(1)

Companies which seek to do business across frontiers within the Union encounter serious obstacles and market distortions owing to the existence and interaction of 28 disparate corporate tax systems. Furthermore, tax planning structures have become ever-more sophisticated over time, as they develop across various jurisdictions and effectively take advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing the tax liability of companies. Although those situations highlight shortcomings that are completely different in nature, they both create obstacles which impede the proper functioning of the internal market. Action to rectify these problems should therefore address both these types of market deficiencies.

(1)

Companies which seek to do business across frontiers within the Union encounter serious obstacles and market distortions owing to the existence and interaction of 28 disparate corporate tax systems. In times of globalisation and digitalisation, taxation of in particular financial and intellectual capital on a source base is becoming increasingly harder to retrace and easier to manipulate. Furthermore, tax planning structures have become ever-more sophisticated over time, as they develop across various jurisdictions and effectively take advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing the tax liability of companies. The mainstream digitalisation of many sectors of the economy coupled with the fast developing digital economy calls into question the suitability of the Union corporate tax models designed for brick and mortar industries, including with regard to the extent that valuation and calculation criteria could be re-invented to reflect the commercial activities of the 21st century. Although those situations highlight shortcomings that are completely different in nature, they all create obstacles which impede the proper functioning of the internal market and give rise to distortions between large companies and small and medium-sized enterprises. A new standard for a corporate tax base for the Union should therefore address those types of market deficiencies while respecting the aims of long-term legal clarity and certainty and the principle of tax neutrality. More convergence between national tax systems will lead to a significant decrease in costs and administrative burden for businesses operating cross-border within the Union. While taxation policy is a national competence, Article 115 of the Treaty on the Functioning of the European Union clearly stipulates that the Council should, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such taxation laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market .

(2)

To support the proper functioning of the internal market, the corporate tax environment in the Union should be shaped in accordance with the principle that companies pay their fair share of tax in the jurisdiction(s) where their profits are generated. It is therefore necessary to provide for mechanisms that discourage companies from taking advantage of mismatches amongst national tax systems in order to lower their tax liability. It is equally important to also stimulate growth and economic development in the internal market by facilitating cross-border trade and corporate investment. To this end, it is necessary to eliminate both double taxation and double non-taxation risks in the Union through eradicating disparities in the interaction of national corporate tax systems. At the same time, companies need an easily workable tax and legal framework for developing their commercial activity and expanding it across borders in the Union. In that context, remaining cases of discrimination should also be removed.

(2)

To support the proper functioning of the internal market, the corporate tax environment in the Union should be shaped in accordance with the principle that companies pay their fair share of tax in the jurisdiction(s) where their profits are generated and where companies have permanent establishment . Taking into account the digital change in the business environment, it is necessary to ensure that companies which generate revenues in a Member State without having a physical permanent establishment but having a digital permanent establishment in that Member State should be treated in the same way as companies having a physical permanent establishment. It is therefore necessary to provide for mechanisms that discourage companies from taking advantage of mismatches amongst national tax systems in order to lower their tax liability. It is equally important to also stimulate growth and economic development in the internal market by facilitating cross-border trade and corporate investment. To this end, it is necessary to eliminate both double taxation and double non-taxation risks in the Union through eradicating disparities in the interaction of national corporate tax systems. At the same time, companies need an easily workable tax and legal framework for developing their commercial activity and expanding it across borders in the Union. In that context, remaining cases of discrimination should also be removed. Consolidation is an essential element of the CCCTB system, since the major tax obstacles faced by companies of the same group that operate cross-border in the Union can only be tackled in that way. Consolidation eliminates transfer pricing formalities and intra-group double taxation.

(3)

As pointed out in the proposal of 16 March 2011 for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) (1), a corporate tax system which treats the Union as a single market for the purpose of computing the corporate tax base of companies would facilitate cross-border activity for companies resident in the Union and promote the objective of making it a more competitive location for investment internationally. The proposal of 2011 for a CCCTB focussed on the objective of facilitating the expansion of commercial activity for businesses within the Union. In addition to that objective, it should also be taken into account that a CCCTB can be highly effective in improving the functioning of the internal market through countering tax avoidance schemes. In this light, the initiative for a CCCTB should be re-launched in order to address, on an equal footing, both the aspect of business facilitation and the initiative's function in countering tax avoidance. Such an approach would best serve the aim of eradicating distortions in the functioning of the internal market.

(3)

As pointed out in the proposal of 16 March 2011 for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) (2), a corporate tax system which treats the Union as a single market for the purpose of computing the corporate tax base of companies would facilitate cross-border activity for companies resident in the Union and promote the objective of making it a more competitive location for investment internationally especially for small and medium-sized enterprises . The proposal of 2011 for a CCCTB focussed on the objective of facilitating the expansion of commercial activity for businesses within the Union. In addition to that objective, it should also be taken into account that a CCCTB can be highly effective in improving the functioning of the internal market through countering tax avoidance schemes. In this light, the initiative for a CCCTB should be re-launched in order to address, on an equal footing, both the aspect of business facilitation and the initiative's function in countering tax avoidance. Once implemented in all Member States, a CCCTB would ensure that taxes are paid where profits are generated and where companies have permanent establishment. Such an approach would best serve the aim of eradicating distortions in the functioning of the internal market. Improving the internal market is a key factor for encouraging growth and job creation. The introduction of a CCCTB would improve economic growth and result in more jobs in the Union by reducing harmful tax competition between companies.

(4)

Considering the need to act swiftly in order to ensure a proper functioning of the internal market by making it, on the one hand, friendlier to trade and investment and, on the other hand, more resilient to tax avoidance schemes, it is necessary to divide the ambitious CCCTB initiative into two separate proposals. At a first stage, rules on a common corporate tax base should be agreed, before addressing, at a second stage, the issue of consolidation .

(4)

Considering the need to act swiftly in order to ensure a proper functioning of the internal market by making it, on the one hand, friendlier to trade and investment and, on the other hand, more resilient to tax avoidance schemes, it is very important to ensure simultaneous entry into force of the Directive on a Common Corporate Tax Base and the Directive on a Common Consolidated Corporate Tax Base. Because such a change of regime is a significant step in the completion of the internal market, it needs flexibility in order to be properly executed from the outset. Hence, as the internal market encompasses all Member States, the CCCTB should be introduced in all Member States. If the Council fails to adopt a unanimous decision on the proposal to establish a CCCTB, the Commission should issue a new proposal based on Article 116 of the Treaty on the Functioning of the European Union, whereby the European Parliament and the Council act in accordance with the ordinary legislative procedure to issue the necessary legislation. As a last resort, an enhanced cooperation should be initiated by Member States which should be open at any time to non-participating Member States in accordance with the Treaty on the Functioning of the European Union. It is regrettable, however, that no sufficiently detailed assessment has been conducted in respect of either the CCTB or CCCTB proposals in terms of the impact on Member States' corporate tax revenue on a country-by-country basis.

(5)

Many aggressive tax planning structures tend to feature in a cross-border context, which implies that the participating groups of companies possess a minimum of resources. On this premise, for reasons of proportionality, the rules on a CCCTB should be mandatory only for groups of companies of a substantial size. For that purpose, a size-related threshold should be fixed on the basis of the total consolidated revenue of a group which files consolidated financial statements. In addition , in order to better serve the aim of facilitating trade and investment in the internal market, the rules on a CCCTB should also be available, as an option, to those groups that fall short of the size-related threshold .

(5)

Many aggressive tax planning structures tend to feature in a cross-border context, which implies that the participating groups of companies possess a minimum of resources. On this premise, for reasons of proportionality, the rules on a common base should be mandatory initially only for companies which belong to a group of a substantial size. For that purpose, a size-related starting threshold of EUR 750 million should be fixed on the basis of the total consolidated revenue of a group which files consolidated financial statements. Since this Directive sets a new standard for the corporate tax base for all businesses in the Union, the threshold should be lowered to zero over a maximum period of seven years . In order to better serve the aim of facilitating trade and investment in the internal market, the rules on a common corporate tax base should also be available in the first phase , as an option, to companies which do not meet those criteria .

(5a)

All things being equal the switch to a common consolidated corporate tax base could result in losses or gains of fiscal revenues for Member States. In order to compensate losses, a temporary compensation mechanism should be created, financed by the fiscal surplus from those Member States that experience gains in fiscal revenue due to the new regime. Compensation should be adjusted each year to take into account national or regional decisions taken prior to the entry into force of this Directive. The Commission should be required to propose the removal or the change of the compensation system after a period of seven years, and to set the ceilings for compensation.

(5b)

In order to avoid the existing allocation of the tax burden between small and medium-sized enterprises (SMEs) and multinational corporations as mentioned in the European Parliament resolution of 25 November 2015 on tax rulings and other measures similar in nature or effect, a common corporate tax base has the aim of not putting SMEs at a competitive disadvantage, thereby creating a level playing field for them. The principal tax authority can provide SMEs with the necessary tools to help them to comply with the administrative and organisational requirements that an opt-in to the CCCTB entails.

(6)

Eligibility for the consolidated tax group should be determined in accordance with a two-part test based on (i) control (more than 50 percent of voting rights) and (ii) ownership (more than 75 percent of equity) or rights to profits (more than 75 percent of rights giving entitlement to profit). Such a test would ensure a high level of economic integration between group members. To guarantee the integrity of the system, the two thresholds for control and ownership or profit rights should be met throughout the tax year; otherwise, the failing company should leave the group immediately. To prevent a manipulation of the tax results through companies entering and leaving the group within a short-term, there should also be a minimum requirement of nine consecutive months for establishing group membership.

(6)

It is necessary to define the concept of a permanent establishment situated in the Union and belonging to a taxpayer who is resident for tax purposes within the Union. Too often, multinational companies make arrangements to transfer their profits to favourable tax regimes without paying any tax or paying very low rates of tax. The concept of a permanent establishment would provide a precise, binding definition of the criteria to be met if a multinational company is to prove that it is situated in a given country. That will compel multinational companies to pay their taxes fairly. The aim would be to ensure that all concerned taxpayers share a common understanding and to exclude the possibility of a mismatch due to divergent definitions. Similarly, it is important to have a common definition of permanent establishments situated in a third country, or in the Union but belonging to a taxpayer who is resident for tax purposes in a third country. If transfer pricing gives rise to profit shifting into a low tax jurisdiction, a system that awards profit via a formula apportionment is preferable. The Union can establish an international standard for modern and efficient corporate taxation by adopting such a system. The Commission should draft guidelines for the transitional phase in which formulary apportionment coexists with other allocation methods in dealing with third countries, while ultimately formulary apportionment should be the standard method of allocation. The Commission should make a proposal to set up a Union model of a tax treaty which could ultimately replace the thousands of bilateral treaties concluded by each of the Member States.

(6a)

Digital goods tend to be highly mobile and intangible. Studies have shown that the digital sector is highly involved in aggressive tax planning practices, since many business models do not require physical infrastructure in order to carry out transactions with customers and make profits. That allows the biggest digital companies to pay taxes of close to zero on their revenue. The treasuries of the Member States lose billions of euros in tax revenues from not being able to tax digital multinationals. To tackle that real and urgent social injustice, current corporate tax law needs to be expanded to include a new digital permanent establishment nexus based on a significant digital presence. A level-playing field is needed for similar business models to address the tax challenges that arise from the context of digitalisation, without hampering the potential of the digital sector. Particular account should be taken in that respect of the work carried out by the OECD on an internationally consistent set of rules.

(10)

The formula apportionment for the consolidated tax base should comprise three equally weighted factors, namely labour, assets and sales by destination. Those equally weighted factors should reflect a balanced approach to distributing taxable profits amongst the relevant Member States and should ensure that profits are taxed where they are actually earned. Labour and assets should therefore be allocated to the Member State where the labour is performed or the assets are located, and would thereby give appropriate weight to the interests of the Member State of origin, whilst sales should be allocated to the Member State of destination of the goods or services. To account for differences in the levels of wages across the Union and thus allow for a fair distribution of the consolidated tax base, the labour factor should comprise both payroll and the number of employees (i.e. each item counting for half). The asset factor, on the other hand, should comprise all fixed tangible assets, but not intangible and financial assets because of their mobile nature and the resulting risk that the rules of this Directive could be circumvented . Where, due to exceptional circumstances, the outcome of the apportionment does not fairly represent the extent of business activity, a safeguard clause should provide for an alternative method of income allocation.

(10)

The formula apportionment for the consolidated tax base should comprise four equally weighted factors, namely labour, assets, sales by destination, and collection and use of personal data of online platforms and services users (the latter referred to herein as the ‘data factor’) . Those equally weighted factors should reflect a balanced approach to distributing taxable profits amongst the relevant Member States and should ensure that profits are taxed where they are actually earned. Labour and assets should therefore be allocated to the Member State where the labour is performed or the assets are located, and would thereby give appropriate weight to the interests of the Member State of origin, whilst sales should be allocated to the Member State of destination of the goods or services. To account for differences in the levels of wages across the Union and thus allow for a fair distribution of the consolidated tax base, the labour factor should comprise both payroll and the number of employees (i.e. each item counting for half). The asset factor, on the other hand, should only comprise tangible assets. Where, due to exceptional circumstances, the outcome of the apportionment does not fairly represent the extent of business activity, a safeguard clause should provide for an alternative method of income allocation.

(10a)

The formula for the apportionment of the consolidated tax base needs to fully reflect the economic activity that has taken place in each Member State, by duly taking full account of potential significant differences between their economies. Where the formula results in an imbalanced apportionment that fails to reflect the economic activity, a dispute resolution mechanism could remedy such a situation. In light of the foregoing, the Commission should assess the possible establishment of a dispute resolution mechanism in order to ensure the proper resolution of disputes when different Member States are involved.

(11)

Due to their specificities, certain sectors, such as the financial and insurance sector, the oil and gas sector as well as shipping and air transport, need an adjusted formula for the apportionment of the consolidated tax base.

(14)

This Directive builds upon Council Directive 2016/xx/EU on a common corporate tax base (which lays down a common set of corporate tax rules for computing the tax base) and focusses on the consolidation of tax results across the group. It would thus be necessary to deal with the interaction between the two legislative instruments and cater for the transition of certain elements of the tax base into the new framework of the group. Such elements should include, in particular, the interest limitation rule, the switch-over clause and controlled foreign company legislation as well as hybrid mismatches.

(14)

This Directive builds upon Council Directive 2016/xx/EU on a common corporate tax base (which lays down a common set of corporate tax rules for computing the tax base) and focusses on the consolidation of tax results across the group. It is thus necessary to deal with the interaction between the two legislative instruments and cater for the transition of certain elements of the tax base into the new framework of the group. Such elements should include, in particular, the interest limitation rule, the switch-over clause and controlled foreign company legislation as well as hybrid mismatches. Member States should not be prevented from introducing additional anti-tax avoidance measures in order to reduce the negative effects of shifting profits to low-tax third countries.

(16)

In order to supplement or amend certain non-essential elements of this Directive, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission with respect of (i) taking into account changes to the laws of Member States concerning the company forms and corporate taxes and amend Annexes I and II accordingly; (ii) laying down additional definitions; and (iii) supplementing the rule on the limitation of interest deductibility with anti-fragmentation rules, to better address the tax avoidance risks which may emerge within a group. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and the Council.

(16)

In order to supplement or amend certain non-essential elements of this Directive, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission with respect of (i) taking into account changes to the laws of Member States concerning the company forms and corporate taxes and amend Annexes I and II accordingly; (ii) laying down additional definitions; (iii) supplementing the rule on the limitation of interest deductibility with anti-fragmentation rules, to better address the tax avoidance risks which may emerge within a group; and (iv) issuing guidelines for the transitional phase in which formulary apportionment coexists with other allocation methods in dealing with third countries . It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and it should take into account the European Parliament's annual resolution . The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and the Council.

(17)

In order to ensure uniform conditions for the implementation of this Directive, implementing powers should be conferred on the Commission (i) to adopt annually a list of third country company forms that are similar to the company forms listed in Annex I; (ii) to lay down detailed rules on the calculation of the labour, asset and sales factors, the allocation of employees and payroll, assets and sales to the respective factor and the valuation of assets; (iii) to adopt an act establishing a standard form of the notice to create a group; and (iv) to lay down rules on the electronic filing of the consolidated tax return, the form of the consolidated tax return, the form of the single taxpayer's tax return and the supporting documentation required. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (3).

(17)

In order to ensure uniform conditions for the implementation of this Directive, implementing powers should be conferred on the Commission (i) to adopt annually a list of third country company forms that are similar to the company forms listed in Annex I; (ii) to lay down detailed rules on the calculation of the labour, asset and sales factors and the data factor , the allocation of employees and payroll, the allocation of collected personal data and exploited personal data , assets and sales to the respective factor and the valuation of assets; (iii) to adopt an act establishing a standard form of the notice to create a group; and (iv) to lay down rules on the electronic filing of the consolidated tax return, the form of the consolidated tax return, the form of the single taxpayer's tax return and the supporting documentation required. The Commission should design those uniform tax return formats in cooperation with the tax administrations of the Member States. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (4).

(18)

Since the objectives of this Directive, namely to improve the functioning of the internal market through countering practices of international tax avoidance and to facilitate businesses in expanding across borders within the Union, cannot be sufficiently achieved by the Member States acting individually and in a disparate fashion because coordinated action is necessary to obtain these objectives, but can rather, by reason of the fact that the Directive targets inefficiencies of the internal market that originate in the interaction between disparate national tax rules which impact on the internal market and discourage cross-border activity, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives, especially considering that its mandatory scope is limited to groups beyond a certain size.

(18)

Since the objectives of this Directive, namely to improve the functioning of the internal market through countering practices of international tax avoidance and to facilitate businesses, in particular SMEs , in expanding across borders within the Union, cannot be sufficiently achieved by the Member States acting individually and in a disparate fashion because coordinated action is necessary to obtain these objectives, but can rather, by reason of the fact that the Directive targets inefficiencies of the internal market that originate in the interaction between disparate national tax rules which impact on the internal market and discourage cross-border activity, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives, especially considering that its mandatory scope is limited to groups beyond a certain size.

(20)

The Commission should be required to review the application of the Directive five years after its entry into force and report to Council on its operation. Member States should be required to communicate to the Commission the text of the provisions of national law which they adopt in the field covered by this Directive,

(20)

Since this Directive contains an important change to corporate taxation rules , the Commission should be required to conduct a thorough assessment of the application of the Directive five years after its entry into force and report to the European Parliament and the Council on its operation. That implementation report should include at least the following points: the impact of the system of taxation provided for in this Directive on Member States’ revenues, the advantages and disadvantages of the system for SMEs, the impact on a fair tax collection between Member States, the impact on the internal market as a whole, with particular regard to possible distortion of competition between companies subject to the new rules laid down in this Directive, and the number of undertakings that fall within the scope during the transition period. The Commission should be required to review the application of this Directive 10 years after its entry into force and report to the European Parliament and the Council on its operation. Member States should be required to communicate to the Commission the text of the provisions of national law which they adopt in the field covered by this Directive,

(20a)

In order to achieve a full and consistent consolidation and prevent new opportunities for arbitrage arising from accounting inconsistencies between Member States, it is necessary to adopt clear, consistent and objective criteria for calculating the consolidated tax base. To that end, the Commission should propose the necessary adjustments to the relevant provisions of this Directive concerning the definition and calculation of the consolidated tax base.

(20b)

The Commission should consider additional studies that analyse the potential impact of the CCCTB on the corporate tax revenues of individual Member States, and potential competitive disadvantages for the Union in relation to third countries.

(c)

it belongs to a consolidated group for financial accounting purposes with a total consolidated group revenue that exceeded EUR 750 000 000 during the financial year preceding the relevant financial year;

(c)

it belongs to a consolidated group for financial accounting purposes with a total consolidated group revenue that exceeded EUR 750 000 000 during the financial year preceding the relevant financial year. That threshold shall be lowered to zero over a maximum period of seven years ;

(23)

'consolidated tax base'means the result of adding up the tax bases of all group members, as calculated in accordance with Directive 2016/xx/EU;

(23)

'consolidated tax base'means the consolidated net taxable revenue of the group members, as calculated on a consistent accounting basis applicable to all group members in accordance with Directive 2016/xx/EU;

(28a)

'data factor'means the collection and exploitation for commercial purposes of personal data of online platforms and services users in one or more Member States.

(a)

it has a right to exercise more than 50 % of the voting rights ; and

(a)

it has a right to exercise voting rights exceeding 50 %; and