On 17 June 2015, the European Commission ("Commission") has released the action plan "A Fair and Efficient Corporate Tax System for the European Union: five Key Areas for Action" ("EU Action Plan"). According to the Commission corporate taxation in the EU needs to be fundamentally reformed.
The five key areas for action are:
The Common Consolidated Corporate Tax Base (CCCTB)
The Commission intends to present a new CCCTB proposal as early as possible in 2016. The re-launched CCCTB will be mandatory for all multinational enterprises. The primary focus will be on securing a common tax base. Consolidation (the allocation of tax base among Member States in accordance with a formula) will be postponed. Until such time, the EU Action Plan sets out measures to compensate for the lack of consolidation. The measures include, for example, enabling cross border loss offset and review of the transfer pricing system within the EU. The harmonisation of corporate tax rates is not part of the re-launched CCCTB.
Ensuring fair taxation where profits are generated
The Commission urges the current and upcoming presidencies of the Council to reach agreement on several of the outcomes of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project such as the modifications to the definition of permanent establishment and improvements to Controlled Foreign Corporation (CFC) rules. Consensus on these elements should be achieved within the next 12 months, and should be made legally binding before an agreement is reached on the revised CCCTB. The Commission also proposes to modify the criteria used under the Code of Conduct on Business Taxation to apply to practices that result in a low level of effective taxation, to introduce inter alia a subject-to-tax requirement in the Interest and Royalty Directive and to come with binding legislative measures within 12 months if Member States do not implement the "modified nexus approach" to preferential tax regimes such as patent boxes.
Certain additional measures for a better tax environment for business
By the summer of 2016, the Commission will propose improvements to the current mechanisms to resolve double taxation disputes in the EU, including a review of the extension of the scope of the Arbitration Convention beyond transfer pricing disputes turning it into an EU instrument.
Further progress on tax transparency
The Commission proposes to come to a common approach to third country non-cooperative tax jurisdictions. The EU Action Plan contains an EU wide list of third country non-cooperative tax jurisdictions. The Commission proposes that the Code of Conduct Group screens third countries for compliance with good governance standards and assists them in improving their standards within the next 24 months. The Commission is willing to coordinate counter measures toward non-cooperative jurisdictions. Finally, the Commission has launched a public consultation on the need for additional disclosure of corporate tax information which closes on 9 September 2015.
An EU tool for coordination
The Commission will launch a discussion within the Platform on Tax Good Governance, the mandate of which will be extended, on how to realise a more strategic approach to controlling and auditing cross-border companies. The Commission will also develop proposals to reform the Code of Conduct on Business Taxation in order to enable it to react more efficiently to cases of harmful tax competition and to provide guidance on how to implement non-legislative EU measures against corporate tax avoidance.
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