

THE STATE OF THE EUROPEAN UNION
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rective, is consolidation. Under the CCCTB, a
company’s tax base would be calculated on the
basis of the aggregated profits and losses of all
of its operations on EU territory. Consolidation
will eliminate the need for the complex transfer
pricing system now in place. Given that 70 % of
all tax avoidance operations involve transfer
mispricing, the shift to consolidation will make
an enormous difference.
Each country’s share of any tax revenues
owed would be pegged to an EU-wide consoli-
dated tax base and distributed by means of a
formula taking three equally weighted criteria
into account: labour (payroll and number of em-
ployees), assets and sales. This formula, which is
meant to ensure that profits are taxed where
they are earned, is nevertheless the most con-
troversial aspect of the CCCTB proposal. The
sales criterion favours the interests of larger des-
tination countries whereas the assets and la-
bour factors favour the interests of smaller
countries.
The second pillar of community strategy
for fiscal union: transparency, fiscal
cooperation and a united front against tax
havens
If the ATAD and the CCCTB provide the founda-
tion for the first pillar of the community strategy
for fiscal union, which is fair and effective taxa-
tion, instruments conceived to guarantee great-
er fiscal transparency in the EU constitute the
second. These include Directives on the auto-
matic exchange of information (AEOI) in the
field of taxation and corporate country-by-
country reporting (CbCR), by which multina-
tional companies must disclose information re-
garding their activities in each of the countries
in which they maintain operations.
Transparency between member states: the
automatic exchange of information on tax
rulings
Progress was made on this front by means of
amendments to Council Directive 2011/12/UE
on Administration Cooperation (DAC), the leg-
islation currently in effect on the exchange of
fiscal information between EU countries.
T
his
amendment was made in the wake of the Lux-
Leaks scandal, which exposed a number of se-
cret rulings between Luxembourg tax authori-
ties and almost 400 companies that lowered the
tax rate of the companies involved to an aver-
age of 2 %. Since the most recent Directive on
Administrative Cooperation came into force in
January 2017, all member states are required to
routinely share information regarding cross-bor-
der tax rulings and advance pricing arrange-
ments in their jurisdictions, an obligation that
effectively eliminates the option of withholding
such information on the grounds that divulging
it would constitute the violation of a profes-
sional or trade secret. In theory, this requirement
should allow the tax authorities of all member
states to detect agreements orchestrated by
others that stand to undermine their tax bases.
Although it was expected in some quarters
that the LuxLeaks scandal of November 2015
would dissuade countries from issuing new tax
rulings, this has unfortunately not been the
case. Data released by the Commission indi-
cates that 1,444 such agreements were sealed
during 2015 – 49 % more than in 2014. It is
therefore to be hoped that the entry into force
of the DAC amendment at the beginning of
2017 will reverse this trend.