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More Europe, not less: the business impact of a common set of EU tax rules
Dec 01, 2016

By Laurence Field, Head of Tax and Corporate Business Partner, Crowe Clark Whitehill, London 

The Apple and Luxleak scandals have highlighted the difficulties the EU has in managing the tax affairs of multinational companies. With the Competition Commissioner (rather than the tax authorities) at the forefront in dealing with Apple, the European Commission has released further proposals for a Common Consolidated Corporate Tax Base (CCCTB).

Designed to ensure a common set of corporation tax rules across the EU, the proposals will standardise the way in which large corporations calculate their tax liabilities and allocate profits between the territories in which they operate.

"These proposals have been around for a while" said Claudia Ortiz, Chair of the Crowe Horwath International (Crowe) Tax Committee, "the idea was first floated in the early 1980s and was formally proposed in 2011 - but those ideas got held up in technical and national squabbling and didn't seem to be going anywhere. As with many new paradigms, politics ‎got in the way of modernising the tax system."

However, the recent vote to leave the EU by the UK seems to have given the idea of a common set of tax rules more impetus. "The response to the Brexit vote seems to be more Europe, not less," said Laurence Field Head of Tax at Crowe's UK firm  "and tax doesn't seem to be an exception. While the UK is content to go its own way, the economic imperatives of the single currency along with a political desire to be seen to be on the side of people, rather than large companies, seem to be driving these proposals."

Jesus Romero, Chair of the Crowe's European Tax Committee expressed some doubts about whether the proposals would be implemented soon, "Controlling the shape and size of the tax base is a crucial role for national governments, who will each need to agree the proposals. Giving up control over these issues could be viewed as a significant loss of sovereignty."

Wolfgang Kirschning of Crowe's German practice was reminded of the 2012 bilateral initiative between France and Germany, "Both countries seemed to lose patience with Brussels and decided to work together to harmonise some aspects of their tax system. Unsurprisingly, little progress has been made. The tax systems are too different and the politics too complex - little has been heard from the tax authorities on these matters for some time."

The proposals would only apply to large companies with a turnover greater than €750 million. "This provides some hope to the Commission" says Hans Missaar, Head of Tax, Crowe Horwath Peak in the Netherlands, "National governments would still be able to control the method of tax calculation for smaller companies. These companies are more likely to be locally owned and their owners are voters in national elections. There is an opportunity for the Commission to sell the story that they can deal with the multinationals, while freeing up national governments to encourage the growth of smaller businesses."

Atlanta-based Jim Dawson of Crowe Horwath LLP says "while we need to understand more about the proposals, they could be a mixed blessing for US companies operating in the EU. A common tax base with clearer rules might provide more certainty regarding tax treatment and may even reduce compliance costs in the long run. However, any change to the law requires changes to the underlying corporate information systems that big business use to ensure they can comply with the law in different territories. The investment needed and the time to implement those changes should not be underestimated."

It's been four decades in the making, but an idea that won't go away. It would be ironic if the Brexit vote was the thing that helped turn the idea of a common tax base into reality.