The European Commission has announced plans to overhaul corporate tax across the single market, including the introduction of a common consolidated corporate tax base (CCCTB).
A CCCTB would make it easier and cheaper to do business in the EU, and act as a "powerful tool against tax avoidance", the Commission said.
The Commission first proposed the introduction of a CCCTB in 2011. It would create a single set of rules that cross-border companies could use to calculate their taxable profits in the EU instead of having to deal with different national tax systems.
The newly proposed CCCTB will be implemented in two steps. Common rules on calculation of taxable profits would be put in place first, followed by consolidation once the common tax base has been agreed, the Commission said.
Today's announcement also includes two further proposals that aim to improve the current system for dispute resolution on double taxation in the EU and to bolster existing anti-abuse rules.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com said: "The CCCTB is an ambitious proposal, which is being relaunched some five years after the original framework failed to gain unanimous approval by member states. The principal differences are that it will be mandatory for all large businesses, and will be introduced in two stages, with the 'third C' of consolidation only coming once the common base has been agreed."
"It is consolidation which is key for both businesses and member states. This will lead to an automatic offset of losses, and to all profits being taxed once, and only once, according to an agreed formula. But this will inevitably mean that smaller countries such as Ireland and Luxembourg will miss out compared to larger economies such as France and Germany, so it may still be some years before the full system is in place," Self said.
"The new proposal also includes some sweeteners, particularly a generous regime for deductions for R&D and a novel incentive giving a partial deduction for equity costs, removing some of the imbalance between the tax treatment of debt and equity funding," she said.
When the CCCTB was first proposed it was an optional system, with the primary focus on simplifying the tax environment for businesses in the single market. Since then, however, the Commission has promoted its potential as an anti-avoidance tool.
"The UK government opposed the previous proposals. However, the UK's opposition now becomes academic as it's very unlikely that this will complete all its stages before the UK leaves the EU," said Self.
The European Commission launched a public consultation last October to gather views on CCCTB. It asked for feedback on the 'two-step approach', and on the criteria that will determine which companies would be covered by a mandatory CCCTB.
The proposal will now be sent for approval by member states' governments.
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