ICC outlines conditions for effective common corporate European tax base
ICC, in a policy statement prepared by its Commission on Taxation, has outlined the conditions under which a European Common Consolidated Corporate Tax Base could create a more efficient tax system for companies operating in Europe, in anticipation of the European Commission’s intention to present a legislative proposal on this subject during 2008.
“For the common consolidated corporate tax base to be successful, it is vital that the system is optional to businesses and consolidated from the start with an administration of the system according to a one-stop-shop approach,” the ICC statement said. “Compliance costs and distortions must be reduced, also in relations with countries not having the common consolidated corporate tax base. Businesses in outside countries should not face tax induced distortions in their activities in the European economy.”
Governments are increasingly requiring businesses active in more than one country to document the way prices are set within the business group, creating significant compliance costs for companies. In addition, tax authorities are increasingly insisting that the overall profit of a business group be taxed in more than one country, which has lead to a growing number of incidents of international double taxation and numerous court cases.
Clearly, such a situation is a hindrance to investment and job creation. The effect is not limited to European businesses – even a group with its parent company in the US, for example, may face double taxation on its European earnings.
“It is therefore a welcome initiative the European Commission has taken to develop a system that would allow businesses to opt for a common consolidated corporate tax base in order to eliminate double taxation in Europe,” says Robert Couzin, Chair of ICC’s Commission on Taxation .
ICC stressed that it supported a proposed system that would allow for a cross-border loss relief mechanism and reduce the administrative burdens of businesses by allowing for a “one-stop-shop” tax facility. “A full review by the international business community can, of course, not be made until the details of the proposal are known, but the work so far looks promising,” added Mr Couzin.
Mr Couzin explained: “The existence of 27 different and often incompatible tax systems constitutes a significant obstacle to economic efficiency and the functioning of the internal market. Double taxation, the lack of tax consolidation, tax-related hindrance of business restructuring and enormous compliance costs are just some barriers to a more competitive and open European market. Removing these obstacles would significantly spur investment and contribute to enhancing competitiveness.”
Countries outside the EU will also be immediately affected by the adoption of a common consolidated corporate tax base. “This should be taken into account in the process of establishing a common consolidated corporate tax base in the EU. The purpose of the ICC policy statement is to bring some important issues in this regard to the attention of policymakers,” Mr Couzin said.