Is the EU finally ready for a Common Consolidated Corporate Tax Base?

Malcolm Wu


In 2011, an ambitious Common Consolidated Corporate Tax Base (CCCTB) directive was proposed by the European Commission. The directive sought to harmonise the 28 different corporate tax codes of the Member States into one set of corporate tax rules, while retaining the right of Member States to set their own national tax rates.[1]The aim was to facilitate cross-border trade and curb aggressive tax planning, and bring the European Union closer towards a stronger and fairer single market. However, the CCCTB proved too ambitious for some and was blocked in the European Council.

Yet, first attempts are not always successful and on October 2016, the CCCTB was relaunched by the European Commission. Since then, the CCCTB has undergone modifications and gained political traction contrary to its result in 2011. Indeed, on the 15thMarch 2018, Members of European Parliament approved the CCCTB by 438 votes to 145 votes (with 69 abstentions) in their plenary session and thus, the CCCTB will face the decision of the European Council once again.[2]

What will become of the decision’s outcome? Is a CCCTB necessary for the EU and if so, how will it affect stakeholders? This piece examines tax compliance, tax avoidance and other economic issues that corporations and Member States face under the status quo, as well as how the CCCTB could address them.

Cross-border corporate taxation under the status quo

  1. Tax Compliance:

There are 28 different corporate tax systems and administrators in the EU. A corporate group seeking to calculate the profits and losses of its subsidiaries within the EU must accommodate each Member State’s corporate tax code and their tax administrators, alongside bilateral tax treaties that Member States may have with one another. In addition, international transfer pricing rules on determining taxation of intra-group transactions are highly complex and often lead to costly disputes.

The current disorganised structure often renders corporations unable to offset their losses in one Member State, against profits in another, eventually leading to double taxation.[3]In addition, the steady rise in tax avoidance schemes has meant an increase in national anti-avoidance regulations that remain uncoordinated at the supranational level. This adds to the complexity of the international tax system and exacerbates the administrative costs for both tax administrations and corporations.[4]Consequently, businesses spend time and taxable revenue on compliance while budding enterprises are deterred from expanding across the EU altogether.[5]

  1. Tax Avoidance:

Perhaps the most pressing issue is that of tax avoidance through profit shifting. Recent events such as the Paradise Papers,[6]and tech giants being caught in tax scandals reveal the extent of manipulation in the international corporate tax system. For example, through the infamous manoeuvre known as the ‘Double Irish with a Dutch Sandwich,’ Apple’s subsidiaries based in Ireland managed to pay an effective corporate tax rate of 1% from 2003 down to as little as 0.005% in 2014 on all its European profits – this is an estimated avoidance of €13 billion.[7]Such practices have been adopted by large multinational enterprises across the EU, including Google in Ireland, Starbucks in the Netherlands, Ikea and Amazon in Luxembourg.

Other variations of Apple’s shrewd manoeuvre include placing intellectual property of the corporate group in subsidiaries located in tax-friendly Member States. Thus, profits made in jurisdictions with higher corporate tax rates are shifted to these subsidiaries through royalty payments where they are taxed at minimal rates through ‘state aid’ or ‘sweetheart deals.’[8]After this, the profits can be transferred back to the parent company or stored in offices existing only on paper where they go virtually untaxed.[9]This method of profit shifting is a type of intra-group transaction which transfer pricing rules, as mentioned earlier, are designed to capture and prevent.[10]

However, the difficulty arises in quantifying the value of intangible assets such as intellectual property. In total, the Organization for Economic Co-operation and Development has estimated that revenue loss from profit shifting practices at the global level are at 4-10% of corporate income tax revenue, which translates to $100-240 billion annually at 2014 levels.[11]Similarly, a study by the European Parliamentary Research Service estimated revenue loss from profit shifting practices in the EU at €50-70 billion, which roughly translates to 17-23% of EU corporate income tax revenue in 2013.[12]

This increase in profit shifting practices coupled with the increase in capital mobility has, in turn, fostered an environment where Member States’ protect and compete for wider tax bases. As a result Member States lower their statutory corporate tax rates to attract corporations to establish residence and investments in their nation. More extreme measures include ‘state aid’ or ‘sweetheart tax deals’, practised by Member States such as Luxembourg, Irelands and the Netherlands. A prominent example is the Luxembourg Leaks in 2014. The leaks by the ICIJ revealed secret tax deals granted by Luxembourg’s authorities to more than 350 companies worldwide in exchange for ‘intended investments’ in the country of up to $215 billion from 2002-2010.[13]The present situation points toward a regulatory race to the bottom, whereby corporations save billions by taking residence in the most tax advantageous Member States and big accounting firms profit off heavy cross-border compliance work. Meanwhile, cuts in national corporate income tax rates will force governments to raise taxes on citizens and domestic businesses to fill the gap or to lower public spending.

How can the relaunched CCCTB address these issues?

The relaunched CCCTB would address these issues in a two-staged approach. First, through a Common Corporate Tax Base (CCTB), where a single set of rules for calculating taxable corporate revenues in the EU will replace the 28 corporate tax systems. This would be followed by consolidation (CCCTB), where a corporate group can simply add up all its profits and losses across the EU and consolidate it at the level of the group’s parent company. An apportionment formula based on 4 equally-weighted factors: labour, assets, sales by destination and now data, would calculate how the taxable profits are to be shared amongst the Member States where the corporate group has been active.[14]


  1. Tax Compliance:

A Common Corporate Tax Base would streamline tax compliance by creating a ‘one stop shop’ for determining tax liabilities. A corporate group with multiple subsidiaries would only have to deal with one set of corporate tax rules and one tax administrator in determining their overall tax liability within the EU. Consolidation treats the corporate group and its subsidiaries within the EU as one single entity for tax purposes. This is vital for businesses as this recognises their cross-border activities, allows them to offset their losses in one Member State, with the profits made in another (resolving the dilemma of double taxation).[15]In addition, consolidation would also replace transfer pricing rules, which today represent a significant cost-aspect of compliance under the current regimes. A study commissioned by Deloitte Tax Experts reveals that the CCTB would cut compliance time on average by approximately 10% and compliance costs by 2.5%. With consolidation, the removal of transfer pricing practices would drastically reduce compliance time by 70% and compliance costs by approximately 62% for a corporate group with a large parent and 67% for that of a medium-sized parent.[16]This reduction in compliance costs and the ability for cross-border loss offset would facilitate cross-border investments and the expansion of small businesses across the EU.

  1. Tax Avoidance:

The CCCTB and its formula apportionment tackles tax avoidance by taxing businesses where their profits are generated, or where their real economic substance lies, instead of through a residence-based approach. Under the current transfer pricing rules and a residence-based approach, businesses can take advantage of the discrepancies in tax rates and the determination of value in intangible assets to profit-shift through acts outlined earlier. This includes assigning intellectual property rights to a subsidiary in a lower tax rate jurisdiction in which profits under the guise of royalty payments from a subsidiary in a higher tax jurisdiction would flow to. Once the formula apportionment and real economic substance approach take effect, transfer pricing rules and calculations are disregarded, and for tax purposes, it becomes irrelevant where one’s intellectual property rights are held.

A group company’s tax obligations in each EU state could then be calculated based on how much economic substance each subsidiary produces in the state in question and this could be apportioned accordingly. Businesses would no longer be able to exploit the mismatches within tax systems under a common set of rules and the disregard for transfer pricing activities would largely eliminate any profit shifting within the EU. Furthermore, the CCCTB has been proposed as mandatory for all corporate groups with a turnover of €750 million in a financial year – this would capture large multinationals capable of aggressive tax planning[17]. The European Parliament has also approved an additional factor of ‘data’ in the apportionment formula.[18]This is a measure targeting tech companies that do not require a strong physical presence (labour) or infrastructure (assets) to generate profits in the EU, that is digital marketing and advertisements. Although calculating profits based on mining of personal data sounds promising, technical issues such as what would amount to data has not been worked out. However, if this proves to be administratively possible, it would finally address the pressing issue of profit-shifting by tech giants.

Though profit-shifting would be eliminated under the CCCTB, tax avoidance could still be achieved via ‘factor-shifting’ since corporate tax rates are not harmonised. This could be done by structuring factors such as sales through ‘independent’ distributors in Member States with lower tax rates.[19]However, the CCCTB will make tax avoidance harder to achieve than under the current system. Factor-shifting involves real factors that are affected by the quality of skilled talent and infrastructure present in Member States which book profit-shifting is not concerned with.[20]Indeed, with an apportionment formula, a drastic reduction in tax avoidance, and mobile tax bases would deter Member States from engaging in statutory tax competition.

Concluding thoughts:

The CCCTB shows notable potential in addressing the pressing problems which the European corporate tax system faces. It contains elements of a good tax system: administrative simplicity, certainty, and fairness. On top of addressing tax compliance, tax avoidance and improving taxpayer morale, the directive also contains additional measures to incentivise European Research & Development, while discouraging heavy debt-financing. The CCCTB appears to be the solution to a single, clearer and fairer EU corporate tax system that would strengthen the single market.

However, there are several obstacles within the directive itself. The CCCTB addresses tax avoidance at the European level, and this may still allow corporate groups to profit-shift to third countries. As such, a comprehensive Anti-Tax Avoidance Directive dealing with non-EU countries is needed. Indeed, perhaps the biggest obstacle facing the CCCTB is the unanimous approval required from the Council. With the removal of profit shifting measures, Member States that rely heavily upon such measures for corporate investment and tax revenue, such as those outlined, would most likely disapprove. Furthermore, a comprehensive country-by-country impact assessment has not yet been carried out. Thus, the possibility of tax base reductions of several Member States may deter some from the adoption of the directive, and a CCCTB may prove to be still too ambitious for others. Yet from this account, one thing remains certain: urgent tax reform within the European Union is needed.


This article was published in February 2019.


[1]Commission, ‘Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB)’ COM (2011) 0121 final.

[2]Hyun-Sung Khang, ‘MEPs approve new EU corporate tax plan which embraces “digital presence”’ (European Parliament News, 15 March 2018)

[3]Commission, ‘Commission Staff Working Document Impact Assessment, Accompanying the document, Proposals for a Council Directive on a Common Corporate Tax Base and a Common Consolidated Corporate Tax Base (CCCTB)’ SWD (2016) 341 final, 2, 10.



[6]The Paradise Papers are a set of 13.4 million confidential documents relating to offshore investments that were leaked in 2017, revealing the use of offshore tax havens by large multinational corporations and government officials.

[7]Ricardo Cardoso, ‘State aid: Ireland gave illegal tax benefits to Apple worth up to €13 billion’ (European Commission Press Release, 30 August 2016) accessed 02 June 2018.

[8]Jonathan Chew, ‘7 Corporate Giants Accused of Evading Billions in Taxes’ (Fortune, 11 March 2016)


[10]Transfer pricing rules are designed to capture intra-group transactions that are not carried out at ‘arm’s length’ by determining the fair market price of the transaction.

[11]Commission(n 3).


[13]Margot Williams, ‘Explore the Documents: Luxembourg Leaks Database’ (International Consortium of Investigative Journalists, 5 November 2014)

[14]Commission (n 3), Annex V.

[15]Janeva Kalloe, ‘A study whether the Common Consolidated Corporate Tax Base (CCCTB) is a rescue tool for aggressive tax planning’ (Master Thesis, Tilburg University 2017).

[16]Commission,(n 3), Annex VII, 133-136.

[17]Vanessa Mock, ‘Commission proposes major corporate tax reform for the EU’ (European Commission Press Release, 25 October 2016)

[18]Khang, (n 2).

[19]Commission (n 3), 5, 35.