Some Changes in International Tax

• Date: 01 March 2017
• DOI: http://doi.org/10.1002/jcaf.22254
• Published date: 01 March 2017

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© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22254

Some Changes in International Tax

Caroline D. Strobel

EUROPEAN UNION STARTS

CORPORATE TAX OVERHAUL

For corporations doing

business in the European

Union (EU), changes may be

necessary in how they account

for taxable income. The EU is

trying to prevent corporations

like Apple from taking advan-

tage of low tax rates in coun-

tries like Ireland. Apple has

currently been fined by the EU

and it remains to be seen what

Apple will do. The European

Commission has published

a proposal for a uniform set

of rules on taxing corporate

profits. This initiative, known

as the common consolidated

corporate tax base, or CCCTB,

would require multinational

corporations to pay taxes

based on where their assets and

employees are located, as well

as where their sales occur.

To become law, the

CCCTBwould need unani-

mous approval by all 28 EU

member states, and subse-

quent approval by each of

their national parliaments. If

enacted, it would take effect

in two phases. The first phase

would require companies with

revenues in the EU in excess of

$750 million a year to calculate

taxable income uniformly

across all countries. This does

not mean that countries will

have to use the same tax rate,

just that taxable income cal-

culations will be uniform. The

second phase would involve all

other companies, forcing them

to calculate taxable income

based on the threefactors:

assets, employees, and sales.

The EU estimates that the

new rules will eliminate about

70% of the maneuvering that

multinational corporations do

to shift income and expenses

between branches to reduce

their overall tax liabilities. The

corporate tax rate in Germany

is about 30% while tax rates in

Eastern European countries

such as Poland, Hungary, and

the Czech Republic are about

19%. Comments indicate that

including assets as a factor may

result in higher taxes for some

companies.

Corporations are already

gearing up for the new report-

ing rules as they are anticipated

to make significant changes

in the amount of tax they will

pay. The EU’s Council of Min-

isters plans to start discussion

of these proposed rules in 2017.

It will take time and discus-

sion before the rules can be

adopted. Each company in the

first phase will have to form an

opinion about how the changes

affect them.

BREXIT WILL PRODUCE TAX

CHANGES IN GREAT BRITAIN

On June 23, 2016, the Brit-

ish people voted to leave the

EU. Britain’s exit (Brexit) will

likely happen in April 2019 or

later. Many areas of shared

tax law with the EU will be

affected. It is important to

consider what taxes might be

affected by this move when,

how, and if this decoupling

takes place. U.S. and non-EU

companies that operate in

Europe with their European

base in Britain may be signifi-

cantly affected.

One of the most significant

tax changes could come in the

value-added tax (VAT). The

EU version of the VAT uses

the Organization for Economic

Cooperation and Develop-

ment (OECD) model, which

has been adopted around the

world including Africa and

Asia. China and India are com-

pleting sales tax reforms that

follow the EU model. After

leaving the EU, Britain could

make changes in the VAT that