The impacts of CCCTB implementation on the budget revenues of the Czech Republic 15th March, 2016, Praha Danuše Nerudová

page 2 to map current situation – i.e. situation of applying separate entity approach to quantify the differences in situation when CCCTB will be introduced – i.e. applying the allocation formula for sharing the tax base to quantify budgetary impacts for the Czech Rep. under different scenarios Aim

page 3 EC has worked on CCCTB for more than 10 years CCCTB directive proposal on 16th March 2011 fair tax competition elimination of TP problems decrease in compliance costs of taxation mechanism for sharing the tax base Introduction

page 4 unitary approach vs separate accounting unitary approach – formulary apportionment separate accounting – subsidiary has to deal with its parent at AL CCCTB – group taxation & consolidation → sharing the tax base Theoretical Background

page 5 Theoretical Background

page 6 Theoretical Background

page 7 Theoretical Background

page 8 4 studies researching the impact of CCCTB introduction on budgets of EU MS Fuest, Hemmelgarn and Ramb (2006) -EU 15, 2 th. German parents, 6 th. foreign subsidiaries, obligatory implementation -20 % decrease in German TB -74 % decrease in Dutch TB -112 % increase in Austrian TB Review of the literature

page 9 Van der Horst, Betterndorf and Rojas-Ramagisa (2007) -EU 17, obligatory implementation, aimed at welfare connected with implementation -assumption – every parent has its subsidiary in all EU 17; no cross-border loss offsetting % increase in German TB % decrease in Italian TB Review of the literature

page 10 Devereux and Loretz (2008) - two scenarios, 50 th. companies, EU 25, 50% rule for ownership, no special allocation rules for special industries - impact from -17 % to 60 % Review of the literature

page 11 Cline, Neubig, Philips, Sanger and Walsh (2010) - three scenarios, 200 th. companies, EU 27, based on old CCCTB rules - obligatory implementation – DK ↓8.3%, DE ↑ 6.0%, CZ ↓ 3.0% - voluntary implementation - DE ↓7.7%, UK ↑ 2.6%, CZ ↓ 3.1% -obligatory in Eurozone NL ↓8.5%, FR ↑ 5.7% Review of the literature

page 12 - Amadeus database - Bankscope databse - EU 28 - two tier test - at least 50.01% ownership in the controlled company and more than % of the voting rights - comparative analysis of national consolidation and group taxation regimes (full consolidation, pooling, intra-group loss transfer and no scheme available) - calculation of the division of the group tax bases among the EU Member States, where subsidiaries are situated Methodology

page parent comp. resident in CZ subsidiaries of Czech parents - missing data → regression → imputation → multiple imputation → multiple imputation with independent variables - sensitivity analysis Methodology

page 14 Methodology

page 15 Methodology

page 16 Methodology

page 17 1 – the best, 4 – the worst, based on data from NACE 46 only Methodology

page 18 Results – current situation

page 19 Results – current situation

page 20 Results – current situation

page 21 Results – current situation

page 22 Results – CCCTB implementation in EU28

page 23 Results – comparative analysis -Increase by 1.22% for CZ -Increase by 1.18 %for SK -Increase by 0.05% for ES -Decrease by 1.36% for Germany -Decrease for EE, HU and Poland

page 24 Results – CCCTB not implemented in CZ Effective average tax rate in EU in 2014 (ZEW)

page 25 Results – CCCTB not implemented in CZ Tax bases and potential outflow

page 26 Results – CCCTB not implemented in CZ

page 27 Results – CCCTB not implemented in CZ

page 28 Conclusions I Obligatory implementation in EU28 -Increase by 1.22% for CZ -Increase by 1.18 %for SK -Increase by 0.05% for ES -Decrease by 1.36% for Germany -Decrease for EE, HU and Poland Implementation in EU except CZ -Decrease in TTB by 12.26% - i.e. decrease in revenues from CIT by 3. 59% in CZ

page 29 Action Plan July 2015 Re-launching of CCCTB Instrument for combating tax avoidance 2 stage implementation Interim period

page 30 Types of loss relief Domestic loss reliefCross-border loss relief Within one company (“permanent establishment”) Automatically available in all 25 member states Available in most cases Belgium, Czech Republic, Netherlands, Austria, Portugal, Slovenia, Slovakia, Finland, Sweden, United Kingdom, Spain, Ireland, Italy, Cyprus, Latvia, Lithuania, Malta Within a group of companies (“parent and subsidiary”) Available under specific rules in most member states Denmark, Germany, Spain, France, Ireland, Italy, Cyprus, Malta, Latvia, Luxembourg, Netherlands, Austria, Poland, Slovenia, Finland, Sweden, United Kingdom In principle not available, with very few exceptions Denmark, France, Italy, Austria

page 31 Cross-border loss relief Member stateMethod of cross-border relief DenmarkSystem of consolidated profits FranceSystem of consolidated profits ItalySystem of consolidated profits AustriaDeduction (Reintegration)

page 32 Cross-border loss relief - alternatives Alternatives Tax year of lossDeduction of loss in the year of loss Subsequent tax years Alternative 1 definitive loss transfer future profits are not taken into account Alternative 2 temporary loss transfer recapture of deducted loss Alternative 3 current taxation of the result of subsidiary taking into account of results of loss- making entity for a certain period

page 33 Conclusions II NACENo. of ParentsNo. of Subs Sum of TBSubs in EU and their TB categorized according to NACE of Czech Parent in ths. EUR – CZ parents and EU Subs %ths. EURBECZDEEEESHUITNLPLSISK A B C D E F G H I J K1K L M N O P Q R S Sum in ths. EUR % % 100%

page 34 Conclusions II decrease by % i.e. by EUR ths.

Thank you for your attention !! 15 th March 2016, Praha Danuše Nerudová Department of Accounting and Taxes