The CCCTB is intended to offer a single set of rules that cross-border companies can use to calculate their taxable profits in the EU, instead of reporting tax under different national systems, with the aim of creating a more transparent, efficient and fair system for calculating the tax base.

The proposal was originally set out in 2011 but has stalled since then, largely because technical discussion of the principals revealed deep disagreements in key areas such as consolidation.

It has also come in for criticism from some governments, including the UK, as well as corporations, due to its restrictive nature and the overarching plan to create a single fiscal union across the existing 28 member states. 

As a result of strong criticism, the Commission has relaunched the CCCTB as part of a broader package of corporate tax reforms. It has also broken the CCCTB down into what it describes as ‘a more manageable, two-step process’. While it expects the common base to be agreed and implemented quickly, consolidation will be introduced later on.

The new corporate taxation system will be mandatory for large multinational groups with global revenues of more than €750m (£672m) a year.

Revised plan

Under the proposal, companies would use a single set of rules and work with their domestic tax administration to file one tax return for all of their EU activities. The Commission estimates time spent on annual compliance activities should decrease by 8% as a result, while the time spent setting up a subsidiary would decrease by up to 67%, which it says will make it easier for companies, including SMEs, to set up abroad.

The approach incentivises activities such as R&D investment and equity financing. Companies will be allowed a super-deduction on their R&D costs, and will also provide an allowance for equity issuance. A set rate, composed of a risk-free interest rate and a risk premium, of new company equity will become tax deductible each year. Under current market conditions, the rate would be 2.7%.

However, the EU would not set the corporation tax rates so member states would be able to continue to set their own national rates under the proposals.

The package does contain new measures to stop companies from exploiting hybrid mismatches between member states' and non-EU countries' tax systems to escape taxation. The EU anti-tax avoidance directive, agreed in July, already addresses such mismatches within the EU, and this proposal extends the measures to non-EU countries. This could contradict existing global tax rules being proposed under the OECD's Base Erosion and Profit Shifting (BEPS) project.

The Commission claims that once it is fully operational, the CCCTB could raise total investment in the EU by up to 3.4%.

Companies will be able to offset profits in one member state against losses in another. Tax obstacles such as double taxation will be removed and the CCCTB will increase tax certainty by providing a stable, transparent EU-wide system for corporate taxation, it says.

Corporate tax rates are not covered by the CCCTB, as these remain an area of national sovereignty.

Valdis Dombrovskis, vice-president of the European Commission, said: ‘The proposals aim to boost growth and investment, support enterprise and ensure fairness. The current corporate tax system treats debt financing of companies more favourably than equity financing. Reducing this debt-equity bias in the tax system is an important element of the capital markets union action plan and underlines our commitment to deliver on this project.’

There are two further proposals in the package being announced, which are designed to improve the current system for dispute resolution on double taxation in the EU and to bolster existing anti-abuse rules.

The Commission says there are currently around 900 double taxation disputes in the EU, estimated to be worth €10.5bn (£9.5bn). It is proposing that current dispute resolution mechanisms should be adjusted to better meet the needs of businesses. In particular, a wider range of cases will be covered and member states will have clear deadlines to agree on a binding solution to double taxation.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs said: ‘With the rebooted CCCTB proposal, we're addressing the concerns of both businesses and citizens in one fell swoop. The many conversations I've had as taxation commissioner have made it crystal-clear to me that companies need simpler tax rules within the EU.

'At the same time, we need to drive forward our fight against tax avoidance, which is delivering real change. Finance ministers should look at this ambitious and timely package with a fresh pair of eyes because it will create a robust tax system fit for the 21st century.’

These legislative proposals will now be submitted to the European parliament for consultation and to the Council for adoption.

Information on the European Commission Corporate Tax reform package is here