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EU ECONOMIC POLICY IN 2016. AN INCOMPLETE EMU: TOWARDS A FISCAL UNION
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corporate tax base throughout Europe. The CC-
CTB proposal constitutes a radical and holistic
solution to corporate tax avoidance in the form
of a system of unitary taxation by which all Eu-
ropean nations would abide by a single rule-
book for taxable corporate profits.
As it supposes a profound rethinking of fis-
cal practices in Europe, Council negotiations
over the next few months concerning the adop-
tion of a CCCTB framework will be complicat-
ed. A similar proposal put forth in 2011 failed
for lack of consensus.
The Commission has chosen to re-launch the
initiative at a moment of relatively higher public
consciousness regarding the need to control tax
evasion and avoidance. Its current proposal is
also tougher than its predecessor on a number
of salient points. For example, in contrast to the
scheme proposed in 2011, in which corporate
participation would have been optional, compli-
ance with the present proposal would be man-
datory for groups of companies with an annual
turnover of over euro 750 million.
A two-phase approach
This time around the Commission has decided
to take a flexible, two-step approach comprised
of an initial Directive establishing a common
corporate tax base (CCTB) followed by a second
focused on consolidation (CCCTB). Neverthe-
less, it is essential for the two to be closely
linked and to take effect within the respective
maximum time frames proposed, which are
January 2019 and January 20121.
At present, the tax bases of the European enti-
ties of multinational companies maintaining op-
erations in various EU states are calculated by au-
thorities at the national level. In contrast, the CCTB
scheme proposed would establish a common tax
base for all corporate operations carried out
within the EU calculated at the European level
according to harmonized community rules. This
is to say that an expenditure considered deduct-
ible in one member state would be recognised
as such in all others as well, a posture that
would help reduce tax competition between Eu-
ropean countries.
The Commission has proposed that the first
Directive include a 100 % “super deduction” of
corporate R&D expenses. Start-ups, for exam-
ple, would be able to deduct up to 200 % of
their R&D costs under set conditions.
These deductions are meant to drive growth
and job creation. Nevertheless, oversight will be
needed to ensure that companies do not at-
tempt to pass off expenditure in other areas as
costs related to R&D. It would therefore make
sense to estimate the impact that such deduc-
tions have on incoming tax revenue.
The super deduction could however be a
valid replacement for patent box schemes,
which have become the favourite tool of mem-
ber states most inclined to engage in question-
able forms of tax competition.
The current CCTB proposal also includes an
“Allowance for Growth and Investment” that
contemplates deductions related to equity fi-
nancing. Although the idea behind this measure
is to redress the debt-bias of present taxation
regimes, the best way to put an end to this
problem would be to phase out the existing de-
duction for interest payments on debt load rath-
er than give companies a new tax break related
to equity financing.
The importance of consolidation
The key element of the Commission’s proposal,
which constitutes the nucleus of the second Di-