On March 16, 2011, the European Commission released the long-awaited Draft Council Directive on a Common Consolidated Corporate Tax Base (CCCTB). With the Draft Council Directive the Commission aims to constitute a fundamental change of corporate taxation in Europe in order to reduce existing inefficiencies and distortions resulting from the coexistence of 27 different tax regimes. In a nutshell, the CCCTB provides groups of companies with the opportunity to determine taxable income according to a common set of tax rules throughout the EU. Moreover, the common tax base would be consolidated and apportioned to all Member States in which the group of companies is operating. Member States would then be allowed to tax their share of the consolidated tax base at their national tax rate.

While not all of the national positions are known to date, some EU Member States, e.g. Ireland or the Baltic Member States, have clearly expressed skepticism about this proposal. In particular, convincing evidence on the economic impact of the introduction of the consolidation and sharing mechanism is found to be missing. Thus, we recommend a strategy that would introduce the CCCTB gradually. The first step merely comprises the replacement of the 27 national tax accounting regulations across Member States by a single set of harmonized tax rules along the line of the Draft Council Directive (CC(C)TB); the consolidation and allocation of the common tax base would initially be omitted.

Based on a unique survey on the corporate tax systems in all 27 EU-Member States, Switzerland and the U.S. made available by Ernst & Young, the study provides a comprehensive analysis on the determination of corporate taxable income under such a CC(C)TB in a crosscountry setting. Analyzing more than 80 tax accounting regulations, the international comparison illustrates that the proposed Council Directive generally concurs with international standards and commonly accepted principles of tax accounting. Overall, the proposal provides detailed rules for a CC(C)TB that are well established in the 27 EU Member States, Switzerland and the U.S. Obviously, individual Member States’ current tax accounting practices deviate from the proposed set of autonomous tax accounting rules in several ways. However, most of the differences are of technical or formal nature and are expected to have only a minor impact on the actual amount of taxable income. Indeed, the results of quantitative analyses confirm that the effective tax burden would, on an EU-27 average, remain largely unchanged (- 0.06%). In Europe’s largest economies, Germany (-0.16%) and France (0.15%), businesses would hardly be affected by an adoption of a CC(C)TB, whereas effective tax burdens would considerably increase in Portugal (2.76%) or Romania (3.12%). The largest reductions are determined for Cyprus (-4.04%), Ireland (-2.39%) and Italy (-2.43%).

Referring to both the results of the qualitative and the quantitative analysis, we conclude that a CC(C)TB as established by the proposed Council Directive is appropriate to replace the existing rules for the determination of corporate taxable income governed by national tax accounting regulations in the 27 EU Member States. Although some open questions remain that have to be addressed in more detail once the Draft Council Directive is to be implemented into the tax law of the Member States, it provides a carefully prepared and comprehensive framework for the determination of corporate taxable income that can be expected to reach consensus in the EU.


Spengel, Christoph
Ortmann-Babel, Martina
Zinn, Benedikt
Matenaer, Sebastian