26 October 2015

EU Company Taxation initiatives: it’s only the beginning!

For many years there were hardly any interesting EU discussions on taxation. And if there were, it concerned an endless debate on reduced VAT rates or vague ideas on the Common Consolidated Corporate Tax Base. There was - and still is - the unanimity rule. Member States were confident they could block any initiative from the Commission and thus that Commission was not extremely eager to invest in proposals that would end up in the drawer.

Things have changed however. Due to a number of highly notable events such as the Starbucks, Google and Amazon hearings over tax avoidance before the UK Parliament or the Lux Leaks scandal at the end of 2014, the EU debate is now lively and energetic.


The European Commission says openly and loudly that tax fraud and tax evasion affects us all, that it occurs within a country and across countries both within the EU and globally and that therefore a single country cannot solve the problem on its own. And therefore the EU will play a role, if desirable in alignment with the OECD, if necessary based upon its own competences.

That is why the Commission launched its Transparency Package in March 2015 as well as the Action Plan for Fair and Efficient Corporate Taxation in the EU last June. We have already seen the first results with the agreement in the ECOFIN council in early October on the exchange of information on cross-border tax rulings.

And that’s only the beginning: the OECD has presented its action plan against Base Erosion and Profit Shifting (BEPS) and the Commission consultation on Common Consolidated Corporate Tax Base (CCCTB) has now started.


It’s the Commission’s ambition to come forward with a new proposal in 2016 to revive the CCCTB, based on two key changes:

  • First, it will propose a mandatory CCCTB. This would improve its capacity to prevent profit shifting; an optional system is unlikely to be used by companies that engage in aggressive tax planning to avoid taxes.
  • Second, it will propose that the CCCTB is introduced through a step-by-step approach. This should make it more manageable for Member States to agree. The primary focus should be on securing the common tax base, starting with international elements related to BEPS. The Commission will propose to postpone the consolidation until after the common base has been implemented.

On top of this, several observers agree that we may expect a major political decision on company taxation every EU Presidency, so every six months.


How should organisations and companies react to this important shift in the policy debate?
 

  • First of all, it becomes more and more difficult for companies to stay on the side-lines. Multinational companies which have so far refused to cooperate with the Members of Parliament's Special Committee on Tax Rulings were already threatened with losing their accreditation to the European Parliament and the Commission. We would urge companies to have an internal debate and engage with their trade association to assess how to respond to the consultation and how to react to requests by policy makers
  • Secondly, in the current climate it becomes more and more important to demonstrate by specific examples what the practical and unintended implications could be of some of the policy proposals. It is therefore important for companies to engage with the key EU policy makers.
  • Finally, corporate taxation has become a major element in the reputation management of companies. Any communication on this topic should be carefully prepared, aligned with the compliance strategy but also reach the correct stakeholders that matter in this debate.

 

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