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

Advanced Program in Accounting & Auditing Regulation – Module 22 April 11 2006. IFRS as a possible starting point for a Common EU Tax Base Tom NEALE Principal Administrator Directorate General for Taxation and Customs Union. Introduction. The Common Consolidated Corporate Tax Base (CCCTB)

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

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  1. Advanced Program in Accounting & Auditing Regulation – Module 22 April 11 2006 IFRS as a possible starting point for a Common EU Tax Base Tom NEALE Principal Administrator Directorate General for Taxation and Customs Union

  2. Introduction The Common Consolidated Corporate Tax Base (CCCTB) • Background • Work to date IFRS/IAS • Background • Interaction with CCCTB

  3. CCCTB – What is it? • Common – same tax base in each Member State (MS) • Consolidated – tax bases of all group companies combined, eliminating intra-group transactions, and then ‘shared out’ • Corporate – for companies • Tax Base -concerns Base, not Rate

  4. CCCTB - Background • Company Tax Communication & Company Tax Study (October 2001) • Lack of loss relief an obstacle • Compliance Costs • Transfer Pricing complexities • Twin track strategy for removal of obstacles - Targeted, short term – eg Directive updates and - • Comprehensive, longer term – CCCTB

  5. CCCTB - Background • 2003 – Public Consultation ‘The application of IAS in 2005 and the implications for the introduction of a consolidated tax base for companies’ EU-wide activities’ • 2003 – CCCTB confirmed in follow up Communication as preferred long term option • 2004 – ECOFIN (informal) : support for CCCTB Working Group • Nov 2004 – CCCTB Working Group established • Oct 2005 – Lisbon Communication: Tax contribution to achieving Lisbon objectives – CCCTB proposal in 2008 • April 2005 – Progress to date & next steps (COM(2006)157)

  6. CCCTB Working Group (CCCTB WG) • 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

  7. Transparency

  8. CCCTB WG Work Programme • Tentative Work programme • General Tax Principles • General economic and tax accounting principles • Traditional 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

  9. IAS/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

  10. IAS/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

  11. Use of IAS/IFRS • Tool for designing the tax base • Common definitions and understanding across the EU • Accounting and Tax Dependancy – links must weaken with one common tax base, but up to 25 different sets of accounting standards in individual accounts

  12. Examples (i) • Tax Principles – The Framework • Tax Depreciation – IAS 16 (Property, Plant and Equipment), IAS 38 (Intangible Assets), IAS (Leases) • Reserves and Provisions – IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) • Taxable Income – IAS 18 (Revenue), IAS 11 (Construction Contracts) • Foreign Income – Territorial Scope etc OECD Model Treaty and Guidelines

  13. Examples (ii) • Consolidation – not IAS 27 (Consolidated Financial Statements and Accounting for investments in subsidiaries) • Sharing mechanism – IAS 14 (Segment Reporting)? • Financial Assets and Institutions – IAS 32 (Financial Instruments: Disclosure and Presentation), IAS 39 (Financial Instruments: Recognition and Measurement)

  14. Conclusions • IFRS a possible starting point for a Common EU Tax Base? • Yes – but as a tool to assist in the work, no formal links, mainly because IFRS changing constantly, outside Member State control, contain some inappropriate principles and not used by all companies across the EU anyway • http://europa.eu.int/comm/taxation_customs/taxation/company_tax/common_tax_base/index_en.htm

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