality, certainty, convenience – it could be argued that the proposal manages to a good extent to meet the equity and the certainty criteria but could still be improved to better meet the neutrality and convenience criteria too, to the benefit both of its ability to result in a new ‘own resource’ for the EU budget and of the management of the CCCTB scheme itself.

The CCCTB Allocation Formula Game: The Performance of Economics Sectors

The implementation of the Common Consolidated Corporate Tax Base (hereinafter CCCTB) in the European Union will probably have an impact on tax revenues of the concerned states since the distribution of the group tax base shall reflect the capacity to earn income by individual group members. This is secured by the employing of the allocation formula containing three factors that shall reflect the profit generating process of individual companies. The paper analyses the explanatory power of the proposed CCCTB formula on the data sample of group companies with a link to the Czech Republic - either parent or subsidiary company in the group covered in dataset is tax resident of the Czech Republic. The obtained results are evaluated on the level of individual economic sector with the aim to verify if the proposed CCCTB formula is the most suitable for them, where the sufficiency of the explanatory power of the allocation formula was indicated based on the assigned change of distributed profit to the respective economic sector.

Tax Avoidance in the Sales Factor: Comparison between the CCCTB and USAAs Formulary Apportionment Taxation

Formulary apportionment is a method to allocate taxing rights of states. It is different from the OECD’s international taxation rules which are based on bilateral tax treaties and national transfer pricing rules. Formulary apportionment adopts a pre-decided formula to allocate the taxing rights on cross-border taxable activities. In a pre-decided formula, it is common to have various factors, such as sales, labour, asset of the taxpayers. Since early 20 th century, USA has a long history of formulary apportionment in the field of state taxation. Many states of USA adopt their own formulas to allocate their taxing rights upon some cross-state business activities. Based on the experiences and practice in USA, European Union has also an ambitious project: Common Consolidated Corporate Tax Base (CCCTB) Directive Proposal. This Directive aims to harmonize corporate tax base for all EU Member States and provide a uniform sharing formula, to allocate taxing rights of corporate tax to replace the traditional bilateral tax treaties and over complicated transfer pricing rules. This paper analyses the possibility of inflating the sales factor, both in USA and in the CCCTB Directive Proposal due to including items such as marketable securities and hedging transactions. The sales factor is the ratio between the sales of a specific group member company (the numerator) to the whole corporate group’ sales (the denominator). One obvious possibility is to inflate the ratio by including items in the denominator, such as marketable securities, hedging transactions. In USA, these items are no longer defined as sales in the formula, and thus are excluded from the formula. However, the CCCTB Directive has not fully eliminated this problem of inflating the sales factor, and thus leaves a loophole.

The Apportionment Formula under the European Proposal for a Common Consolidated Corporate Tax Base

In this article, the author discusses the sharing mechanism suggested in the Common Consolidated Corporate Tax Base proposal, which employs three equally-weighted factors: assets, labour and sales. The author argues that although there is no doubt that the transfer pricing regime should be replaced by a more effective system, designing an adequate method requires taking into consideration the unique characteristics of the European Union and the experience with formulary apportionment in other states.

Addressing the Debt-Equity Bias within a Common Consolidated Corporate Tax Base (CCCTB) – Possibilities, Impact on Effective Tax Rates and Revenue Neutrality

Corporate tax systems encourage the use of debt rather than equity finance. This corporate debt bias is a matter of concern in light of its implications for macrofinancial stability. In October 2016, the European Commission addressed the issue in its relaunched proposal of a Common (Consolidated) Corporate Tax Base (CC(C)TB). Various reform options to alleviate the debt bias and increase financing neutrality of tax systems exist. Whether such reforms are indeed effective from the point of view of EU Member States depends on how they interact with the specific local tax codes. Based on the well-established indicators of the effective tax burden of companies according to the Devereux/Griffith methodology, this paper analyses the impact of four fundamental tax reform options on financing neutrality in each EU Member State. The results show that all fundamental tax reform options largely establish financing neutrality in the EU Member States but considerably differ in their consequences for corporate investment.

The CCCTB Relaunch: A Critical Assessment and Some Suggestions for Modification

textabstractWinds of change have been blowing through the world of international company taxation, with company tax planning and country tax competition increasingly attracting questions from the general public, the media, politics and academia. The most systemic corporate tax reform proposal in the EU so far has come from the European Commission: on 25 October 2016, as part of a broader package of corporate tax reforms, the Commission released proposals for a Council Directive on a Common Corporate Tax Base (CCTB) and a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB), thus relaunching its original CCCTB proposal of 16 March 2011 in two stages. The CCTB/CCCTB proposals have not, however, been particularly warmly welcomed in the EU Member States. The Commission regards the CCCTB as the holistic solution for BEPS issues in the EU, while the impact assessment it presented stated that the expected economic benefits of a CCCTB for the internal market would be slightly positive (assuming an absence of tax planning under a CCCTB and tax rate adjustments in EU Member States to stabilise corporate tax revenues). Yet various EU Member State parliaments raised formal objections to the CCTB/CCCTB proposals, while others were very critical, but did not formally issue an objection. The objections raised show that at least a number of Member States are quite explicit in considering the proposals to fall outside EU competences. What has gone wrong? How come a perceived holistic and growth-friendly solution to a societally relevant problem is facing such political resistance in the EU Member States, or at least in a significant number of them? This paper asks whether the CCTB/CCCTB proposals adequately respond to societal calls for a properly functioning company taxation system in the EU; in other words, a system that reflects the spirit of the internal market, as well as the needs and interests of the individual EU Member States? If the answer to this question is negative, how, then, should we seek to tax multinationals in the internal market?

Is the common (consolidated) corporate tax base a suitable solution for SMEs?

The common (consolidated) corporate tax base (C(C)CTB) represents one of the most ambitious projects in the history of corporate taxation in the European Union, which introduced cross-border loss offsetting and the consolidation of profits or losses with apportionment between Member States via an apportionment formula. The implementation of the C(C)CTB system can bring the advantages, such as reduced compliance costs of taxation, unified rules for tax base construction, the establishment of the possibility of cross-border loss offsetting, the elimination of transfer pricing issues and others. With respect to SMEs, we research whether SMEs would prefer to opt for C(C)CTB system, mainly in the context of advantages which are offered by this system. Based on the result of our research we can conclude that SMEs would opt for the CC(C)TB system.

Group Provisions in the Common (Consolidated) Corporate Tax Base

In this article the author discusses the participation exemption, the switch-over provision and the controlled foreign company (CFC) rules in the proposals for directives on a Common Corporate Tax Base (CCTB) and a Common Consolidated Corporate Tax Base (CCCTB) published on 25 October 2016.

Opinion Statement FC 3/2017 on the Proposed Directives for the Introduction of a Common Corporate Tax Base and Common Consolidated Corporate Tax Base

This CFE Opinion Statement, submitted to the European Institutions on 9 June 2017, discusses the proposed directives for the introduction of a common corporate tax base and common consolidated corporate tax base.

How Can the East African Community Guard Against Base Erosion and Profit Shifting While Working Towards Deeper Integration? Lessons from the European Union

The East African Community (EAC) is working towards establishing deeper integration between its six partner states. The EAC partner states are: Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda. This paper analyses the lessons the European Union may offer the EAC in guarding against base erosion and profit shifting while implementing its integration project. Corporate tax and VAT have been identified as the two tax bases most at risk. This paper analyses the steps taken by the European Union to protect its corporate tax and VAT bases, and draws from the European Union’s proposed Common Consolidated Corporate Tax Base and its VAT harmonization efforts to recommend best practices for the EAC.

Bridging the CCCTB and the Arm’s Length Principle – A Value Chain Analysis Approach

This article provides an analysis of the proposals for a common consolidated tax base (CCTB) and common consolidated corporate tax base (CCCTB) in the European Union in the context of transfer pricing, concluding that a value chain analysis approach is the only possible means of aligning the CCCTB rules with the arm’s length principle.

Towards a European R&D incentive? An assessment of R&D provisions under a common corporate tax base

ABSTRACTA recent proposal for a Common Consolidated Corporate Tax Base (CCCTB) across the European Union (EU) includes provisions in support of business R&D investment. This paper presents the rationale for the inclusion of R&D provisions, quantifies the subsidy implied by alternative options using the user's cost approach and approximates aggregate impacts by means of simple extrapolations from elasticities found in literature. We find that the provisions for immediate expensing of R&D included in the 2011 proposal would be less generous than what national schemes currently offer. We present alternative allowances that would serve to either maintain present levels or increase business R&D expenditure and we cost them in terms of foregone CIT revenue. In view of the pressing current need for a boost in business investment and the EU's R&D investment targets for the year 2020, we argue that the level of support should be ambitious. Importantly, to take full advantage of the opportunities afforded by this tax reform, EU member states will have to engage in complementary interventions in their national innovation systems. We conclude with a broad consideration of what these may be for the varied and variably developed business innovation capabilities found across the EU.

Formulary Apportionment in the European Union

The European proposal on a Common Consolidated Corporate Tax Base suggests a sharing mechanism based on the application of an apportionment formula. This formula includes three different factors (labour, assets and sales) with equal weighting. Despite the virtues of this method, we believe that the suggested formula is far from being consistent from an economic point of view and that European institutions should revise it before continuing with the negotiation process. In order to design a new formula, it is vital to take into consideration the objectives of the European proposal and the growing concern about the phenomenon of profit shifting in the EU context. In the light of these premises, two different alternatives are analysed in this article. On the one hand, we refer to the possibility of using a two-factor formula for distributing the tax base amongst Member States, based on assets and labour as productive factors. On the other, we suggest a formula exclusively based on sales as an income-generating factor. Although both alternatives are far from being perfect, we conclude that a single-sales factor formula offers a large number of advantages and is an efficient method to fight against profit shifting strategies.

The Contribution of Foreign Companies to the Business Economy and Corporate Income Tax Base in Ireland

This paper looks at the sources of value added, labour payments and gross value added in the Irish business economy from 2008 to 2012. In particular it looks at the breakdown by economic sector and by country of controlling owner, especially the United States, of enterprises operating in Ireland. Foreign companies make around 80 per cent of Corporation Tax payments to the Exchequer. The paper examines the sources of these payments and highlights that in the business economy just three sectors account for 50 percent of the tax base. Finally the paper considers the possible impact of changes to the tax base away from a source of value-added basis to a destination of customer sales basis in a stylised Irish and European context for the manufacture of pharmaceuticals, a sector which contributes around one-sixth of Exchequer Corporation Tax revenues. At present, around one-quarter of the profits from the manufacturing of pharmaceuticals in the EU is in Ireland’s corporate income tax base. The stylised example shows a potential loss of up to 95 per cent of Ireland’s corporate income tax base for this sector if a sales principle was used. Finally, using an approach similar to the Common Consolidated Corporate Tax Base (CCCTB) as proposed by the European Commission it is found that a potential loss of up to 82 per cent of this tax base is possible. The potential loss of Corporation Tax revenue for the Irish Exchequer is between €575 million and €650 million per annum.

CC(C)TB and International Taxation

On 25 October 2016, the European Commission released two proposals: one on a Common Corporate Tax Base (COM (2016) 685 Final.) (‘the CCTB Draft’) and one on a Common Consolidated Corporate Tax Base (COM (2016) 683 Final.) (‘the CCCTB Draft’). If these draft directives (‘the CC(C)TB Drafts’) were to be adopted, they would significantly change the tax landscape for companies operating throughout the European Union as well as for companies which are established in a third country but perform activities within the EU. The goal of this article is not to provide for an overall description of the features of the CCTB and the CCCTB Drafts. It is rather to give an overview of the main provisions containing a cross-border element and to assess to what extent these new instruments may possibly collide, not only with EU primary law, but also with bilateral (or even multilateral) conventions on double taxation. As a matter of fact, the CC(C)TB drafts do not only cope with the definition of new base rules for taxation of corporations acting within the European Union. Many corporations established in the European Union have branches and subsidiaries in other EU Member States as well as in third countries. Conversely, many corporations established outside the European Union perform their activities on the European market through branches and subsidiaries. It is therefore clear that by changing the rules applying to the definition of corporate income and to cross-border activities, the CC(C)TB Directives would indirectly impact the tax burden of multinational enterprises. Besides, important provisions contained in the CC(C)TB drafts apply explicitly to income which have their source outside the European Union. The question how these new European territoriality rules will coexist with international tax treaties is therefore crucial to assess the impact of the harmonization process within the European Union. The relationship between CC(C)TB and international taxation is however a very complex matter to study, as it raises both general questions regarding the interaction between different sources of normativity (treaties vs directives; treaties vs fundamental freedoms; directives vs fundamental freedoms) and very technical questions linked to the way the proposed provisions are worded. Potential problems of incompatibility are all the more numerous as one of the major feature of CCTB and CCCTB consists in the enactment of new rules regarding territoriality and tax avoidance, which may worsen the taxpayer’s situation compared to existing rules (even compared with the anti-tax avoidance directive). Provisions affecting international taxation are spread in different sections of the CCTB and CCCTB drafts, with the effect that a coherent vision of the global impact of these drafts on international taxation is not easy to unveil. This complexity of the topic explains why the authors of this article consider that a necessary preliminary step in the study consists in displaying, in a first section, a broad overview of the relationships between the CC(C)TB Drafts and the EU and international legal orders. This will provide an opportunity to assess how these draft directives interact, not only with fundamental freedoms, but also with double taxation treaties. The authors will refer to those principles throughout the article, when potential conflicts are identified. A second section will be devoted to the scope of the CC(C)TB Drafts and to the analysis of their impact on situations involving a third country. The goal of this section will be to determine to what extent corporations which are either established in a third country or perform their activities in such a country are actually covered by the provisions of the draft directives. The third section will provide more details on the territoriality rules which are laid down by

Re-Launch of the Proposal for a Common Consolidated Corporate Tax Base (CCCTB) in the EU: A Shift in Paradigm

The European Commission has recently announced that it will revisit its earlier draft legislation on Common Consolidated Corporate Tax Base (CCCTB). The article analyses the CCCTB relaunch and investigates changes in the new policy move. With the exception of the new CCCTB regime for companies, no other significant departure is apparent in the ultimate long-term objectives of the revised plan. However, this article argues that there is a remarkable shift in the pursuit of a path towards a CCCTB system. It evaluates the changed course of action against the European constraints and integrational theories as well as the growing global imperatives of contemporary tax policymaking pursuant in particular to the Base Erosion and Profit Shifting (BEPS) project. The study concludes that the new direction set forth by the Commission is pragmatic and it is likely that the shift may, for the first time in European history, result in tangible progress on rules for a common tax base in the single market.

Possibilities of harmonization of direct taxes in the EU

Currently, indirect taxes in the EU are highly harmonized, however, harmonization of direct taxes is still a very complex problem. Many EU member states refuse to give up their tax sovereignty, which would become considerably limited because of the har¬monization of direct taxes. Today, attention is paid to the harmonization of the tax base of corporate income tax, while a number of ways are under consideration. The European Council has issued a draft of Directive for a common consolidated tax base of corporate income tax in 2011 and updated in 2012. This draft must be approved by all member states, but some of them, however, have expressed on the draft in negative way. Because of the severity of this problems, the authors decided to focus on this topic within this article, which deals with the calculation of the tax base by the laws of the Slovak Republic and by Common Consolidated Corporate Tax Base (CCCTB); and evaluate whether the tax harmonization of direct taxes would be advantageous for the particular business.

Taxing the powerful, the rise of populism and the crisis in Europe: the case for the EU Common Consolidated Corporate Tax Base

Contemporary populism is rooted in a crisis of legitimacy. Corporate tax avoidance by multinationals is one cause of that crisis. Although states tend to be increasingly formally committed to tackling avoidance, they do so in a system that promotes contradictory sets of behaviour. This tends to undermine attempts to solve the problem of avoidance unless a more transformative collective approach is taken. Ironically, despite its own democratic deficit, the European Commission has taken a leading role in promoting such a solution: the Common Consolidated Corporate Tax Base (CCCTB). In this paper, I set out the case for ‘unitary taxation’ based on the CCCTB and state some of its current problems. The problem of corporation tax raises a basic issue in terms of who is sovereignty for, and solving the problem provides an important contribution to legitimacy of both the state and the EU.