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European CCCTB: Two Steps Forward, Three Steps Back?

Posted on November 1, 2016 by Gibson, Stuart

EU Tax Commissioner Pierre Moscovici recently presented to the European Parliament his proposal to adopt the long-anticipated common consolidated corporate tax base (CCCTB) within Europe. While the EU began developing its latest proposal in 2011, the quest for income tax harmonization within the single market dates back at least 15 years. What seemed like such a simple proposition at the start has become mired in concerns that any move to adopt a CCCTB would require member states to further cede sovereignty and control over their national tax and fiscal policies, handing over even more power to Brussels bureaucrats.

Concerned about the kinds of populist sentiment that ultimately drove the Brexit vote, European politicians are even more wary than usual. Possibly emboldened by that vote, Danish Minister for Taxation Karsten Lauritzen recently threatened that Denmark would leave the EU if it implements a CCCTB. And despite his best efforts to navigate the narrow space between advocates for a strong CCCTB that would severely restrict opportunities for multinational tax avoidance and those who oppose the concept in its entirety, Moscovici's proposal received an unenthusiastic welcome from all sides in Strasbourg.

It's hard to fault Moscovici's strategy. Rather than tackle the two-headed challenge of coordination and consolidation all at once, which would galvanize the opposition and mire negotiators in minutiae, he has proposed a two-step approach. In step one, member states would negotiate the easiest elements of the plan, determining the tax base of multinationals with at least €750 million. In step two, the harder part, member states would agree on consolidation. Shortly before Moscovici presented his proposal, the European Commission issued two directives containing a timeline for member states to develop and implement the plan. They would have two years to transpose the new rules into domestic legislation, and another two years to adopt the consolidation rules.

With the U.K. likely exiting the EU in 2019, and other states threatening to leave, it is anyone's guess what Europe will look like in 2021. Given how long it has taken to develop this go-slow, two-step approach, it is far from certain that the EU will ever reach the CCCTB finish line.

Outside the EU, other supranational organizations are working more closely than ever to collaborate on international tax administration. Representatives from the OECD, U.N., IMF, and World Bank recently gathered at U.N. headquarters in New York to discuss the objectives and main activities to be implemented in the Platform for Collaboration on Tax. The project, which grew out of the Addis Tax Initiative, seeks to harness the power and expertise of the four partner organizations to build support, guidance, and sharing of information to help developing countries build capacity to administer their tax systems.

Developed countries and multinational enterprises generally take the benefits of bilateral tax and trade treaties for granted. After all, those treaties provide certainty in both arenas, and enable MNEs to engage in sophisticated tax and business planning, fairly confident of how those plans will be treated by the treaty partners. Recently, however, experts in academia and the nonprofit world -- as well as at the IMF and World Bank -- have begun to question whether the costs of those treaties outweigh the benefits, especially for developing countries. Mindy Herzfeld examines the growing backlash against tax and trade treaties, and cautions those in the business community who support them to up their game, lest they lose the benefits of those agreements.

Stuart Gibson is editor of Tax Notes International.