The European Commission (‘EC’) relaunched the CCTB and the CCCTB on 25 October 2016 together with a proposal to amend the Anti-Tax Avoidance Directive (‘ATAD’) regarding mismatches involving third countries and a Directive on dispute resolution.
In a nutshell, this proposal aims to facilitate business within the EU by subjecting taxpayers to one single rulebook of corporate tax legislation to apply across the internal market and also make the system more robust end resilient to aggressive tax planning. The proposals are tax related proposals, which means that these proposals can only be approved if the ECOFIN Council (consisting of Ministers of Finance from 28 Member States) reaches unanimity.
The original CCCTB proposal from March 2011 have been withdrawn by the Commission at the same time as the EC adopts the new proposals for a CCTB and a CCCTB. The two-staged CCCTB proposal will have a significant impact on European operations if adopted.
According to the EC, the discussions since March 2011 have shown that the CCCTB proposal is unlikely to be adopted by the EU Member States without a staged approach. The EC suggests that first agreement must be secured on a CCTB and until that time the CCCTB will remain pending.
CCTB
The CCTB proposal is the first step in a 2-stage approach towards a EU wide corporate tax system and lays down common corporate tax rules. The proposal sets mandatory rules for calculating the corporate tax base and agrees on certain anti-tax avoidance measures. The effective date is set on January 1st, 2020. Some of the measures were already unanimously agreed in the ATAD (i.e.: interest limitation rules, CFC).
If adopted, the CCTB will be mandatory for EU tax-resident companies, including permanent establishments (‘PEs’) of non-EU companies, belonging to a consolidated group for financial accounting purposes whose total consolidated group revenue exceeds EUR 750.000.000. Once a company is obliged to apply the CCTB Directive, it will cease to be subject to the national corporate income tax system for all items covered under the CCTB Directive, except where specifically stated. Member States can opt to continue to have their own tax rate. At this stage, we just highlight some topics in the proposal, and will not give an comprehensive description of the rules, as they probably change before they will be adopted by the Member States. The proposal includes:
CCCTB
The second step in the proposals is the CCCTB. The effective date for the CCCTB will be January 1st, 2022, but as mentioned in the introduction will remain pending until the CCTB is adopted.
The proposal includes:
ATAD
The ATAD proposed rules that follow the corresponding provisions in the CCTB proposal and are in line with the ATAD provisions. For hybrid PEs, whereby a payment is not recognized as income in the state of residence or the state were the PE is located, the mismatch is resolved by requiring the state of residence to tax the receipt of ‘interest’.
The new hybrid provisions also are applicable if mismatches arise in third countries, so not only in the EU situations. They also deal with mismatches involving permanent establishments, imported mismatches, hybrid transfers and dual resident mismatches. The general principle to resolve mismatches in relation to third countries is to the Member State to align its tax treatment with the treatment in the third country unless the mismatch is already eliminated by that third country.
Finally, the proposal includes a mandatory dispute resolution system procedure for double taxation disputes including arbitration with stricter deadlines.
It is BANNINGs view is that a lot has to be done on the technical and explanatory side of the proposals, before the 28 Member States will reach an unanimous agreement. (For the Netherlands in particular, the Participation Exemption proposed in the CCTB (10% and a 12 months holding period) is much narrower than our national participation exemption (5% and no minimal holding period)). The CCCTB seems most unlikely given the significant impact on Member States autonomy. CCTB in some shape or form could be conceivable and the updated ATAD implementation is likely. However, it is impossible to say something about the final outcome of the proposals at this stage.
If you have any further questions based on the above, please do not hesitate to contact John Linders or Elise Houtgraaf of our Dutch desk in NYC for further information.
Hans van den Hurk
h.vandenhurk@www.banning.nl
John Linders
j.linders@www.banning.nl
Elise Houtgraaf
e.houtgraaf@www.banning.nl
[1] The following conditions should all be met in order to qualify as a start-up under the proposal: An unlisted enterprise with less than 50 employees and an annual turnover/ balance sheet that does not exceed EUR 10.000.000; no registration for longer than five years or established, started to be liable to tax longer than 5 years ago; not formed by a merger and it does not have any associated enterprises.
[2] We believe that it is unlikely that these rules will be adopted as proposed, as R&D is increasingly important for small and mid-size companies that would, under these rules be discriminated.