The results, says the Commission, highlight the need for a single basis of assessment for corporation tax and a one-stop-VAT-shop within Europe.
At present, businesses that take part in cross-border trade within the EU face a complex and daunting process, requiring them to pay VAT in the Member State where consumption of the goods they supply takes place, and to comply with the company tax rules of those Member States in which they have subsidiaries.
The result is that cross-border traders have an extra compliance burden – which may be very difficult to meet when the trader is not fully acquainted with the language and legislation of the other Member States involved. According to the Commission, this is a major obstacle to the smooth functioning of the Internal Market.
The Commission is therefore taking steps to simplify and modernise the existing system, focusing in particular on ways in which companies could use a single EU-wide tax base for their cross-border business. It has put forward suggestions in respect of both corporation tax and VAT, both of which propose that businesses use the tax rules of their home states for calculating their tax liabilities.
The Commission has now published the results of a survey into the compliance costs of EU companies with regards to tax that, according to the Commission, confirms that companies should be allowed to use a single basis of assessment for corporate tax for all their EU-wide activities.
The survey also underlines the need for a one-stop shop system whereby a trader could fulfil his VAT obligations for his EU-wide activities solely in the Member State in which he is established. The Commission launched a consultation on the concept of a VAT one-stop-shop in May, and is due to make a proposal on the idea by the end of the year.
The survey, which was launched in September 2003 and in which 700 EU companies from 14 Member States participated, found that:
- a parent company with subsidiaries in other EU Member States appears to have significantly (about 5 times) higher compliance costs than companies without subsidiaries.
annual compliance costs are about €202,000 for the average SME compared with €1,470,000 for a large company, corresponding to an estimated cost-sales ratio of 2.6% for SMEs compared to 0.02% for large companies.
the principal company tax compliance problems relate to transfer pricing, with an estimated 81.9% of companies indicating difficulties linked to documentation requirements.
- the top VAT compliance problem is difficulties in coping with the procedures relating to the repayment and refund of VAT expenditures in other Member States, in particular for companies registered in a Member State where they do not have a permanent establishment. An estimated 53.5% of large companies have not requested refunds to which they were entitled at some point due to these problems.
- taxation is a factor for investment location decisions and affects company structure decisions.
