The European Parliament’s Economic and Monetary Committee has given its backing to new European Commission proposals that would bring the EU closer to the creation of a harmonised corporate tax system.
The planned “Common Consolidated Corporate Tax Base” (CCCTB) was approved by the Committee by 38 votes to 11, with five abstentions.
A separate, complementary measure which creates the basis for the harmonised corporate tax system – the Common Corporate Tax Base – was approved by 39 votes to 12, with five abstentions.
Determining a Firm’s Digital Presence
Under the proposals, firms would be taxed where they earn their profits, and their online activities would also be taken into account when calculating their tax liability. This would involve the use of benchmarks to determine whether a firm has a “digital presence” within an EU member state, and is therefore potentially liable for tax, even if it does not have a fixed place of business in that country.
The Committee has also called on the European Commission to monitor technical standards for the number of users, digital contracts and the volume of digital content collected that a company exploits for data-mining purposes, as it believes these measures should produce a clearer picture of where a firm generates its profits, and where it should be taxed.
The Committee highlights that personal data is not currently considered when calculating a firm’s tax liabilities, despite the fact that it is an intangible but highly valuable asset that firms like Facebook, Amazon and Google mine to create their wealth.
Preventing Firms Moving their Tax Base
The proposals should put an end to the current practice of firms moving their tax base to low-tax jurisdictions, says the Committee. Instead, firms would be required to calculate their tax bills by adding up the profits and losses of their constituent companies in all EU member states. Taxable profits would then be allocated to each member state where the firm operates according to a sharing formula based on sales, assets, and labour, as well as their use of personal data.
When putting forward its proposals, the European Commission had recommended that the legislation cover groups of companies with a consolidated turnover exceeding €750 million. The Committee has called for this threshold to be lowered to zero within seven years.
If the proposals come into force, a single set of tax rules would apply in all member states. Firms would no longer have to deal with 28 different sets of national rules, and would also be accountable to a single tax administration.
“This is a fabulous opportunity to make a giant leap in the field of corporate taxation,” commented Rapporteur, CCCTB, Alain Lamassoure (FR, EPP). “Not only would this legislation create a model that is more suitable to today’s economies through the taxing of the digital economy, but it would also put a halt to unfettered competition between corporate tax systems within the single market, by targeting profits where they are made.”
Proposals Not in Malta’s Best Interests
Malta’s Alfred Sant was one of the MEPs who voted against the proposals, stating that the move to a single EU corporate tax regime was not in Malta’s best interests, reports the Independent.
He referred to a report by advocacy group Tax Justice Network, which claimed that some of the EU’s smaller members, such as Malta, Sweden and Estonia, could be at risk of losing a significant proportion of their corporate tax bases should the proposals come into force.
However, he did express his support for some measures contained within the proposals, namely those relating to enhanced tax transparency and better determination of a firm’s “digital presence” within the EU.
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