2 Taxation
| (27425)
8231/06
COM(06)157
| Commission Communication: Implementing the Community Lisbon Programme: Progress to date and steps towards a Common Consolidated Corporate Tax Base (CCCTB)
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| Legal base | — |
| Document originated | 5 April 2006
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| Deposited in Parliament | 12 April 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 26 April 2006
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| Previous Committee Report | None
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| To be discussed in Council | 7 June 2006
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared, further information requested
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Background
2.1 For some years the Commission has made plain its hope of introducing
harmonisation of direct taxation for companies, in particular
by establishing a "Common Consolidated Corporate Tax Base"
(a CCCTB). It last published a Communication specifically on this
subject in November 2003.[3]
But it has alluded to the matter on many other occasions,
particularly recently in the context of the re-launch of the Lisbon
Strategy to make the Community "the most competitive and
dynamic knowledge-based economy in the world" by 2010. It
has announced its intention to table a proposal for a CCCTB during
2008.[4] In response to
all this the Government has consistently made clear that direct
taxation is primarily a matter for Member States and that in its
view fair tax competition, not tax harmonisation, is the basis
on which the Community can compete with the rest of the world.
2.2 The idea underlying the concept of
a CCCTB is that the Community should develop a common set of rules
for a corporate tax base that would either replace or operate
alongside Member States' national tax rules. Although not yet
fully formulated the basic idea is for harmonisation of all aspects
of the corporate tax system except the corporate tax rate.
The document
2.3 In the autumn of 2004 the Commission
established a technical working group, the Common Consolidated
Corporate Tax Base Working Group (CCCTB WG), initially for a period
of three years, to look at technical aspects of a harmonised company
tax base. Technical work in this group is being taken forward
on a strictly without prejudice basis and without political commitments
from Member States. This document has a dual purpose: to report
on progress on work to date and to draw attention to areas where
the Commission believes political support and direction from Member
States would be desirable.
2.4 The Commission says that:
- its overall approach since
the formation of the CCCTB WG has been in line with a non-paper
it presented to an informal ECOFIN Council in September 2004;
- all Member States have participated in the meetings
of the CCCTB WG "although it is acknowledged that participation
does not necessarily imply support for the concept of a CCCTB";
- the CCCTB WG is composed principally of experts
from Member States, but is extended on an "ad hoc
basis to include experts from business and academia"; and
- the Commission's working documents for the CCCTB
WG and the details of CCCTB WG meetings have been made public
on a series of dedicated web pages.
2.5 The Commission
reports briefly on work on "the structural technical elements
of the tax base", highlighting four areas on which there
have been discussions:
- assets and tax depreciation;
- reserves, provisions and liabilities;
- taxable income; and
- international aspects of a CCCTB.
An annex gives a brief account of the work on each
of these areas to date. The Commission notes that in each area
issues have been identified where experts are divided and that
the issues are particularly wide-ranging in the case of international
aspects as they concern relations with third countries.
2.6 The Commission
summarises its future work programme:
- the CCCTB WG to broadly complete
the work on the four areas presently reported in 2006;
- the CCCTB WG should begin technical work later
in 2006 on consolidation, allocation (the mechanism for sharing
out taxable profits between Member States) and the structural
and legal framework for a CCCTB. On the first two the Commission
comments that they are "extremely complex, and will require
significant work";
- plan for a further progress report on the technical
work for the beginning of 2007; and
- begin work on remaining elements in 2007, followed
by a second round of discussions on all structural elements.
The Commission envisages that this timetable "would
enable the Commission to complete the work and present a comprehensive
Community legislative instrument at the end of 2008".
2.7 The Commission
gives it views on a number of issues. Its comments include:
- in the absence of harmonisation
of company accounting in the Community, International Accounting
Standards/International Financial Reporting Standards could only
be used to help provide a common language and some common definitions;
- a base should be consolidated from the outset;
- a CCCTB should initially be proposed as optional
for companies. The Commission observes that "the simultaneous
operation of two corporate tax bases … admittedly may raise
specific issues for tax administrations", but "it is
also the Commission's view that an optional CCCTB is more likely
to gain the support of all Member States an of business than a
compulsory CCCTB"; and
- there are difficulties with the technical work
and that demands on staff resources have increased. The Commission
comments that the matter "is a challenging exercise and,
if it is to be achieved, more commitment, from more Member States,
will be required".
2.8 Finally, the Commission
says it would welcome political support and direction from Member
States for its conclusions, which are:
"Although the definition of the CCCTB can be
conceptually inspired by corresponding international accounting
standards (IAS/IFRS), no formal link between the two should be
established, because not all companies are able to use IAS/IFRS
and the standards change frequently. The CCCTB legislation should
therefore be a self-standing document containing all the necessary
definitions for determining taxable profits.
"The initial work programme for the CCCTB, which
envisaged a tax base optional for companies, with consolidation,
and shared between Member States, remains the best approach to
achieving the implementation of the CCCTB and the consequent contribution
to the Lisbon goals. Without prejudging future political decisions,
technical work should therefore progress along these lines.
"The current approach of working in close cooperation
with Member State experts is the best way of ensuring that the
Commission's eventual legislative proposal will be acceptable
to Member States. In this way Member States can participate in
the work without making a premature or final commitment to the
CCCTB. Cooperation with business and academics, as illustrated
by the 'extended format' meeting of the CCCTB Working Group in
December, is also useful.
"Reasonable progress towards the CCCTB has been
made with good input from Member State experts in the CCCTB Working
Group. The quality of further work will depend on the active involvement
of Member States and Commission alike.
"The introduction of a simple, modern and transparent
common consolidated tax base will necessarily involve each Member
State making some changes otherwise the benefits of a common base
will not be realised, hence the importance of open-mindedness
and flexibility by all participants in this process."
The Government's view
2.9 The Paymaster
General (Dawn Primarolo) says forthrightly:
"The matters which are discussed in the Communication
concern issues which remain a national preserve.
"The Government does not accept the need for
harmonisation of company tax, including corporate tax base harmonisation.
The Government remains clear that fair tax competition, not tax
harmonisation, is the way forward for Europe."
2.10 The Minister
continues that the Government:
- does not think that in a global
economy the Community's competitiveness would be helped by a harmonised
company tax base;
- holds that Member States participating in a CCCTB
would no longer have freedom to adjust corporate tax provisions
in the light of national circumstances and of global pressures
and developments;
- believes it essential for discussions on corporate
tax to be set in a global, and not just a Community, context;
- agrees with the Commission that this is an extremely
complex technical exercise, but considers that the approach is
misconceived and sees no need for technical work in this area;
- will continue to make clear its scepticism about
both the principles and the practicalities of the Commission's
ideas in this area and to argue for a change in approach;
- will not contemplate any action at Community
level which could threaten jobs and the competitive position of
UK business; and
- has made clear that such tax matters are for
Member States, in keeping with the principle of subsidiarity.
Conclusion
2.11 This document
makes plain the Commission's continued ambition in relation to
direct corporate taxation. We note the Government's robust response
to the process discussed in the document. However, given that
response, we should like to hear from the Government as to why
it is participating in the Commission's Common Consolidated Corporate
Tax Base Working Group, albeit on the basis that the Communication
acknowledges "that participation does not necessarily imply
support for the concept" of a Common Consolidated Corporate
Tax Base. It would be helpful also to know what views have been
expressed in the Working Group by other Member States, such as
Ireland, on the general concept of a common tax base.
2.12 Meanwhile we do not clear the document.
3 See (25104) 15361/03: HC 42-iv (2003-04), para 14
(7 January 2004). Back
4
For example see (26765) 11618/05: HC 34-x (2005-06), para 22 (16
November 2005) or (26989) 14042/05: HC 34-xii (2005-06), para
23 (30 November 2005). Back
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