CCCTB framework shifting Transfer Pricing and BEPS

On the 6th of November 2017 the European Commission will discuss the implementation of Common Consolidated Corporate Tax Base (CCCTB) in an effort to create a standard set of rules which will govern how European companies will be taxed.

Fundamentally, CCCTB will provide a framework for the calculation of the taxable profits. However, this will be extended to several aspects of the tax legislation, except the rates its self. Transfer pricing scheme is playing a very critical role in CCCTB agenda.

  • There are several reasons why the European Union is trying to harmonize the tax practices of its members.
  • Tax avoidance has always been a big hit for the European ecosystem. A huge, pretty much unknow, amount of capital is moving outside European Union through smart Transfer Pricing practices.
  • EU has so far failed to influence the tax rates of each member. Countries such as Cyprus, Malta, Bulgaria and Ireland have low tax rates, while northern countries have significantly higher.
  • Then, each country is using internal regulation to tweak taxation either on the negative or the positive side. A common tax framework would give equal rights and obligations to all member states, leaving tax rates potentially unaffected.

Heavy supporters of CCCTB arguing that a common tax base would increase capital mobility of the large multinational firms within European Union, because the companies will know what to expect in other countries. Other believe that the exact opposite will happen especial for the vast majority of the medium size firms which supporting European economy. The incentives which currently exist for moving from one company to the other

The core elements of the proposal are the following:

  1. The mandatory implementation of Transfer Pricing rules for all EU countries. Ex. Cyprus still remains under the radar of the Union for the flexibility on its transfer pricing scheme.
  2. The definition of permanent establishment through the Base Erosion and Profit Shifting (BEPS) project.
  3. Estimation of the tax base.
  4. Rules on interest and back to back loan agreements.
  5. Tax incentives for Capital Investments (similar to Cypriot Net Asset Incentive Scheme).
  6. Rules for the depreciation of assets.
  7. Losses recognition and transfer of losses within a group or country.

We believe that CCCTB will be the next big thing in European Taxation and will boost a unified tax environment which is ultimately the goal of the European Union.