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

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would apply to the ‘cost’ incurred by Member States as a result of granting tax credits for tax paid abroad. A mechanism for calculating the limit of the credit to be granted by each Member State would also be required. As regards income from an EU source, where this was income from a permanent establishment it would always be consolidated with the tax base of the group or single company on which the permanent establishment depended. Dividend income from major shareholdings would be consolidated (and consequently factored out from consolidation) if the ownership requirements for consolidation (75%) were met and would otherwise be treated in the same way as income from non-EU countries, subject to an examination of the applicability of the Columbus Containers judgment to the switch-over. In practice, the threshold for switch-over mechanism is assessed in a way no EU Member State will fall into the scope of this regime. Income in the form of portfolio dividends (returns on financial investments) would undergo the same treatment as dividends from non-EU countries, as would other passive income: these dividends would be subject to tax, with a credit granted in case a withholding tax would have been paid in the Member State where this income has its source Income from EU sources would include domestic income. (Numerous Member States have submitted comments because they have a problem with this approach, although they have not proposed a more acceptable solution. Most of them emphasise the great complexity of dealing with foreign income, the difficult relationship with bilateral agreements concluded with countries outside the EU, the calculation of tax credits and the difficulty of apportioning the profit or loss of permanent establishments among the Member States in view of their bilateral agreements with the source countries, particularly in the case of Member States in which the foreign company has no permanent establishments. Some Member States have suggested that potential derogations from the CCCTB rules that would be implemented in order to fulfil the requirements of the existing Tax Treaties concluded with countries outside the EU should not be subject to time limits so as to avoid creating tension in the renegotiation of agreements with non- EU countries. Shareholdings Dividends, capital gains and interest The tax regimes that apply to shareholdings diverge widely from one Member State to another. In fact, some Member States consider that exemption of share dividends is, to all intents and purposes, nothing more than a mechanism for the avoidance of double taxation and that loan interest payable in connection with the acquisition of these shares is therefore a deductible expense. Other Member States, conversely, take 20
the view that, since the exemption of share dividends is a genuine exemption, interest on loans taken out for the purpose of acquiring these shares is not deductible. In the light of these divergences, the formulation of a common regime in the CCCTB framework is turning out to be a delicate operation. At the present time, the services of the Commission are planning the following mechanism: 23 Regime for dividends from major shareholdings A distinction must be made between dividends from foreign sources and those from EU sources: Dividends from foreign sources would be exempted. If, however, the rate of corporate taxation in the foreign country were low, the switch-over mechanism would apply, i.e. instead of exempting the dividend income, the home state of the recipient company would switch to the method whereby it taxes the dividend and grants a tax credit. Dividends from EU sources would be consolidated with the tax base of the group, provided that the consolidation requirement of 75% ownership was met. This operation would have no net fiscal impact, given the consolidation of the profits or losses of the two entities in question. Below that threshold (at least 10% but less than 75%) the tax regime for dividends from foreign sources would apply. It should be noted that dividends from permanent establishments would always be consolidated with the tax base of the non-consolidated group or company on which the permanent establishment depended. The exemption of income from major shareholdings would be extended to income accruing to permanent establishments in order to avoid differential treatment. The same would apply to a non-resident taxpayer if the shareholding were linked to activities pursued by the non-resident taxpayer through a permanent establishment in a Member State. Be that as it may, management costs relating to the holding from which the exempt distribution of profits is derived should be treated as non-deductible expenses. A flat rate of 5% of the distributed profits would be regarded as a fair representation of these management costs unless the taxpayer was able to demonstrate the validity of a different figure. The conditions of exemption would be derived from those that are used in the implementation of the parent-subsidiary regime. It is most probable that a minimum ownership threshold of 10% of the capital or voting rights in a company and an uninterrupted holding of at least 12 months’ duration would be required. 23 WP 057. Common Consolidated Corporate Tax Base Working Group meeting of Thursday and Friday, 27 and 28 September 2007 on the subject of CCCTB: possible elements of a technical outline. 21
Page 1 and 2: An outline of the CCCTB (Common Con
Page 3 and 4: - the common consolidated corporate
Page 5 and 6: • Consolidation: in accordance wi
Page 7 and 8: 5. a group of related companies whi
Page 9 and 10: The following would be exempted inc
Page 11 and 12: Taxes other than corporate income t
Page 13 and 14: (Consultation with the Member State
Page 15 and 16: the depreciation figure were a posi
Page 17 and 18: When a group ceased to exist, unrel
Page 19: a group company and that company le
Page 23 and 24: - limit manipulation of the tax-bas
Page 25 and 26: to tangible fixed assets to the exc
Page 27 and 28: company of an EU subgroup chosen by
Page 29 and 30: Where a new decision was taken, it
Page 31: At this stage, then, it is difficul

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