One Step Closer to a Common Consolidated EU Corporate Tax Base

The idea of a common consolidated corporate tax base has come a long way from the initial discussions on it in 2001, and many of the concerns related to its applicability have been eliminated. On April 19th, 2012, the EU Parliament adopted by 452 votes to 172, with 36 abstentions, a legislative resolution on the proposal for a Council directive on a Common Consolidated Corporate Tax Base, calling for several amendments. 

One of these amendments is making the common tax base mandatory after a brief transitional period, whereas the Commission recommends an optional system. After the first two years, the CCCTB would apply to all European companies which engage in cross-border activities. In five years, it would become mandatory for all companies except SMEs.

Another amendment is related to the proposal of the Parliament that more weight should be given to workforce and assets (45% each) than to turnover (10%), whereas the Commission initially proposed to include the three factors with the same weigh.

Under the current wording of the CCCTB, a multinational operating in several EU Member States will have its profits and losses consolidated at a group level and then apportioned to group members based on a formula considering sales, payroll, number of employees and assets. The national tax rate would be applied to the apportioned profits.

After the slowdown in the efforts for implementing the CCCTB triggered by the economic crisis of 2008, fast progress has taken place this year and the momentum should be expected to be maintained.

In this context, special attention should be paid by the Romanian business community and tax authorities to making the transition to a new corporate tax system as smooth and as intelligently customized as possible.

At a macro level, the state should take into consideration the fact that the government will no longer be able to apply national taxation policies in respect of companies that operate under the CCCTB system. This should also be considered in discussions with the IMF representatives in terms of future tax policy.

While the Romanian state authorities should further call for studies to determine the timeline, road map and administrative costs of implementing a new taxation system, regional and multi-national companies should analyze the implications of implementing the CCCTB in terms of business set up and operation, compliance costs, necessity for relocation. In terms of apportioning profit, the labour factor consists of two equally weighted elements: payroll of the work force and number of employees. Low-priced workforce has been and remains one of the important competitive advantages of Romania and applicability of the CCCTB should be foremost analyzed in relation to it.

A further concern with regard to the CCCTB Directive would be to see it as a first step towards tax rate harmonisation. Five years into the implementation of the CCCTB Directive, the EU Parliament calls for a report from the Commission on the advantages and disadvantages of introducing minimum tax rates.

Romania should take advantage of the formation of the CCCTB forum and prepare relevant studies that would indicate the effects of the use and practicability of the CCCTB Directive by SMEs, the impact on the global operations of companies and competitiveness, tax collection and the matter of introducing minimum tax rates.

The state and business community should voice their opinions publicly, not only based on political arguments, such as the loss of national sovereignty, but also based on macroeconomic concerns and strategies.

The resolution adopted within the special legislative procedure will now proceed to the Council where it can be adopted either with or without the amendments proposed by the Parliament.

By Radu Ionescu and Diana Plesca