No Plans To Harmonize EU CIT Rates, Says Moscovici
Tax Commissioner Pierre Moscovici has confirmed that the European Commission has no plans, formal or informal, to harmonize corporation tax rates across the European Union.
In a written question to the Commission, Jonathan Arnott, a UK Member of the European Parliament, asked the Commission to confirm its latest position on tax harmonization and the status of any proposals in this regard, in view of the announcement that proposals for a common consolidated corporate tax base are to be relaunched.
Arnott asked:”Given that Britain has the lowest rate of corporation tax in the G-7, at 20 percent, is the Commission aware of the significant difficulties that [harmonizing corporate tax rates] would cause for the British economy?”
Answering on behalf of the Commission on August 12, 2015, Moscovici pointed out that the Common Consolidated Corporate Tax Base (CCCTB) initiative is “aimed at aligning the tax base, which is to say the rules governing the calculation of taxable profits. Even upon adoption of the final stage, the CCCTB would not harmonize the tax rate, which would remain the responsibility of member states.”
Moscovici added that “member states should initially focus on elements relating to agreement at the OECD’s base erosion and profit shifting project, before moving on to other elements of the tax base and finally to consolidation. The international elements of the CCCTB are currently under discussion in Council, and the Commission is working on a new proposal.”
On June 17, 2015, the Commission adopted a Communication on A Fair and Efficient Corporate Tax System in the EU: 5 Key Areas for Action. The first area for action related to the CCCTB, which it said offers a holistic solution to the problem of profit shifting in the EU.
Under the CCCTB, multinationals might eventually be taxed under a formulary apportionment method, as an alternative to the arm’s length principle. Under such an approach, tax would be levied, and the revenues allocated to states, based upon a multi-factor weighted formula (using factors such as property, payroll, and sales, for example) where a group’s income-generating activities are located.
“The CCCTB would eliminate the mismatches between tax systems…and transfer pricing rules would no longer be used to shift profits. The CCCTB would deliver significant benefits to companies operating cross-border in the EU, as they would only have to follow one set of tax rules, and would be able to offset profits made in one area with losses made in another,” Moscovici explained.
