Memorandum. 1. Introduction

Transcription

1 Memorandum TO FROM AFP Prof. dr. J.L. van de Streek* REF v1 DATE 4 March 2015 RE State of play CCCTB - spring Introduction On 16 March 2011 the European Commission published its Proposal for a council directive on a Common Consolidated Corporate Tax Base (CCCTB). 1 Eight weeks later this proposal survived the EU yellow card procedure. The proposal was subsequently supported by the European Economic and Social Committee and welcomed by the Committee of the Regions. 2 On 19 April 2012, the European Parliament approved the proposal with suggestions for amendments. 3 Since publication the proposal is under the auspices of the European Council (both the Working Party on Tax Questions and High Level Working Party ). First-mentioned working party focuses on the technical aspects of the proposal. Several technical discussions took place over the last years. Below I will discuss the developments separately for the following periods: ; 2014; and Developments Compromise Proposal 2012 The Compromise Proposal (partly) released under the Danish presidency of the EU during the first six months of 2012 shows that many changes have been made with respect to the tax base. 4 The changes include: Introduction of 10%-threshold for the participation exemption; * University of Amsterdam and Loyens & Loeff NV. 1 COM(2011)/121/4. 2 See the opinion of the European Economic and Social Committee of 26 October 2011 (PbEU 2012 C 24/63-69) and the opinion of the Committee of the Regions of 14 December 2011 (PbEU 2012 C 54/65-69). 3 European Parliament legislative resolution of 19 April 2012, no. P7_TA(2012)0135. The European Commission has responded to the amendments proposed by the European Parliament: see Commission Communication on the action taken on opinions and resolutions adopted by the Parliament at the April 2012 part-session, Brussel, 30 May 2012, SP(2012) Compromise Proposal CCCTB 16 April 2012, no. 8790/12. 1/7

2 Introduction of an earnings stripping rule; Introduction of a limitation rule for the deduction of interest relating to shareholdings; Amendment of profit determining rules to IAS; Amendment deduction of pension premiums and gifts; Disallowance of write-down assets to lower business value; Restrictions on loss utilisation; Tightening-up of general anti-abuse provision; Tightening-up of CFC rules; and Introduction of anti-hybrid mismatch rules. Chapter XVI of the proposal, concerning the apportionment criteria, has not been subjected to a technical analysis. The same applies to Chapter XVII, dealing with the procedural aspects of the CCCTB (one-stop-shop). 2.2 Synthesis Report 2013 Not surprisingly, a number of member states are still having serious problems with the proposal. 5 The Netherlands is one of them. Repeatedly the Dutch government disapproved the CCCTB. 6 In an attempt to break the deadlock a so-called Synthesis Report was published under the Irish presidency of the EU. This report reflected bilateral discussions between the High Level Working Party (of the European Council), on the one hand, and all member states, on the other. 7 It was agreed to continue work on the proposal on a step-by-step basis. The first step focused on those matters which are related to the tax base. 8 Work on the second step, regarding elements dealing with consolidation, would only commence once sufficient progress would have been made with step one. In the spring of 2013 the president of the EU at that time, Mr. Van Rompuy, made an appeal to member states for more flexibility in the national positions and more willingness to compromise in the context of the CCCTB negotiations Developments Compromise Proposal 2014 In the second six months of 2014 a new version of the compromise proposal, dated 19 November 2014, was published under the Italian presidency. 10 According to the Ecofin report, the working 5 See, for instance, Ecofin report to the European Council on Tax issues, Brussels, 25 June 2012, no /12. 6 See Kamerstukken II, , , no. 6, pp Presidency Synthesis Report on the bilateral discussions on the proposal for a CCCTB, 2013,13, doc. 7830/13 FISC Ecofin report to the European Council on Tax issues, Brussels, 25 June 2013, no /13, par Letter of 6 March 2013, EUCO 62/13 PRESSE 94 PR PCE 54, p Compromise Proposal CCCTB 19 November 2014, no /14 LIMITE FISC. The explanatory notes can be found separately (no /14 ADD 1 LIMITE FISC 197) v1 2/7

3 party met four times. 11 The discussions focused on (1) international aspects relating to the tax base, and (2) certain aspects of the CCCTB proposal which are closely linked to the work of the OECD on BEPS. Important changes in the Compromise Proposal 2014 include: Introduction of a 12 months holding period for the participation exemption; Amendment of the definition of permanent establishment along the lines of BEPS Action Plan 7; 12 Introduction of a direct business-interest-test for the deduction of expenses; Amendment of the conditions for provisions (legal obligations); More detailed rules regarding hedge accounting; Introduction of exit taxes in case of the transfer of tax residency and the transfer of assets to a permanent establishment outside the EU; Introduction of a measure for deferral of payment in case of a transfer of the tax residence within the EU; More detailed rules for the depreciation of assets; Introduction of a limitation of loss offsetting (anti-trade rule). Just like in 2012, Chapter XVI, concerning the apportionment criteria, and Chapter XVII, dealing with the procedural aspects of the CCCTB, were left untouched. 3.2 Relationship with the OECD BEPS Project In the explanatory notes to the Compromise Proposal 2014, the following is noted regarding the relationship between the CCCTB and BEPS: 13 As known, the OECD is currently working, with the support of the G20, to develop recommendations aimed at tackling the phenomenon commonly referred to as Base Erosion and Profit Shifting (BEPS). ( ) As BEPS issues are also relevant within the EU, the Italian Presidency has been promoting, with the support of the Member States, an EU/BEPS work programme. ( ) The CCCTB proposal is an important part of this work programme given that both this proposal and the BEPS project aim at achieving more coherence of the corporate tax systems, respectively within the EU and the global level. Therefor the Italian Presidency has focused its work on the CCCTB proposal mainly on the international aspects related to the tax base as well as on certain aspects of the CCCTB proposal which are closely linked to OECD BEPS work. 3.3 Further development CCCTB gets priority The Compromise Proposal 2014 was discussed in October 2014 during an informal Ecofin meeting and the following was noted in the relevant Ecofin report: ECOFIN report to the European Council on Tax issues, 27 November 2014, 16034/14 LIMITE FISC 214 ECOFIN 1100, par It concerns amendments relating to commissionaire structures and exemptions for specific activities. 13 Explanatory Notes, 19 November 2014, 15756/14 ADD 1 LIMITE FISC 197, p v1 3/7

4 At the October ECOFIN the Council held an informal discussion on how to make concrete progress on this dossier in the short to medium term. As outcome of this debate, the importance of taking into consideration the international developments and the parallel work at the OECD level on BEPS was noted and the Presidency concluded that future work on the CCCTB Proposal should continue in a progressive way by focusing first on the international aspects of the proposal (in particular, controlled foreign companies (CFC), anti-abuse measures, hybrid mismatches, interest limitation rule and definition of permanent establishment). The ECOFIN Council will be informed on the progress by mid-2015, also with a view to coordinating discussion on CCCTB with the timetable of the ongoing OECD BEPS work, the outcomes of which are expected for September The Italian presidency concludes that future work on the CCCTB proposal should continue in a progressive way by focusing on the BEPS aspects, in particular, CFC rules, anti-abuse measures, hybrid mismatches, interest limitation rule and the definition of permanent establishment. The intention is to inform the Ecofin Council on the progress by mid Letter of the German, French and Italian ministers of Finance, dated 29 November 2014 Finally, a relevant development in 2014 was the joined letter of the German, French and Italian ministers of Finance addressed to European Commissioner Moscovici, dated 29 November The letter notes that a turning point has been reached in the discussion on unfair tax competition, base erosion and profit shifting within the EU and that the limits of permissible tax competition between member states have shifted. The letter calls for the following: In the context of the OECD/G20 final adoption of the BEPS conclusions by the end of 2015, the appropriate response by the EU is the adoption of a set of common, binding rules on corporate taxation to curb tax competition and fight aggressive tax planning. We, Finance Ministers of France, Germany and Italy, are convinced that this can only be reached through a comprehensive anti- BEPS Directive, to be adopted by the 28 Member States before end The diagnosis is made and the solutions are already known, so we should act without any delay. The Dutch State Secretary of Finance found in the letter an appeal for the CCCTB. He noted that the CCCTB is not explicitly mentioned, but the call for the harmonisation relates to the CCCTB directly ECOFIN report to the European Council on Tax Issues, 11 December 2014, 16753/14 FISC 230 ECOFIN 1188, par Joined letter of Wolfgang Schaeuble, Michel Sapin, Pier Carlo Padoan, dated 28 November Kamerstukken II, , , no. 1213, p v1 4/7

5 4. Developments EU Work Programme first six months 2015 As indicated in par. 3.3, the Ecofin Council will be informed on the progress of the Compromise Proposal 2014 by mid Letland will hold the presidency of the EU in the first half-year of The CCCTB is explicitly mentioned in the programme of the Latvian presidency: 17 The Presidency will also continue work on the proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB). Taking into account recent international developments, the Presidency will take the necessary steps in order to initiate discussions to commence the work on Base Erosion and Profit Shifting (BEPS) issues in the EU dimension (including the expected Commission s proposal on the automatic exchange of information on tax rulings in the EU). 4.2 European Commission Work Programme 2015 The CCCTB proposal also forms a part of the Work Programme 2015 of the European Commission: 18 While recognising the competence of Member States for their taxation systems, the Commission will step up efforts to combat tax evasion and tax fraud and respond to our societies' call for fairness and tax transparency. Starting from the work done on base erosion and profit shifting at OECD and G20 levels, the Commission will set out an Action Plan including measures at EU level in order to move to a system on the basis of which the country where profits are generated is also the country of taxation, including in the digital economy, which also requires agreement on a Common Consolidated Corporate Tax Base. In an annex the European Commission reveals what can be expected: 19 Action Plan on efforts to combat tax evasion and tax fraud, including a Communication on a renewed approach for corporate taxation in the Single Market in the light of global developments. The Action Plan will, starting from the work done on base erosion and profit shifting at OECD and G20 levels, include measures at EU level in order to move to a system on the basis of which the country where profits are generated is also the country of taxation, including in the digital economy. The Communication will aim at a stabilising corporate tax bases in the EU for a fair taxation environment, including relaunching work towards a Common Consolidated Corporate Tax Base. 17 The Programme of the Latvian Presidency of the Council of the European Union 1 January 30 June 2015, p Commission Work Programme 2015 A new start, 16 December 2014, COM(2014) 910 final. 19 Annex 1 to the Commission Work Programme 2015, under A Deeper and Fairer Economic and Monetary Union, p v1 5/7

6 The European Commission speaks of a Communication to re-launch the CCCTB. So, a new technical proposal is not expected. The announcement by the European Commission to re-launce the CCCTB was supported by the European Commissioners Vestager (competition) and Moscowici (taxation). In a letter, published on 17 January 2015 in several European newspapers, they wrote the following: 20 But we need to go even further. The fight against tax avoidance is not about taking on companies that create jobs and help Europe to grow. It is about providing transparent and business-friendly solutions. It is in that context that the commission is committed to reviving its proposal for a common consolidated corporate tax base. This would mean that a group active in more than one EU country would have to worry about only one common set of rules for its tax declaration; the states hosting the group s subsidiaries would share the tax among them. While allowing for fruitful competition on tax rates, this proposal would eradicate a lot of current possibilities for aggressive tax planning. We now have a great opportunity to make tax competition within the EU s single market fairer and more transparent. Of course, on tax policy EU member states decide unanimously. Despite this constraint, we strongly believe we should make use of the current momentum. The Dutch State Secretary of Finance welcomed the letter of Vestager and Moscowici. 21 He writes that he agrees to the European Commission s view that profits should be taxed in the country where value is created. He is happy to enter into dialogue with the European Commission on new and fair proposals. The Dutch State Secretary of Finance s comment seems to be based on the last sentence of the letter of Vestager and Moscowici: These initiatives are only the start of the establishment of a fairer tax system in Europe, on the basis of which profits are taxed where value is created. The words these initiatives refer to the new CCCTB proposal, but also to other matters dealt with in the letter, such as automatic exchange of tax rulings. I believe the Dutch State Secretary of Finance is saying that the apportionment formula in the CCCTB should be changed, because, in its current form, profits are not taxed where value is created. However, in my view, the letter of Vestager and Moscowici does not indicate the intention to amend the apportionment formula. 4.3 Confederation of Netherlands Industry and Employers The resurrection of the CCCTB on the European agenda was also noted by the Confederation of Netherlands Industry and Employers (VNO-NCW), a Dutch business lobby group. In its European Outlook 2015 the Confederation writes the following: Including Trouw and The Guardian. The heading of the letter was This is the year for Europe to put its tax house in order. 21 Klaas Broekhuizen, Wiebes draait bij: Europese grondslag winstbelasting kan wel, Dutch Financial Times 18 January European Outlook, Europe: For better business opportunities, Topical issues for Europe in 2015, February 2015, p v1 6/7

7 On 16 March 2011 the European Commission proposed a common system for calculating the tax base of business operating in the EU. Since then, al lot of technical work has been done on the proposal by the Council working Group, but the important political questions regarding minimum rates, the allocation of the profits through formulary apportionment and the optional character of the CCCTB have been put off. It seems unlikely that there will be any kind of consensus on all of the aspects of the CCCTB soon. However, the recent work regarding tax planning and tax avoidance by both the European Commission and the OECD have given the proposal some new momentum. VNO-NCW and MKB Nederland have taken the position that they cannot support the CCCTB unless the proposal meets four conditions. These conditions are (1) that the CCCTB has to be optional, (ii) that consolidation of profits and losses throughout the EU has to be possible, (iii) that Member States maintain their full sovereign right to set their own corporate tax rate and (iv) that companies benefit from a one-stop-shop system for filing their tax returns to lessen the administrative burden. I note that the Confederation of Netherlands Industry and Employers does not mention the apportionment of profits as an issue. The Confederation of Netherlands Industry and Employers, in principle, supports the CCCTB, subject to certain conditions. This is in line with the views of Business Europe, a European business lobby group, as expressed since 2004 during the first discussions in a working group of the European Commission. 5. Final remarks In 2011 there was a lot of scepticism about the chances of success of the CCCTB proposal. It should, however, be realised that the proposal dates from the pre-beps era. The technical work has continued since 2011 and things have moved very quickly over the last year. Meanwhile, further development of the proposal is on the short list of the European Council for the first six months of The European Commission has announced a re-launch of the CCCTB proposal in 2015 through a Communication. Whether the CCCTB will make is uncertain. However, the outline of developments in this memo illustrates that the required international political momentum seems there as never before v1 7/7