The European Commission announced the reintroduction of a bill concerning the harmonisation of direct tax. In the European Union, the most known indirect tax, the VAT, is already harmonised (directive 2006/112/EC, 28 November 2006). The system enables easier treatment of cross-border trade within the EU and relinquishes specifications to the member states; hence, the tax rates of each country differ (e.g., GER 19%, HUN 27%). The new bill, called the Common Consolidated Corporate Tax Base (CCCTB), could end up doing the same by only standardising the assessment basis of taxation. Moreover, according to the Commission, the CCCTB system shall adhere to the OECD initiative on base erosion and profit shifting (BEPS).
Thus, a common tax base could be reasonable. Since the rules for balance sheets and profit and loss statements would be equal, taxation would become more transparent, and hidden reductions would no longer distort competition. Henceforth, tax rates would be essential. Tax evasion within the EU would become more difficult. Instead, taxpayers could benefit from a new competition of tax rates between the national states which could be stimulated to increase their efficiency. As a result, every company would be charged equally, albeit with a lower rate. Furthermore, member states could avail themselves of a less complicated system with lower administration costs.
On top of that, transaction costs will decline. Smaller enterprises wanting to expand their businesses into other European countries will more easily find affiliated companies. A significant fraction of the market entrance costs will disappear because the companies will be able to continue to work with their own resources.
Specifically, the providers of those resources could benefit from an abruptly enlarged market and lower transaction costs: providers of accounting information systems may be able to sell their products without having to implement expensive modifications in several countries. Likewise, tax consultants and accountants may be able use their expertise in whole Europe.
On the other hand, once the directive is enforced, professional groups will have to adapt to the new legal situation. It is conceivable that a large proportion of professionals will offer some resistance. Primarily, the Big Four, market leaders in tax and accounting, are in danger of losing market share as a result of less market entry barriers and more competition by smaller tax consultancies.
It would be difficult to overcome any resistance encountered. Not only lobbyists but also national states will set up opposition. The current political atmosphere of forced repatriation and protectionism acts in its favour. Besides, the EU is not really capable of convincing people of the benefits of EU integration at the moment. Additionally, fiscal authority in all fields is one of the most important features of a sovereign nation. Yielding that responsibility to the EU would mean giving up huge political leeway in the redistribution of wealth and conceding subsidies that almost always tie in with the assessment basis, e.g., the advantageous depreciation of selected assets.
Last but not least, shifting such a high profile law to the EU would not strengthen the democratic inclusion of the people as the European representatives in Commission and Council are often criticised for having a weak democratic legitimation.
All in all, the CCCTB seems to be a great improvement for the single market. However, the question of whether and how the project will be implemented remains to be answered.
Pascal Hornstein
Master in Political Marketing
