An outline of the CCCTB (Common Consolidated Corporate Tax ...

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In this respect, the question of the deductibility of social-security contributions was subjected to a separate examination, which is summarised in the box below. Deductibility of social-security contributions At its meeting of 12 September 2006, the CCCTB Working Group examined the question whether contributions to social-security schemes could or could not be deductible from the tax base. 18 Costs met by companies in connection with social-security schemes represent a labour cost and should, in principle, be deductible for tax purposes. The systems for funding social-security benefits, however, diverge widely from one Member State to another. Some are funded from fiscal revenue, others by means of distinct contributions based, for example, on a percentage of each employee’s pay. The various funding methods would have an impact on the consolidation and apportionment of the tax base. Three options were therefore envisaged by the CCCTB Working Group. Under the first option, all compulsory and voluntary contributions would be deductible. Under the second option, Member States would be asked to make a distinction between compulsory contributions, which would be deductible in full and voluntary contributions, the deductibility of which would be capped. Lastly, under the third option, only compulsory contributions would be deductible. The working group seems to have favoured the second option, i.e. general deductibility with a ceiling on the deductibility of voluntary contributions. That option, in fact, would serve not only to prevent any attempts at tax avoidance but also to encourage employers to contribute to their employees’ social-security scheme. The deductibility of taxes other than corporate income taxes was likewise examined by the working group, whose findings are set out below. 18 WP 045. Summary record of the meeting of the Common Consolidated Corporate Tax Base Working Group, held in Brussels on 12 September 2006. WP 043. Common Consolidated Corporate Tax Base Working Group: meeting of Tuesday, 12 September 2006, to discuss an overview of the main issues that emerged at the fourth meeting of the Subgroup on Taxable Income. 10
Taxes other than corporate income taxes In most Member States, direct taxes or charges levied locally or nationally can be deducted from the tax base for corporate income tax. It would be difficult to transpose the deductibility of local taxes to the CCCTB, because in some Member States local authorities are financed by means of specific taxes, whereas in others they are funded by government grants. Deductibility of local taxes would impact on the consolidation and apportionment of the tax base. If, for example, no local taxes were levied in Member State A, but they were levied in Member State B, A would lose out twice over, for A would not collect any tax revenue except its portion deriving from the CCCTB, while that portion would be reduced by the amount of the deducted taxes. State A would be sorely tempted to create taxes and charges similar to those collected by State B. To avoid this phenomenon, four options were considered. 19 The first option would be to limit deductibility to taxes and charges collected in return for specific services that a company had freely decided to receive. This, however, would entail significant amendments to the tax system in some Member States. The second option would be the same as the first but would also provide for the deduction of other taxes after apportionment of the tax base. This option, however, would only be available in a few exceptional cases, otherwise the degree of standardisation of the CCCTB could be diminished. The third option would allow the taxes and charges (other than corporate income tax) that affected income to be deducted after apportionment and other taxes and charges to be deducted before apportionment. This option appears difficult to implement because the distinction between these two types of income is blurred, and there is little justification for treating them differently. Finally, the fourth option would permit the deduction of every tax or charge that constituted a mandatory expense. This option, however, would reduce the tax base considerably and would therefore conflict with the desire to establish the broadest possible tax base. The second option was favoured by the CCCTB Working Group, subject to the aforementioned reservations regarding its application. During the last technical working group held April 14-15, 2008, the Commission services presented another option, i.e. identify taxes which represent significant revenue in a Member State (based on a percentage of a Member State’s CIT total revenue) and subsequently exclude the deduction of these significant taxes under 19 See documents CCCTB/WP 43 and 45 11
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