1. 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

2. There are only 2 certainties in this world!

3. With one of them I can’t help you…

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

5. 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)

6. 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

7. 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

8. A disaster waiting to happen

9. 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?

10. 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.

11. 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

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

13. 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.

14. 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

15. My suggestion: let gravity have its way

16. Contact Riga Graduate School of Law Law & Finance Department Strelnieku iela 4k-2 Riga LV-1010 LATVIA luc.nijs@rgsl.edu.lv Tel. +37167039230