THE INTRODUCTION OF THE COMMON CONSOLIDATED CORPORATE TAX BASE IS NOT CERTAIN YET
The European Commission’s recently announced proposal would introduce a Common Consolidated Corporate Tax Base (CCCTB) for businesses operating across the EU. Although the proposal could solve several problems for local businesses who are about to expand abroad, some details would make the effective introduction uncertain.
The recent Communication of the European Commission is an important step in establishing the common EU tax base. The CCCTB would enable companies operating in several member states to appear as unified businesses from a corporate income tax perspective, and allow them to consolidate all profits and losses they incur across the EU. As a result of the consolidation, qualifying companies would not need to fill out tax returns in each country, but file one single tax declaration for the whole group at one national tax authority.
Balázs Békés, tax lawyer and partner of Faludi Wolf Theiss, explained in connection with the European Commission’s proposal, that pursuant to the proposal, the CCCTB would not be compulsory; companies would be able to decide whether to use the common EU system or the national tax rules. If they opt for the EU system, the decision can not be changed for a minimum of five years. According to the plans, not only large enterprises, but also smaller businesses would be able to use the common tax base. In Hungary, this would mean that not only large PLCs, but, among others, also LLCs and partnerships could adopt the common rules.
The common tax base could solve many problems of Hungarian companies looking to expand their businesses abroad. According to the current rules, if a Hungarian company plans to establish a branch office or a subsidiary in Germany, its new entity will be subject to German regulations, including accounting rules and tax law regulations. Taxes on profits or losses made in Germany will be taxed under German rules, based on the tax return submitted to the German national tax authority. The situation would be even more difficult, if the Hungarian company sold goods or provided services to the German entity. In this case, prices applied would have to be supported by complicated and expensive transfer pricing documentation. If the Hungarian company wanted to expand their businesses to Spain or Bulgaria, for instance, then the above mentioned difficulties would be multiplied. These all could deter companies from starting business abroad, emphasized Békés.
According to the proposal, the common tax base would be assessed based on the national accounting reports. The aggregate results, however, would be adjusted, with certain items decreasing or increasing the tax base items determined at EU level. Among others, costs of research and development would be fully deductible from the calculated tax base. Special surtaxes and local business tax paid in Hungary, on the other hand, would not be deductable from the common tax base. In case of transactions within the company group, no adjustments and transfer pricing documentations would be needed. The tax base assessed as described above would then be divided between the member states concerned, based on the following criteria: each group member’s total turnover, the number of employees and payroll taxes borne and the group member’s total assets. Thereafter, all member states would apply their own tax rate on their share from the CCCTB, with corporate tax rates not being harmonized.
Balázs Békés stressed that the introduction of the EU common tax base was uncertain. The proposal now needs to be adopted by unanimous vote of the councils of the member states, after having consulted with the European Parliament. The unanimous decision-making means that any of the 27 member states could impede the final adoption of the proposal. If the relevant directive were to be adopted according to the above procedural rules, each member state would need to implement it into their national legal system. This could take several years.
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