16 Taxation
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested
|
| Document details | Draft directive about a common consolidated corporate tax base
|
| Legal base | Article 115 TFEU; consultation; unanimity
|
| Department
Document numbers
| HM Treasury
(32617), 7263/11 + ADDs 1-2, COM(11) 121
|
Summary and Committee's conclusions
16.1 In March 2011 the Commission presented a draft Directive
to create an EU common consolidated corporate tax base. We and
the Government have shared considerable concerns about this proposal.
16.2 The Government now reports to us Council working
group consideration of the draft Directive since May 2011.
16.3 We are grateful to the Government for its
detailed, albeit tardy, account of developments on this draft
Directive. We are sure that our successor Committee will expect
to have more frequent accounts of developments and that it will
wish to recommend, at an appropriate moment, a debate on the proposal.
Meanwhile the document remains under scrutiny.
Full details of
the documents: Draft Directive on a common
consolidated corporate tax base (CCCTB): (32617), 7263/11 + ADDs
1-2, COM(11) 121.
Background
16.4 In the past 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). In Communications in October 2001, April
2006 and May 2007 it reported on efforts to develop a proposal
for a CCCTB. In February 2007, in its Annual Policy Strategy for
2008, the Commission announced its intention to introduce a proposal
for a CCCTB in 2008 — however this did not happen. In response
to all this the previous Government consistently made clear that
direct taxation is primarily a matter for Member States and that
in its view fair tax competition, not tax harmonisation, was the
basis on which the EU could compete with the rest of the world.
16.5 In March 2011, the Commission sought, with this
draft Directive to introduce a CCCTB. The draft Directive would:
· provide
for a single set of harmonised rules for calculating the tax base
for taxable profits of companies resident in Member States;
· allow
companies to opt into this CCCTB or to continue to operate within
national tax systems;
· allow
groups of companies to calculate their total EU-wide consolidated
profit for tax purposes;
· provide
for that profit to be allocated to companies making up the group
on the basis of an apportionment formula composed of sales, payroll,
number of employees and assets in each Member State; and
· provide
that Member States would then tax the profit apportioned to companies
in their Member State.
16.6 Allocating profit on this basis would be a significant
change from the status quo — the current arrangements are
for separate accounting in each Member State to determine location
of income and thus tax due. The proposal would redistribute the
tax base between Member States, but they would continue to set
their own corporate tax rates.
16.7 We have been concerned about five matters, the
basic justification for the proposal, its legal base and its actual
legality, the detailed content of the proposal, subsidiarity and
proportionality. Although the House has debated and adopted, on
our recommendation, a Reasoned Opinion on the proposal, we have
not yet thought the time right for a debate on issues other than
subsidiarity. However, when we last considered the draft Directive
we saw no further advantage in debating with the Government the
issue of the correct legal base, our view being that Article 115
TFEU was not appropriate for approximation of direct taxation.
The Minister's letter of 16 March 2015
16.8 The Financial Secretary to the Treasury (Mr
David Gauke) writes now about recent developments in negotiations
on the draft Directive. Recalling the substance of the proposal,
the Minister says that:
· the
Government's position on this matter was as expressed in the Reasoned
Opinion, which we had suggested and which set out the view of
the House that the CCCTB proposal contravenes EU principles of
proportionality and subsidiarity, and is therefore unlawful;
· in addition,
the Government is not convinced by the economic arguments for
a CCCTB; and
· it will
not, however, stand in the way if other Member States want to
push forward with the proposal and has committed to engaging constructively
in negotiations.
16.9 The Minister then reports that:
· official-led
technical discussion on the Commission's draft Directive began
in May 2011;
· following
an initial comprehensive read-through of the text in the Council
working group, Member States agreed to set aside the articles
dealing with consolidation and formulary apportionment for the
time being, and focus on the detail for a common tax base;
· the
Irish, Lithuanian and Greek Presidencies therefore concentrated
on issues such as depreciation, intangibles, detailed definitions,
and compatibility with the International Accounting Standards;
· in addition,
they led discussions on anti-avoidance, including on a General
Anti-Abuse Rule, and generally sought to achieve a common understanding
so as to ensure a consistent implementation of the proposal;
· considering
that the technical analysis of the tax base was sufficiently advanced
to move on to issues related to consolidation, the Italian Presidency
focused on international aspects, in particular on issues closely
linked to Base Erosion and Profit Shifting (BEPS) such as mismatches,
controlled foreign companies rules and interest deductibility;
· the
Latvian Presidency intends to continue discussions on this basis;
· negotiations
to date have been slow with little willingness among Member States
to make substantial progress on the dossier whilst work on the
G20/OECD BEPS project is still in progress;
· however,
in light of the international focus on corporate tax avoidance,
the CCCTB has received increased attention;
· in November
2014, the Economic and Finance Ministers of France, Italy and
Germany wrote to Commissioner Moscovici calling for tax harmonisation
in the EU;
· the
new Commission has interpreted this as a new-found appetite for
a CCCTB and, keen to build momentum, has been promoting the proposal
as the long-term solution to BEPS issues;
· several
Members of the European Parliament are echoing calls for progress
on the dossier;
· the
Government does not believe that a CCCTB would contribute towards
tackling BEPS — the proposal was not designed to prevent
tax avoidance and it is unclear how it would do this;
· the
system would only apply to the EU and companies could decide whether
to opt in or not — this would risk creating mismatches both
within and outside the EU, and hence even more opportunities for
aggressive tax planning;
· on the
other hand, Member States would be less inclined to sign up to
a compulsory system because of the substantial concerns it would
raise around tax sovereignty;
· moreover,
the Commission's impact assessment suggests that the negative
economic impacts of a CCCTB would be greater if optionality were
removed; and
· it is,
instead, essential that the Government secures global agreement
on the G20/OECD BEPS recommendations due to be published this
year, as this is the most efficient way to ensure that profits
are taxed where they are generated.
16.10 The Minister concludes that:
· the
Government will continue to engage constructively in discussions
at the technical working group level in order to help shape the
proposed Directive;
· thus
far, such engagement has helped to identify and mitigate certain
risks to the UK's competitiveness and tax code that would manifest
if a version of the proposal were to be adopted, or if a smaller
group of Member States pressed ahead under EU enhanced cooperation
rules;
· for
instance, officials have supported amendments to strengthen anti-abuse
provisions in the Directive and, together with other Member States,
have advocated a closer link to the International Accounting Standards;
· at the
same time, the Government has maintained a scrutiny reservation
and made clear that it retains overarching concerns on the proposal;
and
· for
the reasons he has set out the Government will continue to challenge
the assertion that a CCCTB would solve BEPS issues.
Previous Committee Reports
Twenty-seventh Report HC 428-xxv (2010-12), chapter
2 (4 May 2011), Fortieth Report HC 428-xxxv (2010-12), chapter
5 (7 September 2011) and Forty-third Report HC 428-xxxviii (2010-12),
chapter 11 (19 October 2011).
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