New EU initiatives on company taxation

Over the past weeks, the European Commission has launched two separate but related initiatives in the field of taxation. A consultation paper has been published addressed to all interested parties concerned by the much-anticipated EU initiative on the taxation of the financial sector.

The Commission is distinguishing the taxation of banks and financial services between a global approach and an EU-level path. The Commission paper explained that it supports the idea of a Financial Transaction Tax (FTT) at global level whose introduction would require the full support of the G20. Such support failed to materialise at the last G20 meeting in Seoul and consequently, the political thinking has now shifted towards the introduction of an EU-wide Financial Activities Tax (FAT).

This is being conceived as a tax on profit and remuneration which applies to all activities of a financial sector company. The FAT would be a discriminatory fiscal measure in the sense that it would not be applicable to all operators on the financial markets but it would target financial corporations.

The Commission consultation deals with both the FTT and the FAT option with the latter holding three different, possible approaches – an addition method, a rent-taxing or a risk-taking financial activities tax. Whichever option will eventually prevail, the adoption of a new taxation measure at EU-level is bound to affect the competitiveness of the Maltese financial services industry vis-à-vis other financial jurisdictions both within and outside the European Union.

Malta’s success in the area of financial services depends on its competitive tax regime and the portfolio of bilateral agreements Malta has with other countries. MBB will be monitoring developments on the FTT/FAT initiatives and presenting a position paper on behalf of the local financial services industry in the coming months.

The Common Consolidated Corporate Tax Base (CCCTB)

The other Commission proposal is a draft Council Directive on the Common Consolidated Corporate Tax Base (CCCTB). This is one of the core initiatives of the Single Market Act (SMA) and it is the second legislative attempt, in recent years, by the EU institutions to regulate the consolidation and the simplification of the tax base applicable to companies operating cross-border in the EU internal market.

The proposal envisages a single set of rules that companies operating within the EU could use to calculate their taxable profits. A company or group of companies would have to comply with just one EU system for computing its taxable income, rather than different rules in each member-state in which they operate. The CCCTB is therefore only applicable to cross-border business operations, which are where a company has established operations via holdings or subsidiaries in different member-states.

Maltese business retains a cautious stance on the CCCTB proposal. It welcomes the Commission’s preference for an optional CCCTB as well as the thoroughly sound explanation that the directive would not entail the harmonisation of member-states’ corporate tax rates. The fundamental precept that differences in the applicable corporate tax rates among member states allowing for a certain degree of flexible yet predictable tax competition to be maintained in the European single market is critical to sustain Malta’s ability to attract sustainable and high-added value foreign investment towards the island.

Equally important is that the final text of the CCCTB directive allows for the consolidation of profits and losses applicable to cross-border business from the very start. The compliance costs related to the implementation of the CCCTB has to be kept to a minimum via the set-up of a ‘one-stop-shop’ for corporate tax matters. In practical terms the value of opting into the CCCTB regime for companies active in more than one EU member-state would be that if they have the veritable opportunity to file a single tax return covering the entire spectrum of their commercial operations within the EU.

For more information on EU affairs related to business, one may contact the Malta Business Bureau on 2125 1719, send an email to info@mbb.org.mt or visit www.mbb.org.mt