European Commission’s proposals for reform of corporate taxation

On 25 October 2016, the European Commission presented four draft directives for reform of corporate taxation. Core element is the introduction of a common consolidated corporate tax base (CCCTB) designed to facilitate cross-border activities of companies in the EU single market. However, at the same time, the proposal comprises some tightening of taxation rules. There are therefore doubts as to whether the advantages of the CCCTB outweigh the drawbacks for companies.

The main points of contention in the European Commission's 2011 CCCTB proposal were the requirements for consolidation and distribution of the "tax cake" among the Member States. For this reason, the Commission now wants to proceed in two stages. Agreement should be reached in a first stage on a common corporate tax base (CCTB). Only then would the consolidation be introduced for full implementation of the CCCTB.

Unlike the 2011 proposals, application of the CCTB or CCCTB would be mandatory for large multinational groups with an annual worldwide turnover of more than € 750 million. After the introduction of consolidation, companies would be able to file a single tax declaration for their activities in the EU with a national tax administration. Profits generated in one Member State could then also be set off against losses in other Member State without restriction. But limited cross-border loss relief would be possible already in the framework of the CCTB.

Notional interest deductibility for equity is also new component of the CCTB proposal. This would give companies incentives to strengthen own funds instead of relying mainly on outside finance. However, the provisions are designed in a way that decreases of equity e.g. due to losses leads to additional tax burdens. German business rejects this.

German business also firmly rejects the further tightening of ATAD I through the CCTB. Here, the EU goes well beyond the self-imposed objective of transposing the measures of the OECD BEPS action programme. This applies in particular for the planned tightening of limitations on interest deductibility. Elements such as a limited deferral of unused interest deduction capacities, a group ratio rule or an equity-based escape clause are expressly mentioned by the OECD. They are also part of ATAD I but no longer of the CCTB.

Business is also critical of the proposal whereby deferral of exit taxation would no longer be possible when activities are transferred within the EU. As a result, EU countries would be treated like third countries, a situation which does not fit in with the idea of the single market with a consolidated corporate tax base. A switch-over clause for a change from the exemption to a imputation procedure for dividends is once more included in the CCTB proposal. This was already a component of the first draft for ATAD I and rightly failed to gain the approval of EU Member States - among other things, the rule is not a component of the OECD BEPS action plan and would act as a minimum tax.

Reform of the EU arbitration treaty for cases of double taxation

Alongside the CCTB/CCCTB proposals, the Commission has also presented a draft directive to further develop the EU arbitration convention for double taxation cases. The aim is to identify and solve more cases than today. Hitherto, this has been restricted de facto to resolution of double taxation cases involving corrections of transfer prices. In addition, it contains stricter deadlines for reaching a binding agreement on the resolution of double taxation. This would streamline procedures. Business appreciates that the EU addresses the problem of unpredictably long mutual agreement procedures.


As a fourth proposal, the Commission presented a draft Anti-Tax-Avoidance Directive II (ATAD II). This directive contains provisions against hybrid structures in relations with third countries outside the EU. The Slovak council presidency considers the ATAD II being first priority and wishes to implement this part of the CCCTB proposal until the end of the year. However, ever here further tightening is comprised which is firmly rejected. This holds in particular for the imported hybrid mismatches. With this provision the EU interferes in business which is carried out in countries that do not fall under EU legislation.

created by: Benjamin Koller (BDA),
Ralph Brügelmann (BDI)


Séverine Féraud
Senior Adviser