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Hello and welcome to a video update from KPMG’s EU Tax Centre, here in Amsterdam.
This programme will explore views on the latest CCCTB proposal.
But first, let’s get back to basics and clarify what exactly is on the table – in terms of the latest proposal.
The first C, common, means that the regime will be applied throughout Europe. So, if a group elects in, there will be one tax base that is supplied wherever it is operating and that is good news for business because it is creating simplification.
All group companies are consolidated in one big pot. Profits and losses between different Member States and different companies are equalized.
So, you would have one tax return that would be dealt with by the Member State where the head office was situated.
If you opt in, you are committed to keep the system for at least 5 years. And then if you renew it, it’s at least for 3 other years.
The way that apportionment will work is that there will be one tax base and then that will be divided between the different Member States according to different factors. Those are first of all where assets are situated, secondly where the turnover is, and thirdly based on labor.
The reason why the Directive did not consider the intangibles is that the intangibles are very volatile. They are not easy to locate in one specific Member State or in the other.
I think it is important to recognize that though this is a common tax base, so each country will have the same rules, the proposal doesn’t go as far as saying that there should be one harmonized tax rate.
It’s definitely a simplification of tax in the European Union. It’s broad, it’s simple, it is drafted in a sort of purposive way so it states very broad rules, not lots of detailed ones. It is, I think, very business friendly. There aren’t lots of anti-avoidance rules in there.
Businesses do not have to account for inter-company pricing anymore.
For you as a Tax Director its means that it may streamline a couple of issues you have now, like for instance the problems of offsetting loss in one country and profits in the others, but it may also be an issue in terms of management.
The risks would be that the rules are applied differently in different Member States, that there is a big argument about how the allocation keys work, that it would become very time consuming with appeals going up to the European Court of Justice to sort it out and of course, some Member States might not join, so you will end up with, instead of one tax regime within Europe, it will be 28 instead of 27.
What might happen first and I think it would be really the worst case scenario, is that there are so many changes in the provisions of the current directive that the system becomes more and more complicated.
Likely, we will have lots of tax cases in the European Court of Justice. Why? Because the CCCTB needs to become interpreted.
Clearly in the attitude of different Member States, there is an amount of self interest so you can see France and Germany are supporting the CCCTB, they are going to get a large slice of the tax base under the proposed rules, whereas countries like Ireland, The Netherlands, Luxembourg, see that they would maybe lose out.
The present situation where the allocation is made one third of the turnovers, one third of the employment, and one third of the capital, could be rated differently in order to provide a more fair allocation of tax bases to the different Member States.
The Member States, the governments, will go for CCCTB if they are fairly confident in the fact that they will get more corporate tax income than they get now.
So what might well happen is that a number of Member States say that they don’t want to adopt it.
If it starts with a small number group of 9 countries, and then other countries will see the advantages.
My personal view is that we will get CCCTB. I am not sure when. I don’t think it is going to be in the near future, not within 5 years, possibly within 10, but I am sure we will get it because the way things are going in Europe is, there needs to be more integration and I think it will happen.
Every business will have to carefully consider whether the CCCTB system is favorable or not and in that respect, they will have simulate the concrete consequences, the financial consequences of the CCCTB for them.
I think Tax Directors should be trying to understand how the CCCTB is going to work. That is for two reasons. One is to work out whether or not they would actually elect into it and to start planning for that but also to work out if here any problems with it so they can start lobbying if there are any changes that would be beneficial for them.
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