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Back from the dead, but at what cost? Europe’s consolidated tax base
Not for the first time, the concept of a Common Consolidated Corporate Tax Base, or CCCTB, appears to be back from the dead. The EU have revived plans to unify the tax base across Europe in an attempt to clamp down on alleged multinational tax avoidance.
The revival of these plans comes amidst sweeping reforms being made proposed under the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, putting global companies under more pressure than ever to adapt to a rapidly evolving international tax system. However, it is suggested by some that a consolidated tax base would yield a much simpler tax system and reduced tax compliance requirements in individual countries.
What is likely, however, is that all the rhetoric about a move towards a CCCTB, realistic or not, the level of tax competition between EU member states may in fact increase. The expectation of a trend towards increasing competition amidst an increasingly harmonised global tax system was made clear in Taxand’s 2015 Global Survey which found that 83% of multinationals believe tax competition will increase over the next five years.
As with a number of plans to increase harmonisation in tax policy, the CCCTB is fraught with political complexity and difficulties in implementation. It would also demand the support of 28 countries to reach approval. And notwithstanding the conceptual attractiveness of a CCCTB, opponents to the initiative rightly point to the fact that the concept favours the larger EU countries and also places a concentration on headline corporate tax rates. Instead, a focus on transparency and a simplification of EU tax rules could prove more productive.
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Whilst transparency and common tax reporting aim to widen the playing field for fair competition, Europe must be careful not to choke economic recovery with excessive demands on multinationals who may start to rein in cross-border transactions and other investment activity, in an ever more complicated tax environment.