1. 1 The Proposed CCCTB Directive COM(2011)121/3 Dr. J.L. van de Streek

2. History in a Nutshell 1992 Ruding Report 1999 Council of Ministers invites EC to undertake a study on company taxation with formal mandate 2001 Company Tax Study –Home State Taxation, CC(C)TB, 2004 -2008 CCCTB Working Group CCCTB –66 Working Documents 2010 Final consultation (4 Room Documents) 2

3. 3 Three Specific Objectives Reduction of additional corporate tax related compliance costs for companies –Hidden costs of taxation, hitting small business harder Elimination of double taxation for companies operating in the EU Internal Market –Cross border restructuring operations –Transfer pricing (unilaterally adjustment) Elimination of the over-taxation on cross-border economic activity –Cross-border loss relief Due to the economic crisis the objectives are changed!

4. 4 Main Features of the System Assumption = all Member States join the CCCTB- project Optionally for companies All-in/ all-out for groups Single set of rules for calculation the tax base (rule based) Consolidation Formulary apportionment of consolidated tax base One stop shop for administrative aspects

5. 5 Re-distrubution of MS Tax Bases

6. 6 Formulary Apportionment Necessary evil Objectives –Simple to apply –Difficult to manipulate –Fair en reasonable tax base share-out –No undesirable tax competition Formula

7. 7 Formula Factors Labour factor –50% number of employees, 50% payroll –Location = employer Intra group posting: physically exercise Asset factor –Fixed tangible assets at tax book value –Location= economic owner Intra group rent/lease: effectively use Sales factor –Proceeds of sales of goods and supplies of services excl. vat –Location = ‘Sales by destination’ Spread throw back rule (art. 96(4))

8. 8 New Allocation of Taxing Powers Consolidated Group

9. 9 Spread Throw Back Rule

10. 10 Easy Formula Tax Planning

11. Letter Merkel-Sarkozy August 17 th 2011 11

12. Euro Summit October 26 th 2011 12 ‘We will further strengthen the economic pillar of the Economic and Monetary Union and better coordinate macro- and micro-economic policies. Building on the Euro Plus Pact, we will improve competitiveness, thereby achieving further convergence of policies to promote growth and employment. Pragmatic coordination of tax policies in the euro area is a necessary element of stronger economic policy coordination to support fiscal consolidation and economic growth. Legislative work on the Commission proposals for a Common Consolidated Corporate Tax Base and for a Financial Transaction Tax is ongoing.’

13. 13 Main Rules Entering and Leaving the System

14. 14 Opting-in (Single Company) Chapter VII ‘Provisions on entry to and exit form the system provided for by this directive’ Main rule = roll-over of tax book values (44) –All assets and liabilities shall be recognised at their ‘national tax book value’ Special rules for: –Remaining depreciation period (45(1)) –Entry into the asset pool (45(2)) –Long term contracts entering the system (46) –Provisions entering the system (47) –Pre-entry losses (48)

15. 15 Opting-out (Single Company) Chapter VII ‘Provisions on entry to and exit form the system provided for by this directive’ Main rule= roll-over tax book values (49) –All assets and liabilities shall be recognised at their ‘CCCTB tax book value’ Bijzondere regelingen voor –Leaving the asset pool (50) –Long-term contracts on leaving the system (51) –Provisions on leaving the system (52) –CCCTB-losses (53)

16. 16 Exit From the System?

17. 17 Exit From the System?

18. 18 Subsidiary (54) The concept of ‘subsidiary’ has no geographical element –The group concept does, namely Europe Double test for qualifying subsidiary –Right o exercise more than 50% of the voting rights (‘control’-test) –Ownership tight amounting to more than 75% of the company's capital or more than 75% of the rights giving entitlement to profit (‘ownership’-tetst) How to count in lower tier subs? –> 50% voting rights = 100% (≤ 50% voting rights = 0%) –Ownership rights pro rata

19. Examples 19

20. 20 Formation of a Group (55) A resident taxpayer forms a group with: a)All its EU-pe’s b)All EU-pe’s of its qualifying subsidiaries resident in a third country c)All its qualifying subsidiaries resident in a MS d)Other resident tax payers which are qualifying subsidiaries of the same ‘third country parent’ A non resident taxpayer forms a group with: –All its EU-pe’s en and EU-subsidiaries (including the EU-pe’s of those subsidiaries)

21. Art. 55(1)(a) en (b) Group 21 (a)(b)

22. Art. 55(1)(c) Group 22

23. Art. 55(1)(d) Group 23

24. Art. 55(2) Group 24

25. 25 Consolidation (57) and (59) Consolidated tax base = Σ [tax bases group members] –Art. 4(11): ‘adding up’ Intra-group transactions (59)(1)/(4) –Heading of Article 59 is misleading (Elimination of intra- group transactions) –Ignored complety, but recording (external) cost –The EC has not chosen for the so-called ‘Included in each group company and netted of when consolidated’-method Is a consolidated group treated as a untiy? –I guess not; examples?

26. 26 Example Consolidation Technique Group member B buys : –For € 4.000 products manufactured by group member A –For € 500 products manufactured by a third party

27. Entering and Leaving the Group 27

28. 28 Three Problems with Entering a Group

29. 29 Entering a Group Pre-consolidation losses (64) –Ring fencing Hidden reserves fixed assets (61) –Capital gain withn 5 years directly allocated to APS –Fixed assets = tangible assets + purchased intangible assets + financial assets (4(14)) Hidden reserves self-generated intangible assets (92(2)) –Temporary increase asset-factor

30. 30 Three Problems with Leaving a Group

31. 31 Consolidation Losses (69) No losses shall be attributed to a group member leaving a group –Reason? Exceptions (‘reset mode’) –Termination of a group (art. 65/66) –A business reorganisation resulting in: A group becoming part of another group (big take- over); or Two or more group member becoming part of another group (small take-over) (art. 71 (1))

32. 32 Examples

33. 33 Example Small Take-Over (71(1))

34. 34 Example Big Take-Over (71(1))

35. 35 Example Merger of Two Principal Tax Payers (71(2)

36. 36 Hidden Reserves Fixed Assets (67) If within 3 years of leaving the leaving company disposes a fixed asset, the realized gain is to the consolidated tax base of the group –Reason? ‘Throw back’ not limited to generated hidden reserve at the time of leaving No double taxation (step-up) MS of leaving company captures no share! –Unless the asset is disposed in the same year as leaving

37. 37 Hidden Reserves Self- Generated Intangibles (68) If the economic owner of a self-generated intangible leaves a group, the R&D, marketing and advertising costs are added back to the consolidated tax base of the remaining group (capped to actual value) –Reason? Goodwill seems not covered… Adding back in which year? Attribution of costs to leaving taxpayer

38. Termination of a Group (65)&(66) Unrelieved group losses are allocated to each group member according to formula applicable in the year of termination (65) Treatment of allocated losses (66) –Single company –Joining another group (no cluster approach: (65) jo (66(b)) jo (102(b))) –Leaving the system 38

39. 39 Business Reorganisations within a Group (70) No profit or loss (70 (1)) –Merger directive not applicable –Leaving-rules applicable? Re-attribution transfered assets (70(2)) –Substantially all assets tranfered* –Asset-factor substantially changed –Sanction = increased asset factor ↑ for 5 years –Ring fenced loss compensation is still possible (61, last sentence)

40. Examples art. (70(2)) 40

41. Anti-Abuse Measures 41 GAAR (80) Switch-over clause(73) Disallowance of interest deductions (81) CFC-rules (art. 82) Anti-abuse provision on leaving a group as a result of a share disposal (75) Anti-baseshifting measure (94(4))

42. GAAR? 42

43. Three Situations Regarding Withholding Taxation 43 No WHT on intra-group transactions (60)  ‘Flanking’ rule  Is intra-group dividend a intra-group transaction ? Shared credit for inbound interest/royalties (76)  Not for dividends, because they are exempt  Regular credit limits Shared revenue of WHT on outbound interest and royalties (77)  Not for dividend, because they are not deductible (pre- ambule 18)  Revenue clearing mechanism is missing!

44. No Witholding Tax on Intra-Group Transactions (60) 44

45. Shared Credit for Inbound Interest/Royalties (76) 45 For example: Third Country WHT

46. Example Shared Credit (76) 46

47. Shared Revenue of Withholding Tax on Outbound Interest/Royalties (77) 47 MS 1/MS 2/MS3 WHT