Select Committee on European Union Fortieth Report


COMMUNITY LISBON PROGRAMME: COMMON CONSOLIDATED CORPORATE TAX BASE (8231/06)

Letter from the Chairman to Rt Hon Dawn Primarolo MP, Paymaster General, HM Treasury

  Thank you very much for Explanatory Memorandum 8231/06 on a Common Consolidated Corporate Tax Base which Sub-Committee A considered at their meeting on 23 May. The Committee have decided to hold the Communication under scrutiny.

  Whilst the Committee were keen to stress that they would not support the introduction of a common tax rate, they were not convinced that a common corporate tax base is as misconceived as the Explanatory Memorandum indicates. The Committee consider that there may be some advantages for companies from a common tax base and would be interested to hear what representations you have had from large corporations on this issue.

  The Committee also noted that the Commission's work aims to produce a common set of corporate tax rules to either replace or operate alongside national tax rules. Could you please clarify how such rules could operate alongside existing national rules?

  Finally the Committee would appreciate more details on whether, given the current state of play, any common consolidated tax base arising from this work will be likely to give Member States the ability to add their own national obligations to it.

23 May 2006

Letter from Rt Hon Dawn Primarolo MP to the Chairman

  I am writing in response to your letter of 23 May on Explanatory Memorandum 8231/06 on the Commission's technical work on a Common Consolidated Corporate Tax Base (CCCTB).

  I will take each of your points in turn.

  Firstly, you say that the Committee would be interested to hear what representations we have had from large corporations on the issue of a common tax base.

  We have received no formal representations on the technical work on a CCCTB. However, HM Treasury has regular contacts with business of course, including with large corporations, on a whole range of issues. To the extent that comments have been made on the Commission's technical work on a common tax base, it would seem that such businesses would only see merit in a common consolidated tax base which was optional for companies.

  Secondly, you ask for clarification as to how a common set of corporate tax rules could operate alongside existing national rules.

  As far as the optional nature of such a base is concerned, the Commission appears to envisage that each tax authority of a Member State participating in a CCCTB would be required to administer in parallel two corporate tax systems (the domestic system and the common base). In COM(2006) 157, the Commission acknowledges that there are potential difficulties with the idea, saying "... the simultaneous operation of two corporate tax bases admittedly may raise specific issues for tax administrations."

  As noted in Explanatory Memorandum 8231/06, the technical exercise which is being undertaken by the Commission is an extremely complex one. Notwithstanding the deadline which the Commission has set itself for the completion of its work, it would appear that there has been no consideration to date in the Commission's CCCTB Working Group as to whether and, if so, how a CCCTB which was optional for companies might actually be made to work. One obvious potential difficulty would appear to be that such an approach would seem bound to provide companies with more rather than less opportunities for tax arbitrage and tax avoidance and hence pose an increased risk to corporate tax revenues.

  Thirdly, you say that the Committee would appreciate more details on whether, given the current state of play, a common consolidated tax base arising from the Commission's work would be likely to give Member States the ability to add their own national obligations to it. I assume that what you have in mind here are national tax incentives. The issue of such incentives, including R&D, appears on the Commission's work programme for its CCCTB Working Group. However, there has been no technical work to date and, according to COM(2006) 157, the Commission's intention is to start technical work on tax incentives early in 2007, with a view to this being broadly completed by the end of the year. Whether and, if so, the extent to which a common consolidated tax base arising from the Commission's technical work would leave any flexibility at national level remains unclear.

  You might also be interested to know that, following on from the exchange of views on the question of a common consolidated corporate tax base at the Informal ECOFIN Council on 7-8 April, the Commission introduced its Communication (COM(2006) 157) at the ECOFIN Council meeting on 7 June. There was a further discussion, with a range of views being expressed. No conclusions were drawn.

  I hope you find this information helpful.

16 June 2006

Letter from the Chairman to Rt Hon Dawn Primarolo MP

  Thank you very much for your letter dated 16 June on EM 8231/06: progress on a Common Consolidated Corporate Tax Base. This was considered by Sub-Committee A at their meeting on 4 July when it was decided to maintain the scrutiny reserve pending clarification of some issues.

  On the representations from large companies regarding a common consolidated tax base the Committee noted that you have conducted some informal discussions. However, we were concerned that no formal assessment of the views of such corporations had been conducted either by the Government or by the Commission as part of the working group. Do you consider that consultation would inform the work of the group? Do you plan to conduct any such consultation before the conclusion of the group so as to allow large corporations to contribute their opinions at an early stage in the process?

  On the difficulties of administering two systems simultaneously, the Committee suspect that there will be considerable problems. We consider that it is important to address such difficulties at an early stage in working group negotiations. Do you plan to raise this issue during discussions and bilaterally with other EU tax authorities?

  On the ability to add national incentives to the tax system, the Committee noted that no discussion has yet taken place and would like to be informed of the results of these discussions when they do take place.

5 July 2006



 
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