The European Common Consolidated Tax Base: Much ado about nothing? Luc Nijs Visiting Professor Investment banking, private equity & entrepreneurial finance Riga Graduate School of Law Riga- May 18, 2011

There are only 2 certainties in this world!

With one of them I can’t help you…

With the other one I will try…  Fiscal harmonization in the EU  Direct taxation & national sovereignty  Financing the supranational level

What are the arguments?  Expensive bureaucracy to deal with national tax systems (documentation, double taxation, over-taxation)  Smaller firms have a hard time taking advantage of single market  Hamper growth  Make Europe more competitive  Track record: Lisbon strategy 1 and 2 (revisited)

What are the real arguments?  EU is looking for direct sources of funding  Now only Customs and part of VAT revenues  Rest of approx. € 500 Bn. budget flows through national budgets and based on annual negotiations

Funding deadlock  This year discussions fell apart about increasing budget  Consequently the budget stayed the same as during the previous year  Other proposals EU energy tax, Co2-tax  Democratic legitimacy is at stake

A disaster waiting to happen

So now what…  Commission tries to sell it to us in pieces  Caveat emptor: European Court of auditors has rejected the EU budget for the last 16 years due to irregularities and inability to provide closing evidence on accounts  Caveat emptor: Who do you trust?

What is the CCTB?  Companies in the EU will be able to opt for the common consolidated corporate tax base (or  stick with the different national systems), helping make the EU a true single market from the corporate tax perspective.  Corporate tax rates in the EU will not change. EU countries will continue to decide on their own corporate tax rate.

How to get there?  Only the EU has the authority to create an agreed set of corporate tax rules applicable in all member countries.  Good things: cross- border loss compensation  But: regulatory night- mare  National constitutional issues

What is needed?  Unanimity of Member States  Proportionality test? Subsidiarity through internal market  Change of the constitution? Commission thinks no!  I think yes!

Roadmap?  2013 – we hope the proposal will have been adopted unanimously by EU member countries meeting in the Council, after consultation of the European Parliament.  Two or three years after adoption – EU countries must have transposed the proposal into national law.

How likely is this going to happen? Ireland already refused to increase its Corporate tax rate to benefit from relaxing bail-out conditions Discussion of tax base and tax rate are 2 side of the same coin which in essence cannot be separated Tax system is often also a way for government to facilitate social policies through stimulus and rebates UK will never agree, and many others too Biggest concern is an aggregate increase in roll-over taxes Maybe introduction on a voluntary basis

My suggestion: let gravity have its way

Contact Riga Graduate School of Law Law & Finance Department Strelnieku iela 4k-2 Riga LV-1010 LATVIA Tel