Proposed new legislation would create a single, overarching tax framework for calculating taxable profits in Europe. The proposed new rules are designed to make it harder multinational corporations to water down their corporate tax bills by shifting intangibles, such as brands and intellectual property, to lower-tax jursidictions. A similar proposal was floated in 2011 but was sidetracked by staunch opposition from the United Kingdom and Ireland.

Two-pronged approach

As it stands, the proposal comprises of two separate but interlinked pieces of draft legislation. The first covers the establishment of a common corporate tax base, which would introduce a new way of calculating how much of a company’s profits are generated in each country. The proposed formula attempts to pinpoint the creation of value by looking at three variables – assets, labour and sales. The second piece of draft legislation, known as the common consolidated corporate tax base, proposes a system whereby one EU member would be placed in charge of collecting corporate tax from any given company and then distributing tax revenue to other member states depending on where that company generated its profits.

Easing the compliance burden

As corporate tax rates will remain under the sovereign control of EU member states under the new proposal, the Commission is hoping that the CCCTB will be able to win favour with its critics. The Commission has also pointed out that the new system will simplify taxation for large and medium-sized companies operating across multiple countries in Europe, this potentially easing the costs associated with tax compliance. All EU member states will need to approve the new system before it can become law. 

Sources: The Guardian; RTE