European tax

The European Commission has launched open consultations on European Union company taxation. More information, including consultation documents setting out options and the various technical considerations involved in the two proposals, is available on the Europa website at: http://europa.eu.int/comm/taxation_customs/taxation/consultations_en.htm.

One consultation document sets out in detail the various issues related to using international accounting standards as a starting point for an European Union-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 these standards from 2005 onwards. The challenge is to plan how this can be exploited for taxation purposes. For instance, are the standards too investor orientated for use as a source for determining the tax base? Do the principles of materiality, fair value and 'substance over form' conflict with taxation principles? To what extent could the existing Community endorsement procedure for the standards be developed, or modified to provide a model, for taxation purposes? Comments are invited by 4 April 2003.

The other consultation document relates to a home state taxation pilot project for small and medium-sized enterprises. The concept of home state taxation involves allowing businesses to opt to compute their consolidated tax base at European Union level according to the rules of the Member State where their headquarters are based. The document floats the idea of a pilot scheme allowing small and medium-sized enterprises to test such a system and discusses the relevant technical points and alternative possibilities. The suggestion is that small and medium-sized enterprises 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. The administrative tax formalities and book-keeping requirements are relatively harder to sustain for small and medium-sized enterprises than for larger enterprises. Furthermore, the absence of rules in many Member States allowing the offsetting of cross-border losses hit small and medium-sized enterprises 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 31 March.




 

Issue: 3898 / Categories: News , Companies