19 CORPORATE TAXATION
(27174)
5182/06
+ ADD1
COM(05) 702
| Commission Communication: Tackling the corporation tax obstacles of small and medium-sized enterprises in the internal market — outline of a possible home state taxation pilot scheme
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| Legal base | —
|
| Document originated | 23 December 2005
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| Deposited in Parliament |
16 January 2006 |
| Department | HM Treasury
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| Basis of consideration |
EM of 26 January 2006 |
| Previous Committee Report |
None |
| To be discussed in Council
| None planned |
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
19.1 In its Communication of October 2005 on the contribution
of taxation and customs policies to the Lisbon Strategy the Commission
foreshadowed its intention to submit a Communication on experimental
home state taxation for small and medium-sized enterprises.[34]
This was a possibility discussed previously in its Communications
of October 2001 and November 2003 about taxation and the single
market.[35]
19.2 The idea underlying home state taxation is that
a group of companies operating in more than one Member State,
instead of computing taxable profits according to the rules in
those Member State where constituent companies are active, would
calculate taxable profits using the rules of the Member State
where the group's seat or headquarters is located — that
is the home state. There would then need to be some method of
sharing out or allocating the taxable profits between the Member
States concerned.
The document
19.3 In its Communication the Commission argues the
case that corporate tax reform is important for improvement of
the single market and particularly in relation to participation
by small and medium-sized enterprises in that market. It suggests
that the home state taxation concept could usefully be tested
by interested Member States and companies in an experimental pilot
scheme and presents an outline of a possible pilot scheme for
small and medium-sized enterprises. The Commission acknowledges
that this is only a template, noting it could not replace an actual
tailor-made agreement that takes into account the precise features
of the tax laws and other relevant conditions in the Member States
concerned.
19.4 The Commission do not envisage a legislative
proposal — it suggests that Member States which wished to
do so could introduce a pilot scheme via bilateral or multilateral
agreement or by temporarily supplementing existing double-taxation
treaties or multilateral conventions. It also says its consultations
with Member States on its ideas on the home state taxation concept
"revealed considerable and widespread scepticism" and
notes that it "is aware of the fact that a large majority
of Member States currently view this idea with a degree of scepticism".
The Commission also acknowledges the potential limitations of
the pilot scheme saying that "in all likelihood only Member
States with a broadly similar tax base would enter into such an
agreement".
The Government's view
19.5 The Paymaster General (Dawn Primarolo) says
the Government is committed to encouraging entrepreneurship and
innovation and to promoting small and medium-sized enterprise
generally and recognises that reducing compliance costs for small
and medium-sized enterprises, and for business generally, is an
important objectives of tax policy, albeit not the only one. She
adds that cooperation between national tax authorities is potentially
important in this respect.
19.6 The Minister emphasises that matters discussed
in this document concern a national competence and welcomes the
Commission's recognition of this fact in its presentation of its
suggested pilot scheme. However she goes on to say as far as the
scheme suggested is concerned the Government remains sceptical
about the value and practicality of the Commission's ideas in
this area.
19.7 The Minister notes that the Communication also
mentions:
- as an example of ongoing work in the field of
VAT, the draft Directive for a one-stop scheme — part of
a package of draft VAT legislation to ease the burden of VAT compliance,
primarily for businesses involved in cross-border trade, which
the Government broadly supports;[36]
and
- other tax issues including, for example, the
Commission's technical work on a Common Consolidated Corporate
Tax Base and its views on the tax treatment of cross-border losses,
on which the Government has made clear such matters are for Member
States.
Conclusion
19.8 Easing compliance costs for business, including
for small and medium-sized enterprises, is important and we note
that the Commission is attempting to promote activity in this
area. However we note also the scepticism about the practicability
of the particular suggestion made in this document and strongly
endorse the Government's insistence that such taxation matters
are and should remain a national competence. We clear the document.
34 See (26989) 14042/05: HC 34-xii (2005-06), para
23 (30 November 2005). Back
35
See (22808) 13365/01: HC 152-xxxvii (2001-02), para 21 (17 July
2002) and (25104) 15361/03: HC 42-iv (2003-04), para 14 (7 January
2004). Back
36
See (26118) 14248/04: HC 34-xi (2005-06), para 7 (23 November
2005). Back
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