Treaty Application for Companies in a Group (FM nr. 178) 2022/2.4.3.5:2.4.3.5 Draft CCCTB Directive

Treaty Application for Companies in a Group (FM nr. 178) 2022/2.4.3.5

2.4.3.5 Draft CCCTB Directive

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The proposal for the CCCTB1 aims to provide a single set of corporate tax rules allowing companies to operate across the internal market. In doing so, the EC aims both to facilitate business and to tackle tax avoidance. In the CCCTB Directive, entities belonging to a group are treated as a single taxpayer within the EU. It is proposed to allocate the consolidated tax base of a group to the various countries on the basis of a formula.

To fall within the scope of the Directive, a company must be incorporated under the law of a Member State. This company must have one of the corporate forms listed in the annex to the draft Directive. This list bears a great deal of resemblance to the list used for the PSD. There is therefore a broad scope of application of the draft Directive. Furthermore, the company must be subject to one of the corporate taxes listed in the annex. It is proposed that the CCCTB Directive should only be compulsory for groups with a consolidated turnover of more than EUR 750 million.2 This exempts micro-enterprises and small and medium-sized enterprises from mandatory application of the CCCTB Directive. Finally, there must be a parent company and a qualifying subsidiary. The parent company is seen as the principal taxpayer and is basically the EU based resident taxpayer that forms a group with its qualifying subsidiaries.3 A qualifying subsidiary is defined as:4

‘A qualifying subsidiary means every immediate and lower-tier subsidiary in which the parent company holds the following rights:

(a) it has a right to exercise more than 50 % of the voting rights;

(b) it has an ownership right amounting to more than 75 % of the subsidiary’s capital or it owns more than 75 % of the rights giving entitlement to profit.’

To determine whether there is control in the case of lower-tier subsidiaries, once the 50% voting-right threshold is met, the calculation is based on a situation in which 100% of the voting rights are held. To determine the profit entitlement of lower-tier subsidiaries, the direct and indirect interests held in the subsidiaries at each level must be multiplied by the profit entitlement.5

Then the group concept is defined as follows:6

‘A resident taxpayer shall form a group with:

(a) all its permanent establishments that are situated in a Member State;

(b) all permanent establishments that are situated in a Member State and belong to its qualifying subsidiaries that are resident in a third country for tax purposes;

(c) all its qualifying subsidiaries that are resident in a Member State for tax purposes, including the permanent establishments of those subsidiaries where such permanent establishments are situated in a Member State;

(d) other resident taxpayers, including their permanent establishments that are situated in a Member State, where all those resident taxpayers are qualifying subsidiaries of a non-taxpayer who is resident in a third country for tax purposes, has a similar form to one of the company forms in Annex I and meets the condition of point (c) of Article 2(1).’

The group concept takes the taxpayer as its starting point and then looks at the permanent establishments and the subsidiaries. Permanent establishments and subsidiaries that fall within the scope of the provision cannot be intentionally excluded from the group. Therefore, there is compulsory group formation.7

Through the double test (control and ownership), the EC seeks to ensure that there is a high level of economic integration between group entities. This can, however, not be ensured, as it is not tested whether there is indeed economic integration. Therefore, economic reality is not reflected.

The aforementioned thresholds must be met without interruption throughout the tax year.8 Once a taxpayer no longer meets the thresholds, the taxpayer immediately ceases to be a group member. This should ensure the integrity of the system. In addition, there is a minimum requirement of nine consecutive months for determining whether a company is a group member.9 The aim is to prevent manipulation of tax outcomes through entering and leaving a group within a short period of time.10 If the said thresholds are not met for at least nine consecutive months, a taxpayer is treated as if it had never been a group member.

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