15 Taxation
| (28619)
9415/07
COM(07) 223
| Commission Communication on implementing the Community programme for improved growth and employment and the enhanced competitiveness of EU business: Further progress during 2006 and next steps towards a proposal on the Common Consolidated Corporate Tax Base (CCCTB)
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| Legal base | — |
| Document originated | 2 May 2007
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| Deposited in Parliament | 10 May 2007
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| Department | HM Treasury |
| Basis of consideration | EM of 21 May 2007
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| Previous Committee Report | None
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| Discussed in Council | 5 June 2007
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| Committee's assessment | Politically important
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| Committee's decision | Clear
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Background
15.1 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 has announced its intention to table
a proposal for a CCCTB during 2008.[39]
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.
15.2 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.
15.3 In the autumn of 2004 the Commission established a technical
working group, the Common Consolidated Corporate Tax Base Working
Group (CCCTB WG) 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.
15.4 In 2006 we scrutinised a Commission Communication which had
a dual purpose: to report on progress to date on work in the CCCTB
WG and to draw attention to areas where the Commission believed
political support and direction from Member States would be desirable.
We reported particularly the Government's reasons for participating
in the working group — not only on a strictly without prejudice
basis but also "with a very clearly stated scepticism".[40]
The document
15.5 This Communication is a second progress report by the Commission
on its technical work on a CCCTB focussing on work in 2006 and
"highlighting some of the more noteworthy issues … and
recapping on some of the key strategic issues related to the CCCTB".
It says the objective is threefold:
- to keep the Council and others informed of progress;
- to outline the Commission's plans for continuing its work;
and
- to recap on and to draw attention to "some of the specific
technical points which require particular attention" and
"a number of particularly important issues which have a more
strategic dimension".
The CCCTB itself is described as an "ambitious objective
which poses a number of technical difficulties".
15.6 The Commission refers in passing to various targeted measures,
including its three Communications of December 2006 on coordination
of Member States' direct tax systems.[41]
It expresses the view that, whilst targeted measures go some way
to "reducing some of the obstacles", the Commission
"remains convinced that ... a comprehensive approach via
the introduction of the CCCTB can provide the largest overall
benefits as regards the taxation of companies' profits in the
Internal Market".
15.7 Recalling its previous acknowledgement, in its first report,
that "participation [in the technical work] does not necessarily
imply support for the concept of a CCCTB", the Commission
explains further that "no formal agreement" is sought
on technical issues in the work of the CCCTB WG. The Commission
reports very briefly on the technical work of the working group:
- saying that it has continued to meet on a quarterly basis;
- highlighting two further meetings in "extended"
format with business representatives and academics in June and
December 2006;
- referring in passing to technical work in several areas (for
instance, on group taxation and on a sharing mechanism);
- noting that the main technical issues discussed are summarised
in a Working Document which the Commission presented to the December
2006 meeting of the group;[42]
and
- referring to the Communication's Annex 1 which summarises
some of the technical points which were discussed.
The Commission also says that in 2006 it started work, outside
the working group, on its impact assessment, the final version
of which is to be published alongside the Commission's legislative
proposal.
15.8 Then turning to its next steps, the Commission:
- says that it now plans to draw together the various strands
of its technical work to date to see how the various parts can
fit together, so as to ensure that "there are no inconsistencies
and that the base as developed can be considered ... 'fit for
purpose'";
- refers to Annex 2 to the Communication which lists a range
of technical issues discussed in the CCCTB WG and which the Commission
is still reflecting on, including fixed assets and depreciation,
a general methodology for calculating taxable income, the treatment
of foreign income, the definition of a group and the mechanism
for sharing out taxable profits;
- recalls some of the views it expressed in its earlier report
— including that a common corporate tax base should be consolidated
to gain full benefit and that a CCCTB should be optional for business;
- describes uniformity and simplification as "guiding principles",
says that "the new base should be 'broad' rather than 'narrow'"
with limited reliefs and incentives and suggests that the CCCTB
WG should discuss such incentives such as ones related to research
and development tax incentives;
- refers to the treatment of the financial sector and the administrative
framework for a CCCTB, describing these as "two key policy
issues to emerge in 2006" which the Commission believes "will
have a major impact on the form of the proposal";
- on treatment of the financial sector mentions the discussion
at the extended session of the CCCTB WG in June 2006 and says
that it will be considering "the extent to which, and manner
in which, the financial sector should be incorporated into the
CCCTB from its inception"; and
- on the administrative framework for a CCCTB describes its
work in the area as being at a "relatively early stage"
but says nonetheless that it will be trying to draw conclusions
to be reflected in its proposal in 2008.
15.9 The Commission concludes this Communication by:
- saying, following on from its comments in its earlier report
about the pressure on resources, that "the work requires
significant staff resources from both the European Commission
and Member States";
- reiterating its view that "the need for the CCCTB remains"
and its commitment to presenting a legislative proposal in 2008;
- stating the intention to continue to work on technical issues
within the CCCTB WG and with outside experts with a view to resolving
the various "specific issues" which have been identified;
- drawing the attention of the Council and others to what it
describes as "the more major general elements of the CCCTB",
namely consolidation and the sharing mechanism, the administrative
and judicial framework, the treatment of the financial sector;
and the optional nature of a CCCTB; and
- welcoming input from Member States as to how best to address
their concerns.
The Government's view
15.10 The Economic Secretary to the Treasury (Ed Balls) first
says that, as was the case for the earlier Commission Communication,
the matters discussed in this second progress report concern issues
which remain a national preserve. As the Government had said previously
it does not accept the need for harmonisation of company tax,
including corporate tax base harmonisation. The Minister comments
that, given the complexity of this technical exercise, it is not
particularly surprising that the Commission notes that a "number
of technical difficulties" have been encountered. And he
repeats the Government's view that the Commission's approach is
misconceived and that there is no need for the Commission's technical
work in this area.
15.11 The Minister says that the Government thinks that:
- open, flexible and competitive national tax systems coupled
with renewed international tax cooperation need to go hand in
hand;
- good tax policy needs to respond to country-specific circumstances
and the key is to preserve national flexibility rather than create
rigid structures incapable of adapting to the rapidly evolving
demands of globalisation;
- stimulating growth and investment across countries with different
economic circumstances and levels of infrastructure requires flexible,
targeted national policies;
- through such policies, combined with effective international
cooperation, the UK and others can tackle the revenue sustainability
challenges which are faced in a rapidly changing global economy.
15.12 The Minister concludes that the Government remains clear
that it will not contemplate any action at European level that
could threaten jobs and the competitive position of UK business.
Conclusion
15.13 Given the Government's continued commendably robust approach
to this matter we see no need for a debate at this stage and clear
the document. However we may well wish to recommend a debate when
we see the Commission's actual proposal for a Common Consolidated
Corporate Tax Base in 2008.
39 For example see the Commission's Annual Policy Strategy
for 2008: 6788/07, COM(07) 65, on which we are currently undertaking
an enquiry. Back
40
(27425) 8231/05: see HC 34-xxix (2005-06), para 2 (17 May 2006)
and HC 34-xxxiii (2005-06), para 17 (28 June 2006). Back
41
(28173) 17066/06 (28174) 17067/06 + ADD1 (28175) 17068/06: see
HC 41-ix (2006-07), para 2 (7 February 2007) and Stg Co Deb,
European Standing Committee, 6 March 2007, cols 3-18. Back
42
See http://ec.europa.eu/taxation_customs/taxation/company_tax/common_tax_base/article_3147_en.htm. Back
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