CCCTB

1
CCCTB

• AMCHAM EU
• Brussels
• 13 December 2007
• Roderick Ryan

2
CCCTB

• Optionality
• Impact on tax rates
• Compliance costs
• International aspects
• Administration

3
Optionality

• CCCTB wont (really) be optional
• By definition optionality reduces corporate tax
• Attitude of Member States(MS)
• Will they consent to tax reductions?
• Massive incremental administrative cost of two
  systems
• Economic impact assessment to model mandatory
  system

4
Optionality, contd

• Commissions attitude
• Should initially be proposed as optional
• Optional where existing rules are maintained
• Withdrawal of existing systems?
• What if economic impact assessment determines a
  mandatory system to be beneficial to EU welfare?

5
Impact on Tax Rates

• Background to CCCTB Reduction in corporation
  tax rates
• Allocation formula makes corporation tax a
  function of sales, property and payroll
• Therefore, much greater control of MS over income
  allocated
• Corp tax rates can thus be increased easily
• For business Compliance cost savings (if any)
• vs
• say increase in tax rate
  by 5

6
- MS Tax Rates have been falling
7
Compliance costs

• Savings in cost stated to be a significant
  advantage
• But no evidence this will be the case
• For legal and other reasons, companies still
  required to keep local books
• CCCTB tax base starts with local books
• Bridges required from those local books is CCCTB

8
Compliance costs, contd

• 27 bridges
• IT systems, costs
• 27 audits
• 27 tax authorities intercommunications
• IT systems to be adapted to capture CCCTB data,
  e.g.
• Average number of employees
• Insourced/outsourced labour
• Sales within/without CCCTB countries
• Sales to 75 , 75- entities
• Consistency across the EU group
• Different allocation keys for financial,
  transport, broadcasting sectors

9
Compliance costs, contd

• Transfer pricing issues savings?
• Commercial reasons, e.g. Competition Authorities,
  will still require legal books)
• Transactions with non-CCCTB countries
• Transactions with non-75 related entities
• US Federal system with state taxation
• Substantial compliance costs
• Substantial regulations
• Transition costs could be huge
• Y2K !

10
International Aspects

• CCCTB beneficial to non-EU investment
• Lower effective tax rates
• Unless all EU treaties to be renegotiated
• Unclear whether CCCTB tax is creditable in US
• A voluntary tax?
• A tax paid by reference to sales, payroll,
  property?
• A tax paid by reference to aggregated income, not
  appropriate income
• May require amendment to US tax treaties

11
International Aspects, contd

• Uncertainty over effective tax rates
• DCF analysis what tax rate?
• Will begin to affect investments now
• System will probably require a replacement of
  national tax treaties with a treaty negotiated by
  the EU binding on CCCTB members

12
Administration

• Central EU tax authority
• Central EU appeals body
• Language barriers for dealings between tax
  authorities
• Likely to be numerous allocation fights
• Competent authority resolutions take years
• CCCTB would multiply disputes

13
Administration, contd

• How will Revenue authorities audit?
• 27 audits?
• How will they interact/exchange information?
• Overstatement of factors in a country how can
  that be audited?
• Language barriers
• Where would prosecutions be taken?

14
Administration, contd

• Who will make tax law?
• Comitology the Commission?
• Anti-avoidance rules
• Will they be designed to restrict movement of
  investments between EU member states?
• Some tax authorities regard all restructurings as
  tax avoidance

15
Summary

• For business the risks are high
• CCCTB provides much greater control to MS over
  income allocated
• MS therefore have greater control over their CT
  revenue
• Provides opportunity to increase CT rates
• Benefits, if at all, are low relative to risk
• Optionality, if at all, will be temporary