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

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After considering the various possible apportionment methods, the services of the Commission have opted for one based on a distribution formula which uses data specific to the companies, reflecting as far as possible the reality of their economic activity. This is to say that the formula is based on the microeconomic factors which have helped to generate the tax base, i.e. the profits, of each individual taxpayer. One reason for this choice was that such an approach is already familiar from other countries, such as the United States and Canada. Another consideration was that a formula involving three different factors increases the chances of adherence to the principles referred to above. In consideration of the supply/production and demand sides of corporate income generation, the following three factors were selected: on the supply side, (i) labour, measured by the value of the payroll and possibly by the number of employees, and (ii) capital, measured on the basis of the company’s fixed assets; on the demand side, (iii) sales by destination. The weighting of these three factors would be determined in the light of the political debate once the impact of the various weighting options was known. The key to this mechanism is that a single formula should apply to all the Member States. In this respect, while variants are evidently required for some specific sectors, such as financial institutions, the formula used for any such sector must also be uniformly applicable throughout the EU. Lastly, the sharing mechanism would apply to all taxable income – not just income from economic activity but also passive income, such as interest, royalties and dividends to the difference of United States and Canada where some passive income are directly attributed to a given jurisdiction. Assessment of the selected factors One of the advantages of a three-factor formula is that it reduces the impact of any manipulation of one factor or of any simplification of the way in which the value of a particular factor is assessed. For the assessment of the labour factor, it was considered useful to base this on two elements in order to take account, at least temporarily, of differences between pay levels and the underlying productivity levels. These two elements are the value of the payroll and the number of employees, which would be equally weighted. The labour in question is that provided by the whole workforce of a given entity, including those agency staff and temporary staff who perform similar tasks to those of the regular workforce. Subcontractors’ employees are not included unless the subcontractor belongs to the same group. The labour cost is represented by the amount of remuneration, including welfare contributions, benefits in kind, share options, etc., that was deemed to be deductible when the tax base was calculated. The location of labour is, in principle, the place of work indicated in the staff register, except in cases of secondment. The assessment of the value of fixed assets is not without difficulties. With regard to the definition of assets, the Commission services suggest that they be confined 24
to tangible fixed assets to the exclusion of intangible, financial and movable assets, including stock, so as to limit the risk of manipulation and minimise assessment problems. The assessment of assets would be based on their written-down value for tax purposes (historic cost less fiscal depreciation). This value derives either from the calculation of the tax base for individually depreciable assets or from the written-down value of a category of pooled assets at the end of the tax year. It should be borne in mind that pooled assets would not include stock inventories or financial assets, because these are not depreciable, or intangible assets, which are written down individually. The location of the assets would be the plant or site where they are actually used. 25 This subject continues to evoke quite widely varied responses. Many Member States consider that the increasingly significant role of intangibles in the generation of profits in our economies means that they cannot be disregarded. However, the fact that they are open to manipulation and not conducive to straightforward regulation (for their valuation or their location) and that they are reflected to some extent in other factors makes it appear that the restriction to tangible fixed assets is the only option at the present time. The consideration of sales has also provoked discussion. It derives from the idea that sales are an apportionment factor inasmuch as they contribute to the generation of profits. They are also invariably part of the formulae used in the United States and Canada, a point that emerged very clearly from the discussions of the enlarged Working Group in December 2007, which was attended by experts from those countries. Although most experts from the Member States would favour assessment of sales by origin, i.e. the place from which goods are shipped, the Commission services prefer the assessment of sales by destination (the place to which goods are ultimately delivered) as a more accurate reflection of the market situation, a view that was also endorsed by the US and Canadian experts. The main reason for this preference lies in the lower risk of manipulation, since sales by origin, like assets and payrolls, are easier for companies to control. A number of Member States are not yet convinced of the need to include sales in the formula; those that accept the principle prefer the assessment of sales by origin, but the contributions by the US and Canadian experts have helped to increase understanding of the role of sales by destination in the operation of a distribution formula. The assessment of sales would focus only on sales of goods and the provision of services; needless to say, it would exclude intra-group sales. It would also exclude other receipts, such as those relating to exempted income like capital gains and to passive income, which would be apportioned but would not be part of the formula. Their value would be the figure used in the calculation of the tax base. As far as their location is concerned, the logical suggestion is that sales of goods be attributed to the group entity located in the Member State where the sales to third 25 This is reflected in special provisions for rented or leased assets, which would be taken into consideration by both the lessor and the lessee in cases where the assets were rented or leased to or from third parties or related non-consolidated entities, because they generate two different categories of income. 25
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 and 22: the view that, since the exemption
Page 23: - limit manipulation of the tax-bas
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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