Law

In favour of the CCCTB in European tax law

This article is based on a case study realised in the framework of my EU Tax Law class at King’s College London.

The project of Common Consolidated Corporate Tax Base (CCCTB) is highly controversial, as it would reduce the fiscal sovereignty of the Member States (MS). Some politicians and stakeholders consider that the proposal does not respect the subsidiarity principle and fear that the CCTB would damage Europe’s capacity to attract foreign investment. Does this criticism reflect genuine concerns?  This paper will claim that the Commission’s proposal does not violate the subsidiarity principle (I) and will nuance the fears of a decrease in European competitiveness, both regarding the multiplicity of applicable laws (II) and the difficulty to make accurate tax predictions (III).

The first issue to address is the compatibility of the proposal with the principle of subsidiarity enshrined in Article 5(3) TEU. The current situation is characterised by multiple and very complex cases before the ECJ, as demonstrated by the various “Test claimants in … group litigation”[1] cases. It is unsatisfactory, because, as argued by Neil Warriner[2], it leads to a “‘back-door’ harmonisation through the ECJ”, though such a sensitive issue should be treated transparently on the political stage. The Commission considers that the MS are not capable of solving the current problems alone. It wants to eliminate the obstacles set by the coexistence of 27 different national tax systems, obstacles that remain despite the Single market rules and the existence of various tax conventions. In particular, the Commission aims at really facilitating the resolve of cross-border issues (such as transfer pricing or relief of losses), and this is best done at EU level, since tax conventions are very often only bilateral and do not enable to solve all double taxation issues. In addition, it must be underlined that the system would be optional for companies, so that the CCCTB system would not totally replace national tax systems. On the other hand, this optional character may precisely lead to additional complexity that is criticised by CAI.

Indeed, “the tax payable by multinationals in [a MS] [would] no longer be determined by the law of that State alone”. In this respect, first, it is true that adding a new, optional system may increase the general complexity of tax systems in the EU, but, on the other hand, it would give more freedom of choice, more possibilities for tax planning to the businesses operating within the Single Market. Of course, switching system may prove to be costly, but then, the CCCTB system would apply to the group (or single undertaking) for at least five years – this is to avoid abuses – so that the benefits such as reduced administrative costs would be substantial. According to the Commission, the compliance costs would be reduced by €700 million/year across the EU and the new consolidation rules would even enable savings of €1.3 billion[3]. Second, the harmonisation would concern only the tax base, not the tax rates, nor the accounting principles. While this favours the respect of the subsidiarity principle, it may reduce the positive effects of harmonisation, as undertakings would still have to cope with different rules, according to where they establish themselves. But let us note that these problems already exist. They are even worse at present, since businesses have to deal with different business administrations, have to present different accounts in each country and are already subject to a different tax rate in each MS. The CCCTB proposal has the merit of reducing the administrative burden by setting up a “one-stop-shop” system, according to which businesses would deal with only one tax administration, applying the rules of that MS. This would also facilitate the expansion of smaller businesses, since the parent company would continue to deal with the same national tax administration under the same accounting system. To sum up, the claim that the CCCTB would be bad for Europe’s competitiveness because of an allegedly increased legal complexity is exaggerated.

The other argument put forward is the fact that accurate prediction of tax charges would be made more difficult because of the “reference to a complicated formula which can only be computed in retrospect”. First, let us recall that, in the proposal, this formula of allocation of an undertaking’s tax base among the different MS where it is established would take into account three equally weighted factors: assets, labour (equally shared between two sub-factors: payroll costs and number of employees) and sales. Let us also note that the European Parliament, which is consulted within the framework of the legislative procedure applicable to the adoption of the CCTB proposal under Articles 289(2) and 115 TFEU, proposed to modify the balance between these criteria, giving 10% weight to sales and 45% weight to each other criteria. It argued that the sales factor is particularly easy to manipulate and could disadvantage smaller MS “with limited domestic markets” and it invoked the “internationally accepted principle of attributing ultimate taxing rights to the source State”[4]. But does this formula make things really more complicated? Currently, businesses also apply a different tax rate in each country. They do not need to apportion the tax base between different MS, but they have to compute it differently in each country. Thus, the current system is not easier than the new one, nor is it more transparent. Moreover, in several MS, there are frequent changes to the fiscal rules, so that predictability of the tax burden can also be quite uncertain. By contrast, under the CCCTB proposal, the adoption of the CCCTB system would guarantee stability of the applicable rules for at least five years. So, even if the formula is not particularly easy, it does not seem that it makes the situation worse.

In conclusion, the fears expressed regarding the risk of violating the subsidiarity principle and potential negative effects of the CCCTB proposal on EU’s capacity to attract foreign investments seem largely unfounded. A partial harmonisation in corporate tax matters is appropriate and proportionate to come closer to fully realising the Single Market and should especially benefit the businesses using the freedoms of circulation to establish themselves in different MS. Some MS and MEPs even wish the proposal would go further, such as introducing minimum tax rates to avoid a too harsh ‘fiscal competition’ between MS, but the current political situation gives no hope for such projects, and it is even probable that the CCCTB proposal will progress under a procedure of enhanced cooperation rather than with the participation of all MS[5].

Pierre-Antoine KLETHI

List of sources consulted

Treaty on the European Union (TEU) and Treaty on the Functioning of the European Union (TFEU)

European Commission, Memo 11/171, 16 March 2011

European Commission, Press release IP/11/319, 16 March 2011

European Commission, Summary of the Impact Assessment, SEC(2011) 316 final, 16 March 2011

Resolution of the French National Assembly concerning the proposal of a CCCTB (Text n°887)

Loyens & Loeff, European Parliament issues Report on the proposal for a CCCTB, May 2012

Loyens & Loeff, Highlights & Insights on European Taxation, special edition on “Proposal for a Common Consolidated Corporate Tax Base (CCCTB)”, June 2011

Peter CUSSONS, Examining the CCCTB proposals, Tax Journal, Issue 1068, 11 March 2011

PricewaterhouseCoopers, CCCTB – what it really means, March 2011

Ioanna MITROYANNI, The common consolidated corporate tax base: accomplished steps and the way ahead, British Tax Review, 2011, 3, pp.246-252

Christiana H.J.I. PANAYI, Reverse subsidiarity and EU tax law: can Member States be left to their own devices?, British Tax Review, 2010, 3, pp.267-301 (see in particular pp.272-275)

Frank ZIPFEL, One Europe, one tax? Plans for a common consolidated corporate tax base, European Newsletter, 2008, 51(Jan), pp.1-5

Richard TROMANS, The impossible dream?, European lawyer, 2006, 62, pp.55-57


[1] ACT IV (Case C-374/04), Thin Cap (Case C-524/04), CFC and Dividend (Case C-201/05)

[2] The Impossible Dream? p.3

[3] Memo 11/171 (16 March 2011)

[4] Loyens Loeff, European Parliament issues Report on the proposal for a CCCTB, May 2012.

[5] Mitroyanni, B.T.R. 2010, p.251 (see bibliography)

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