On June 19, 2018, German Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire issued a common position paper on the European Commission’s proposal for a Common Corporate Tax Base (CCTB). The position paper, which suggests a number of modifications to the proposed measures, aims at fostering the current discussions on the CCTB Directive at EU level and encourage a timely adoption by all Member States of the initiative.
In March 2011 the European Commission launched a proposal for a Common Consolidated Corporate Tax Base (CCCTB). This envisaged an optional system for companies to apply a common set of rules to compute taxable profits, including the ability to form a consolidated group, wherever they were based in the EU. Its main objective was to facilitate cross-border business activity within the EU.
The discussions between EU Member States since 2011 made clear that there was not sufficient support for adopting the CCCTB proposal in its entirety. On October 25, 2016, the European Commission therefore published legislative proposals to relaunch the initiative, introducing a two-step approach. Under this approach, Member States should first agree on rules for a Common Corporate Tax Base (CCTB), after which agreement should be reached on the consolidation element. Under the new proposals the focus of attention has moved from the objective of simplifying compliance to facilitate cross-border investment to countering tax avoidance, however neither the original proposal nor the current proposals involved changes to Member States’ corporate tax rates.
On June 20, 2018, France and Germany issued a common position paper on the European Commission’s proposal for a CCTB Directive at EU level. While expressing their support to the CCCTB initiative, the German-French position paper suggests a number of modifications.
As regards the scope and general principles foreseen by the current European Commission’s proposal, Germany and France in particular argue that:
The position paper also mentions that to ensure an effective tax harmonization of the corporate tax base, further discussions will be necessary regarding the approximation of corporate income tax rates.
Both countries further suggest a number of technical amendments to the proposed definition of the tax base, including on the deductibility of certain expenses (e.g. taxes and duties other than profit taxes, gifts and donations, entertainment costs, or a 5% add-back to be included in the participation exemption regime), and on certain clauses to be clarified, such as on hidden profit distributions, asset depreciation, hedging instruments, and insurance undertakings. While noting agreement on the principle of tax depreciation of an acquired goodwill, the paper nonetheless considers that a possibility should be left to the Member States to introduce this measure gradually. When it comes to tax losses, both countries share the opinion that the CCTB should include a minimum taxation of profits (i.e. limiting loss carry-forwards to 50-60% of the taxable profit after deduction of EUR 1 million) and a one-year loss carry-back for an amount of up to EUR 1 million.
As regards the inclusion of anti-base erosion and profit shifting (BEPS) measures, Germany and France take the common view that:
While the stated objective of the position paper is to give a new dynamic to the discussions between Member States on the adoption of a common tax base, it remains to be seen to what extent this will have an impact on the current negotiations at the level of the Council. In this respect, certain Member States have expressed concerns that the proposed rules may be a step too far towards harmonization, which could be exacerbated by some of the suggestions put forward by France and Germany, including on the concept of minimum effective taxation and the approximation of the corporate tax rate within the EU.