New EU corporate tax plan

The recent scandal following the discovery of Paradise Papers in November of 2017 showed that there are still a lot of grey areas surrounding corporate taxation in Europe. With Paradise Papers, which exposed connections between tax havens and more than 100 multinational corporations, recent money laundering scandals in Denmark, Estonia and Latvia, and a series of tax scandals that have hit Europe in recent years, one thing is obvious: there is growing need for better corporate tax regulation in Europe.

The Common Consolidated Corporate Tax Base (CCCTB), integral part of the new EU corporate tax plan, has been approved in the Economics and Monetary Committee of the European Parliament on 21^st of February 2018. A separate, complementary measure which creates the basis for the harmonised corporate tax system, the Common Corporate Tax Base, was also approved on the same day. These new measures aim to create a single, clear and fair EU corporate tax regime, a tax system much more suitable for today’s digital and global economy.

Proposals include benchmarks to determine whether a firm has a digital presence within an EU member state which might make it liable for tax even if it does not have a fixed place of business in that country. The Economic and Monetary Affairs Committee urges the EU Commission to monitor technical standards for the number of users, digital contracts and the volume of digital content collected which a company exploits for data-mining purposes, which should produce a clearer picture of where a firm generates its profits, and where it should be taxed. Personal data is an intangible but highly valuable asset for many of today’s companies, but it is currently not taken into account when calculating their tax liabilities.

Also, proposals call for a harmonised corporate tax system, which means companies would calculate their tax bills by adding up the profits and losses of their constituent companies in all EU member states. Taxable profits would then be allocated to each member state where the company operates according to a sharing formula based on sales, assets, and labour, as well as their use of personal data. The aim is to stamp out the current practice of companies moving their tax base to low-tax jurisdictions.

Once the proposals take effect, a single set of tax rules would apply in all member states. Companies would no longer have to deal with 28 different sets of national rules and would also be accountable to a single tax administration.

Although there are still some open questions, these proposals are definitely a step in the right direction for delivering tax justice across the EU.

Sources: 1, 2, 3

Author: Ivan Petarčić (RRiF-plus d.o.o.)