On June 30, 2008, Tax Executives Institute submitted the following comments to Thomas Neale, Head of the European Commission's Task Force charged with developing a proposal for a common consolidated corporate tax base (CCCTB) throughout the European Union. TEI's comments were prepared under the aegis of TEI's European Direct Tax Committee, whose chair is Johann Muller of AP Moeller-Maersk.
A task force established by the Dictorate-General Taxation and Customs Union of the European Commission has been studying the benefits and costs of implementing a common consolidated corporate tax base (CCCTB) in the European Union (EU). The task force has issued numerous consultation papers defining and analysing the potential scope, technical structure, and administrative framework for the CCCTB; a formal legislative proposal is expected to be released soon by the Commission.
Tax Executives Institute has monitored CCCTB developments since the inception of the project, submitting our initial views on critical elements of the CCCTB for business taxpayers in May 2007. On behalf of TEI, I am pleased to submit the following comments elaborating on those views and providing additional comments on technical issues in the CCCTB.
Tax Executives Institute was founded in 1944 to serve the professional needs of business tax professionals. Today, the organization has 54 chapters in Europe, North America, and Asia. As the preeminent international association of business tax professionals, TEI has a significant interest in promoting tax policy, as well as in the fair and efficient administration of the tax laws, at all levels of government. Our 7,300 members represent 3,200 of the largest companies in the United States, Canada, Europe, and Asia.
In 1999, TEI chartered a chapter in Europe, which today encompasses employees of a wide cross-section of European and multinational companies. TEI members are accountants, lawyers, and other corporate and business employees responsible for the tax affairs of their employers in an executive, administrative, or managerial capacity. The Institute espouses organisational values and goals that include integrity, effectiveness and efficiency, and dedication to improving the tax system for the benefit of taxpayers and tax administrators alike. The comments set forth in this letter reflect the views of TEI as a whole, but more particularly those of our European constituency.
The Commission's objective in introducing a CCCTB is to reduce the tax obstacles that hinder the competitiveness of the internal European market. Among the tax obstacles that arise from the challenges of complying with 27 different tax systems are two especially critical items: burdensome transfer-pricing and documentation rules that engender disputes between Member States and taxpayers over the proper allocation of profits among the Member States and the inability to offset losses incurred in one Member State against profits in another. Both produce double taxation and thus economic inefficiency. Conflicts in respect of transfer-pricing rules are especially burdensome since business taxpayers are frequently stakeholders in disputes between Member States over the respective share of income allocable to the states. Finally, the costs of complying with 27 different tax systems--including preparing and filing returns, paying the tax liabilities, responding to tax authority inquiries or inspections, and managing tax audits and appeals--impose substantial burdens on businesses.
In previous comments, TEI noted that the support of business taxpayers for the CCCTB depends on five elements. First and foremost, the CCCTB must remain optional. From the outset, the proposal has been characterised by the Commission as a voluntary system. Suggestions by commentators of Member States that the system should initially be optional, but become compulsory at a future date would diminish business support for the proposal. (1) Thus, we encourage the Commission to reiterate that taxpayer participation in the CCCTB is voluntary and will remain so.
Second, the national tax regimes of many Member States draw distinctions between business and non-business income and assets, generally to prevent closely held companies from paying personal expenses of their shareholders. TEI believes the CCCTB should be based on the presumption that ah entity liable to corporate taxation is carrying on a business activity for CCCTB purposes.
Hence, TEI recommends against distinguishing between business and non-business income or requiring allocation of costs among different sources of revenues (e.g., business or non-business). A requirement to segregate...