CCCTB is a single set of rules for determining the corporate tax base, which will be available to companies and groups established in the EU. For those companies who opt for CCCTB, these rules will replace existing national corporate tax rules. For groups of companies operating in more than one Member State this will effectively mean that they will have to comply with only one set of rules, instead of following different sets of rules in each Member State, and file a single, consolidated, tax return.
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The advantages of opting for CCCTB include applying only one set of computation rules and less compliance by having to file a single tax return and deal with a single tax authority. CCCTB is also likely to result in less transfer pricing issues for groups that opt for CCCTB.
One other major advantage for groups opting for CCCTB is the opportunity for cross-border loss compensation among all the companies within the group, which will help reduce the overall tax burden at group level. Under CCCTB, there is no withholding tax on intra-group transactions.
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Taxpayers opting for CCCTB are likely to incur transitional compliance costs. Also, communication between taxpayers within a CCCTB group and the single tax authority might prove to be difficult.
Although the adoption of CCCTB within a group will likely result in less transfer pricing issues and hence compliance costs, transfer pricing documentation would still be required in respect of associated companies that are either located in third countries or do not qualify for consolidation under CCCTB. Transfer pricing compliance costs would also be incurred, because CCCTB group companies would be required to prepare a functional analysis to document the methods used for intra-group transactions. One other disadvantage of CCCTB is that it offers cross-border groups less tax planning opportunities and it could lead to a higher overall tax burden, e.g. by ignoring intangibles.
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No, according to the Commission. Currently, the view is that Member States should be able to make their tax systems attractive for inbound investors by choosing the level of the corporate tax rate applicable.
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CCCTB is optional, but operates as an “all-in-all-out” system, which means that once the parent company opts in, qualifying subsidiaries automatically fall under the scope of CCCTB and are hence subject to the same rules and also to consolidation. Moreover, once a company has opted for CCCTB it will be required to apply its rules for an initial period of at least five years. Thereafter, the minimum would be successive three year periods.
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Qualifying subsidiaries are direct and indirect subsidiaries in which the parent company holds (1) control (i.e. more than 50% of voting rights) and (2) ownership (i.e. more than 75% of the company’s capital) or profit entitlement (i.e. more than 75% of the rights to profit).
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Companies and groups will declare their corporate tax base (individual and consolidated respectively) in a single tax return (all members of a group would have the same tax year) submitted to the tax authorities of the “principal taxpayer”. The tax base will then be apportioned to each group member and then be taxable in the Member State in which that member is located.
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Apportionment will be determined based on a fixed formula involving three equally weighted factors (which are thought to generate a company’s profits): assets, labour and sales. The labour factor has two components: payroll and number of employees. Each Member State’s share will be determined based on the portion of the consolidated tax base attributable to the group company established in that Member State.
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The formula remains the same irrespective of the sector the group operates in. However, the composition of the individual factors may differ depending on the sector. For example, the asset factor of a financial institution and of an insurance undertaking would include 10% of the value of financial assets. However, the company that qualifies as the principal taxpayer or the tax authorities may ask that an alternative apportionment method be used if they feel that the formula does not reflect the share of a group company in the overall tax base.
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Once the share of the corporate tax base attributable to each Member State has been determined, each State is free to apply its own corporate tax rate. The tax authorities in the Member State of the principal taxpayer will be responsible for collecting the tax from CCCTB taxpayers.
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The Directive does not actually prescribe the method by which consolidation should take place. However, consolidation will effectively mean adding up the tax results of all the group members. This will result in a net profit or loss at group level. For example, a group made up of three companies - A: 100 tax loss, B: 150 tax profit and C: 75 tax loss (i.e. tax bases determined based on CCCTB rules) - will have a consolidated tax loss of 25. It is important to note that when calculating the consolidated tax base, the effect of intra-group transactions will be eliminated, i.e. transactions carried out directly between members of the group will be disregarded.
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According to the impact assessment, the common tax base would, on average, be 7.9% broader. However, for certain Member States the CCCTB tax base would be narrower than the national tax base. The possibility of consolidating tax bases under CCCTB might also lead to lost tax revenue for certain Member States. However, Member States are free to adjust their corporate tax rates (even if only for CCCTB companies) to maintain the same effective tax rate, thereby leveling the effect of a narrow tax base.
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The general rule is that depreciable assets are included in an assets pool and will be subject to tax depreciation at an annual rate of 25%. Exceptions to the general rule include: buildings (depreciable over 40 years) and intangibles (useful life is the period in which the asset enjoys legal protection or for which the right is granted or, if that period cannot be determined, 15 years). Certain assets, such as land, are not subject to depreciation under CCCTB.
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According to the Explanatory Memorandum to the CCCTB Proposal, supporting research and development is a key aim of the proposal. This translates into full deductibility for research and developments expenses.
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Losses incurred under CCCTB may be carried forward indefinitely, but not carried back. Moreover, losses incurred prior to joining CCCTB can be set off against (i) the CCCTB tax base for individual companies opting for CCCTB, and (ii) the apportioned tax base for group companies.
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Eligible third country companies will be allowed to opt for CCCTB in respect of their EU subsidiaries and permanent establishments, either individually or as CCCTB groups. Similarly, an EU company that forms a group with any EU permanent establishments of its qualifying third country subsidiaries can also opt for CCCTB.
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Yes. The proposal contains a general anti-abuse clause, controlled foreign company rules and limitations on the deductibility of interest paid to third country associated companies, as well as rules designed to prevent abuse of provisions such as those on the apportionment of the tax base.
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In order for the proposal to be adopted, a unanimous Council decision is required. This means all 27 EU Member States have to agree. Although the Council must consult two other EU bodies (the European Parliament and the Economic and Social Committee) their consent is not required. Both bodies have expressed views on the proposal and, although in some cases changes have been suggested, both are broadly in favor of the proposal. The Commission hopes that the proposal will be adopted in the Council and included in national law in 2013, so that it can take effect as of 2015 or 2016. In the event that unanimity proves impossible an alternative approach could be for a limited number of Member States to adopt the proposal under the ‘enhanced cooperation’ procedure (see the KPMG Guide to CCCTB, Chapter 2).
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