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

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Capital gains from the disposal of shareholdings should be exempted, subject to the conditions set out above (minimum ownership of 10% of capital or voting rights for at least 12 months). Interest on loans taken out for the purpose of acquiring shareholdings would, in principle, be deductible. Unless this was the case, the CCCTB would not actually be an attractive proposition for European groups with subsidiaries outside the territory of the EU. On this point, however, the Commission services are examining whether there is a need to create mechanisms for the prevention of tax-avoidance stratagems, particularly the artificial conversion of taxable income into exempt (dividend) income. Considering that there is an important balance to be struck between providing adequate protection for the tax base and creating a system that is competitive, workable and not unduly complex, it is intended to incorporate anti-abuse rules 24 into these provisions. The following box contains more details. What anti-abuse rules are needed? The services of the Commission, at the urging of the Member States, have been examining whether there is a need to incorporate various anti-abuse rules into the CCCTB framework. It is still too early, however, to know the final content of the Commission’s proposal. An anti-abuse rule may be specific or general. A general rule would enable tax authorities to redefine transactions deemed to be artificial, unless the taxpayer demonstrated their commercial justification. A specific rule would serve to combat a given practice. In particular, it might: - limit the deductibility of interest payments (provisions designed to curb overleveraging), - combat virtual zero taxation of dividends (switch-over mechanism), - prevent resident companies from avoiding national tax by transferring receipts to subsidiaries in low-tax countries (CFC rules), - prevent abuses of consolidation rules by redefining disposals of shareholdings (exempt) as disposals of assets (taxable), - eliminate any scope for the double deduction of the same charge in so-called ‘sandwich’ situations, i.e. where an ownership chain contains a non-EU link, and 24 This type of mechanism was the subject of discussions in the CCCTB Working Group at its meeting of 14- 15 April 2008; see document CCCTB WP 065 on anti-abuse rules and the box below. 22
- limit manipulation of the tax-base apportionment factors, particularly the assets factor. 5. The sharing mechanism Once the common consolidated tax base had been determined, it would have to be apportioned among the various entities in the consolidated group so that the national tax rate could be applied to the share of the tax base accruing to each member entity of the group in order to establish the amount of corporate income tax payable by each entity. The mechanism, in other words, would apportion a share of the tax base to each entity, not to each Member State. This apportionment mechanism derives directly from the consolidation of profits and losses within a group. Accordingly, it is not intended to replicate the existing distribution, which could pose problems for some Member States in terms of budgetary revenue, but would apply to a different, and possibly broader, consolidated tax base. It is also important to reiterate that apportionment would apply only to EU-resident entities, subsidiaries and permanent establishments. Relations with non-European entities would continue to be based on the arm’slength principle. On the other hand, the mechanism would apply to groups whose entities (subsidiaries and permanent establishments) were all located in the same Member State in order to ensure that each member of the group knew the amount of its apportioned tax base so that it could offset any tax credits or pre-existing losses. Lastly, since consolidation and apportionment are designed to eliminate obstacles resulting from the application of transfer pricing, it is essential to ensure that this aim would actually be achieved and, in particular, that the apportionment mechanism would not in any circumstances result in a recurrence of the need to calculate and document transfer prices. In the view of the Commission services, the planned mechanism must adhere to a number of basic principles: • It must be as simple as possible for taxpayers and tax administrations to apply and easy for tax administrations to audit. • It must be difficult for taxpayers to manipulate. In other words, the mechanism should not be based on factors that could be easily relocated with a view to artificially shifting all or part of the consolidated tax base in order to take advantage of differences between rates of corporate taxation in the EU. • It must apportion the tax base among the various entities concerned in a way that may be considered fair and equitable. • It must not produce undesirable effects in terms of tax competition. 23
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 and 20: a group company and that company le
Page 21: the view that, since the exemption
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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