In March 2011, the Commission proposed a draft Council Directive on a Common Consolidated Corporate Tax Base (CCCTB). Several Member States, particularly Ireland and the UK, as well as Bulgaria, Malta, the Netherlands, Poland, Romania and Sweden, immediately spoke out against the proposal. The Prime Minister of Ireland, Enda Kenny, has described such move as "tax harmonisation through the back door."
However, Ireland has been bullied into support the CCCTB in return for lower interest rates on its bailout loan. According to a statement by the Heads of State of Government of the Euro Area and EU institutions, issued on 21 July 2011, they agreed to apply to Portugal and Ireland the same EFSF lending rates and maturities agreed for Greece. But, the statement reads, “In this context, we note Ireland's willingness to participate constructively in the discussions on the Common Consolidated Corporate Tax Base draft directive (CCCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ Pact framework.” In the other hand, Nicolas Sarkozy and Angela Merkel are urging the other Member States to speedily adopt the Commission proposal. It is important to note that they have been arguing the eurozone debt crisis had exposed the necessity to complement monetary union with an economic union. In fact, they agreed that steps towards political integration, including the harmonisation of tax and labour policies should be taken.
According to Bill Cash the aim of this proposal “is to move towards a harmonised tax system for one reason: to complete the circle of political union”. The European Commission has denied that its proposal will harmonise corporate tax rates. According to the Commission, the proposal is intend to simplify tax rules, reduce administrative cost and remove tax obstacles for companies operating cross-border. However, the present proposal is a step forward towards harmonising tax rates. As Bill Cash stressed the UK Parliament is “exclusively responsible” for direct taxation.
The proposal is based on Article 115 TFEU, which allows EU legislation to approximate laws of the member states that “directly affect the establishment or functioning of the common market.” According to the European Commission "Companies which seek to do business across frontiers within the Union encounter serious obstacles and market distortions owing to the existence of 27 diverse corporate tax systems. These obstacles and distortions impede the proper functioning of the internal market." However, the Government does not accept that “27 different national corporate tax systems inherently impede the proper functioning of the internal market” and that a CCCTB is necessary to address this issue. According to the Government the Commission has not provided enough evidence that action at EU level is required. The Government believes “that the fiscal impediments to cross-border activity that the proposal claims to tackle — compliance costs, double taxation, and over-taxation — can be addressed through other routes, such as informal coordination or bilateral solutions.”
The House of Commons concluded that the Draft Directive on a common consolidated corporate tax base does not comply with the principle of subsidiarity. In fact, last May, the House of Commons decided pursuant to Article 6 of Protocol (No 2) on the Application of the Principles of Subsidiarity and Proportionality, to send to the Presidents of the Council, the European Parliament and the Commission a Reasoned Opinion stating that the draft Directive does not comply with the principle of subsidiarity. This Protocol provides if one-third of National Parliaments (9 national parliaments) object to a legislative proposal on subsidiarity grounds, the draft must be reviewed. Then, the Commission “may decide to maintain, amend or withdraw the draft.” But, if the Commission decides to keep the proposal it must issue a reasoned opinion justifying why it considers that the draft complies with the principle of subsidiarity. It is important to note that 8 national parliaments have submitted reasoned opinions stating that the draft Directive does not comply with the principle of subsidiarity whilst 4 others have expressed concerns. The Commission should therefore withdraw the proposal.
The proposal is concerned with direct taxation, however as the European Scrutiny Committee has noted “There is (…) no express provision in the Treaty for the harmonisation of direct taxation.” According to the European Scrutiny Committee Article 115 TFEU “allows EU legislation to approximate national legislation which directly affects the operation of the single market, but this provision is expressly "without prejudice to Article 114", which does not apply to fiscal provisions.
The draft directive is subject to the consultation procedure and unanimity is required amongst member states. David Gauke, the Exchequer Secretary to the Treasury, said to the European Scrutiny Committee that “the Government will not agree to a proposal that might threaten or limit its ability to shape the UK's own tax policy;” However, it is already known if there is no unanimity, the CCCTB would be pursued by the “enhanced co-operation”. In fact, the EU Commissioner for Taxation, Algirdas Šemeta, has already announced, if a unanimous agreement cannot be reached at the Council, he will present the proposal under “enhanced cooperation." It is important to note that under Article 329 TFEU enhanced cooperation must concern an area covered by the Treaties, hence if there is no legal base one could say that the proposal cannot be pursued by enhanced cooperation.
According to David Gauke the Government “will engage in discussions to help shape a CCCTB that does not undermine the competitiveness of the EU or the UK.” However, as Bill Cash noted, “it is obvious (…) that the proposal will undermine the competitiveness of the EU and the UK ab initio—and the Government know it.” Consequently, he believes that “there is no reason for us not to put our foot down now and say no.”
The Commission has proposed a single tax regime for calculating the tax base for companies operating within the EU. The Commission is proposing a harmonised EU system, the so-called Common Consolidated Corporate Tax Base (CCCTB), for calculating the tax base of companies operating in the EU. The CCCTB is a single set of rules for computing individual tax results of companies operating within the EU, for the consolidation of those results and the apportionment of the consolidated tax base to each eligible Member State. According to the Commission, the system is chiefly intended to companies that operate across borders, consequently it would be an optional scheme, accompanying the existing national corporate tax systems.
Under the Commission proposal companies, which do not opt-in to the CCCTB, would continue to work within their national systems. But, if they decide to opt in, they would cease to be subject to the national corporate tax arrangements related to all matters regulated by the common rules. Nevertheless, if the proposal is adopted, Member States would see their powers to decide the structure of their taxation systems restricted.
The European Parliament yesterday voted in favour of the proposal. However, it is important to note, the European Parliament voted for the common consolidated corporate tax base (CCCTB) become mandatory after a transitional period, whereas the European Commission has proposed a voluntary scheme. According to the European Parliament, the common consolidated corporate tax base would be, initially, biding to European cooperative companies, then, after five years, it would apply to all companies, except small and medium-sized enterprises (SMEs), which would have the option to opt in.
The Council is not required to take the MEP’s suggestions on board as the proposal is subject to the consultation procedure. Under the consultation procedure, the European Parliament must be consult before the Council vote on the Commission proposal, but it is not bound by the Parliament’s opinion.
Under the draft directive the company's tax base would be shared out to all Member States in which the company is active, according to a fixed formula based on three factors: assets, labour and sales. The Commission would be empowered to adopt implementing acts laying down rules on the calculation of the labour, asset and sales factors, the allocation of employees and payroll, as well as on the form of the tax return, on the form of the consolidated tax return and on the required supporting documentation. After the tax base has been apportioned, Member States would be able to tax their share of it at their corporate tax rate. Consequently, if the proposal is adopted, Member States would be required to manage two tax schemes: CCCTB and their national corporate income tax, which entails further costs. Obviously, there are costs involved in any shift to a new tax system.
It is important to mention that Damon Lambert reported in a Bruges Group pamphlet, “Over a 10 year period the Common Consolidated Corporate Tax Base (CCCTB) will reduce the UK’s GDP by £73 billion, costing each person living in the UK £1,200, equivalent to UK taxpayers having to pay a 1.5p increase in the basic rate of income tax for each of those years or each UK inhabitant paying over £1,200 each.” Moreover, “the CCCTB would mean that Britain would lose a total of £58.4 billion of investment over that period.”
