One consultation concerns the possibility of using International
Accounting Standards (IAS) as a starting point to develop an
EU-wide consolidated tax base for companies. The other involves a
"Home State Taxation" pilot project for SMEs to allow an SME to
account for its EU-wide profits in one tax declaration which it
would submit to the Member State where its main seat is
located.
"These consultations aim to examine ways to tackle the tax
obstacles hindering companies from benefiting fully from the
Internal Market" said Taxation Commissioner Frits Bolkestein. "The
development of a common consolidated tax base for the EU-wide
activities of companies is in our view the only really effective
means of tackling these obstacles. We would greatly welcome the
views of stakeholders on these possible first steps towards
achieving that goal".
IAS as a possible starting point for a common EU tax
base
The Commission's services have prepared a consultation document
which sets out in detail the various arguments and technical issues
related to using the IAS as a starting point for an EU-wide tax
base for multinational companies.
All listed companies, including banks and insurance companies,
will be required to prepare their consolidated accounts in
accordance with the IAS from 2005 onwards. The challenge is to plan
how this development can be exploited for taxation purposes.
Issues raised in the consultation document include whether the
IAS are too investor orientated for use as a source for determining
the tax base; whether the IAS principles of materiality, fair value
and "substance over form" conflict with taxation principles; and to
what extent the existing Community endorsement procedure for IAS
could be developed, or modified to provide a model, for taxation
purposes. Comments are invited by 4th April 2003.
"Home State Taxation" pilot project for
SMEs
The concept of "Home State Taxation" involves allowing
businesses to opt to compute their consolidated tax base at EU
level according to the rules of the Member State where their
headquarters are based.
The paper on the basis of which the Commission services have
launched the present consultation floats the idea of a pilot scheme
allowing SMEs to benefit from such a system and discusses in detail
the relevant technical points and alternative possibilities.
The suggestion is that SMEs as a group would particularly
benefit from a home state taxation system because of the specific
tax problems they encounter when engaging in cross-border and
international activities.
For instance, tax compliance costs in an international context
seem to be regressive in relation to the size of the company and
are often, therefore, disproportionately high for SMEs. The
administrative tax formalities and book-keeping requirements are
relatively harder to sustain for SMEs than for larger
enterprises.
Furthermore, the absence of rules in many Member States allowing
the offsetting of cross-border losses hit SMEs particularly hard,
especially as regards start-up losses that almost by definition
occur in the first years of an international investment.
Comments are invited by 31st March.
Follow-up
The Commission will use the results as input into a report on
progress on its company tax reforms which it intends to present in
October 2003.
