On 25 October 2016 the European Commission (EC) presented its new package of corporate tax reforms. The package consists of the following four proposed draft tax directives, which are expected to have a significant impact on the European operations of MNCs, if finally adopted:
- Common Corporate Tax Base (CCTB)
- Common Consolidated Corporate Tax Base (CCCTB)
- amendment of the Anti-Tax Avoidance Directive (ATAD) so that it also regulates mismatches with third countries
- dispute resolutions mechanisms in the EU (Dispute Resolution Directive)
Proposed CCTB/CCCTB Directives
With the adoption of the two proposals on CCTB and CCCTB the original 2011 CCCTB EC proposal is withdrawn. In the re-launched CCTB, Member States shall agree on and implement a common taxable base in a first step with consolidation coming later as a second step. The Member States continue to apply their own national corporate tax rates.
These rules are planned to be mandatory for EU tax-resident companies (including PEs of non-EU companies) belonging to a consolidated group for financial accounting purposes whose total consolidated group revenue exceeds EUR 750m. SMEs and start-ups with turnovers below this threshold will get the possibility to opt-in. If adopted, these CCTB rules should become effective as of 1 January 2019.
Once the Member States have agreed on the proposed common base (CCTB), they can proceed with the consolidation part of the proposals (CCCTB). If adopted, these CCCTB rules should apply as of 1 January 2021.
Proposed Dispute Resolution Directive
The Commission has further proposed that current dispute resolution mechanisms should be adjusted to better meet the needs of businesses. In particular, a wider range of cases will be covered and Member States will have clear deadlines to agree on a binding solution to double taxation. If adopted, these rules would apply as of 1 January 2018.
Proposed Directive on hybrid mismatches with third countries
The third proposal in the EC’s new package amends the Anti-Tax Avoidance Directive (ATAD) and incorporates minimum standards provisions relating to hybrid mismatches with third countries. If adopted, these rules would apply as of 1 January 2019.
All four Directives in principle require the unanimous consent from all EU Member States in the ECOFIN. It remains to be seen whether this can be achieved and whether amendments to the proposed measures need to be done and/or whether some of the measures may need to be dropped. It further remains to be seen whether a group of Member States which are in favour of the proposals, may seek to take the initiative forward under the so-called “enhanced co-operation mechanism”.
Multinationals with operations in the EU should carefully monitor these developments.
For further advice please contact:
Partner, Corporate Tax / International Tax and Transfer Pricing
+41 58 792 43 43
Anna-Maria Widrig Giallouraki
Senior Manager, Tax & Legal Services
+41 58 792 42 87