IN A FURTHER MOVE to make tax systems fairer, more efficient, growth-friendly and transparent, the Commission presented an action plan to fundamentally reform corporate taxation in the European Union (EU) and published a “Top 30” list of tax havens across the world. Corporate taxation in the EU needs to be fundamentally reformed. Today’s corporate tax systems in EU member states were conceived in the 1930s, when cross border trade was more limited, business models were simpler and products were tangible. But as business evolves, so too, must the tax system.
The current rules no longer work in a globalised, digital, mobile business environment. This outdated system is inefficient and creates opportunities for companies to use sophisticated tax planning schemes to escape taxes.
Some companies currently generate large profits in the Single Market, but pay little or no tax in the EU.
This corporate avoidance results in significant revenue losses for member states, a heavier tax burden for citizens and local companies and competitive distortions for businesses that pay their share.
It also undermines EU growth and competitiveness. Member states are pulled into intense competition to attract or to keep companies’ profits in their own territories.
Through this competition, they often undermine each other’s ability to collect legitimate revenues or to focus on growth-friendly taxation.
In addition, member states’ unilaterial efforts to protect their tax bases with uncoordinated anti-abuse measures are creating obstacles for businesses in the Single Market and legal disputes.
The lack of coordination between member states on corporate taxation also causes legal uncertainty, administrative burdens and compliance costs for businesses and investors. This undermines the EU’s goal of creating a stronger, more competitive Single Market.
The action plan therefore sets out a series of measures for the short, medium and long term, to overhaul the EU’s corporate tax framework and make it fair, efficient and more growth friendly. Key actions include a strategy to relaunch the Common Consolidated Corporate Tax Base (CCCTB) and a framework to ensure effective taxation where profits are generated.
The aim is also to increase transparency within the EU and vis-a-vis third countries. The Commission will relaunch its proposal for a CCCTB in 2016 as a holistic solution to corporate tax reform.
The action plan sets out the path for effective taxation in the EU which is the notion that companies should pay a fair share of tax in the country where they make their profits.
The Commission is proposing measures to close legislative loopholes, improve the transfer pricing system and implement stricter rules for preferential tax regimes, among other things.
These initiatives should also help to advance the ongoing debate between member states to define and agree on an EU approach to effective taxation.
The action plan sets out the next steps for greater tax transparency – within the EU and vis-a-vis third countries. In this context, the Commission published a “Top 30” pan-EU list of non-cooperative tax jurisdictions across the world, which is made up of countries that are blacklisted by at least ten member states.
The aim is to have a common EU approach to defining and reacting to third country non-cooperative tax jurisdictions.