DG Taxation and Customs Union Slide: 1 European Commission - DG Taxation and Customs Union Advanced Program in Accounting & Auditing Regulation – Module

DG Taxation and Customs Union Slide: 1

European Commission - DG Taxation and Customs Union

Advanced Program in Accounting & Auditing Regulation – Advanced Program in Accounting & Auditing Regulation – Module 22 April 11 2006Module 22 April 11 2006

IFRS as a possible starting IFRS as a possible starting point for a Common EU Tax point for a Common EU Tax

BaseBase

Tom NEALEPrincipal AdministratorDirectorate General for Taxation and Customs Union



IntroductionIntroduction

The Common Consolidated Corporate Tax Base The Common Consolidated Corporate Tax Base (CCCTB)(CCCTB)

BackgroundBackground

Work to dateWork to date

IFRS/IASIFRS/IAS

BackgroundBackground

Interaction with CCCTBInteraction with CCCTB



CCCTB – What is it?CCCTB – What is it?

Common – same tax base in each Member Common – same tax base in each Member State (MS)State (MS)

Consolidated – tax bases of all group Consolidated – tax bases of all group companies combined, eliminating intra-companies combined, eliminating intra-group transactions, and then ‘shared out’group transactions, and then ‘shared out’

Corporate – for companiesCorporate – for companiesTax Base -concerns Base, not RateTax Base -concerns Base, not Rate



CCCTB - Background

Company Tax Communication & Company Tax Study (October 2001)Lack of loss relief an obstacleCompliance CostsTransfer Pricing complexitiesTwin track strategy for removal of obstacles -

Targeted, short term – eg Directive updates and -

Comprehensive, longer term – CCCTB



CCCTB - Background CCCTB - Background

• 2003 – 2003 – Public ConsultationPublic Consultation ‘The application of IAS ‘The application of IAS in 2005 and the implications for the introduction of in 2005 and the implications for the introduction of a consolidated tax base for companies’ EU-wide a consolidated tax base for companies’ EU-wide activities’ activities’

• 2003 – CCCTB confirmed in follow up 2003 – CCCTB confirmed in follow up CommunicationCommunication as preferred long term option as preferred long term option

• 2004 – 2004 – ECOFIN (informal)ECOFIN (informal) : support for CCCTB : support for CCCTB Working GroupWorking Group

• Nov 2004 – Nov 2004 – CCCTB Working GroupCCCTB Working Group established established• Oct 2005 – Oct 2005 – Lisbon CommunicationLisbon Communication: Tax : Tax

contribution to achieving Lisbon objectives – contribution to achieving Lisbon objectives – CCCTB proposal in 2008CCCTB proposal in 2008

• April 2005 – April 2005 – Progress to date & next stepsProgress to date & next steps (COM(2006)157)(COM(2006)157)



CCCTB Working Group (CCCTB WG)

Technical working group Technical working group Commission chair Participation of tax administration experts from

all 25 MS Initial mandate for three years Tentative work programme agreed Meetings +/- every three months Several sub-groups chaired by Member States



Transparency



CCCTB WG Work Programme

Tentative Work programmeGeneral Tax Principles

General economic and tax accounting principlesTraditional Structural Elements of the Tax Base

Depreciation, provisions/reserves, definition of income, etc.

Additional Elements of a Common Consolidated Tax Base Consolidation method Allocation mechanism Anti-avoidance rules

Application of the Common Consolidated Tax Base



IAS/IFRS - BackgroundIAS/IFRS - Background

IAS Regulation: compulsory for consolidated accounts of some 7,000 groups in EU

Limited availability for individual companies across EU

But - Individual companies are the basic taxable entity



IAS/IFRS – Interaction with CCCTBIAS/IFRS – Interaction with CCCTB

Consultation confirmed that accounting consolidation (IAS 27) not appropriate for taxation

Certain accounting principles differ from taxation eg Fair Value, materiality, and purpose of ‘IFRS’ accounts

Accounting & Tax Dependancy



Use of IAS/IFRSUse of IAS/IFRS

Tool for designing the tax baseCommon definitions and

understanding across the EUAccounting and Tax Dependancy –

links must weaken with one common tax base, but up to 25 different sets of accounting standards in individual accounts



Examples (i)Examples (i)

Tax Principles – The FrameworkTax Principles – The Framework

Tax Depreciation – IAS 16 (Property, Plant and Tax Depreciation – IAS 16 (Property, Plant and Equipment), IAS 38 (Intangible Assets), IAS (Leases)Equipment), IAS 38 (Intangible Assets), IAS (Leases)

Reserves and Provisions – IAS 37 (Provisions, Reserves and Provisions – IAS 37 (Provisions, Contingent Liabilities and Contingent Assets)Contingent Liabilities and Contingent Assets)

Taxable Income – IAS 18 (Revenue), IAS 11 Taxable Income – IAS 18 (Revenue), IAS 11 (Construction Contracts)(Construction Contracts)

Foreign Income – Territorial Scope etc OECD Model Foreign Income – Territorial Scope etc OECD Model Treaty and GuidelinesTreaty and Guidelines



Examples (ii)Examples (ii)

Consolidation – not IAS 27 (Consolidated Consolidation – not IAS 27 (Consolidated Financial Statements and Accounting for Financial Statements and Accounting for investments in subsidiaries) investments in subsidiaries)

Sharing mechanism – IAS 14 (Segment Sharing mechanism – IAS 14 (Segment Reporting)?Reporting)?

Financial Assets and Institutions – IAS 32 Financial Assets and Institutions – IAS 32 (Financial Instruments: Disclosure and (Financial Instruments: Disclosure and Presentation), IAS 39 (Financial Instruments: Presentation), IAS 39 (Financial Instruments: Recognition and Measurement)Recognition and Measurement)



ConclusionsConclusions

IFRS a possible starting point for a IFRS a possible starting point for a Common EU Tax Base?Common EU Tax Base?

Yes – but as a tool to assist in the work, no Yes – but as a tool to assist in the work, no formal links, mainly because IFRS changing formal links, mainly because IFRS changing constantly, outside Member State control, constantly, outside Member State control, contain some inappropriate principles and not contain some inappropriate principles and not used by all companies across the EU anyway used by all companies across the EU anyway

http://europa.eu.int/comm/taxation_customs/http://europa.eu.int/comm/taxation_customs/taxation/company_tax/common_tax_base/taxation/company_tax/common_tax_base/index_en.htmindex_en.htm

Documents

DG Taxation and Customs Union Slide: 1 European Commission - DG Taxation and Customs Union Advanced Program in Accounting & Auditing Regulation – Module