Mr. Bert Zuijdendorp:

I thank the committee. It is a pleasure to be here today. On 25 October 2016, the Commission proposed a package of legislative proposals which included two proposals for a relaunched common consolidated corporate tax base, CCCTB, that is, a proposal on the common tax base and a proposal on consolidation, alongside a dispute resolution mechanism for double taxation and an amendment to the anti-tax avoidance directive, to address hybrid mismatches. Today, I will focus mainly on the CCCTB proposals, which are the centrepiece of the package.

For the European Commission, the CCCTB is the epitome of what we perceive as a corporate tax system for the future. The relaunched CCCTB initiative reflects an effort to bring together the policy priorities for business facilitation and the need for fairer taxation in a globally integrated economy that operates within open markets. The Commission first proposed the CCCTB in 2011 with a view to enhancing the Internal Market for businesses. However, the magnitude of the project led Council negotiations to stall. In the meantime, the idea of a CCCTB continued receiving support from the European Parliament, businesses and stakeholders around Europe. In its 2015 action plan on corporate taxation, the Commission announced its intention to relaunch the CCCTB. The relaunch of the CCCTB initiative is structured as a staged approach which will consist of two steps. Member states will first need to build and capitalise on the extensive technical work that has already been accomplished on the rules for the tax base and, only when this framework is secured, touch upon the more complex aspect of consolidation. It is important to bear in mind that for the European Commission, the CCCTB project remains a single one and that the two steps are inextricably linked. I should also clarify from the outset that the CCCTB stays away from the issue of tax rates. The context of the proposal does not reach further than the calculation of the tax base. The common rules do not interfere with the determination of the tax liability and national budgetary priorities of member states.

The most notable change in the re-launched CCCTB is that it will be mandatory for all EU companies in financial accounting groups with consolidated group revenues of more than €750 million. Non-qualifying companies - those below €750 million - may still opt for the rules of the common base or CCCTB, as the case may be, subject to certain conditions. They will have to meet the conditions to be within the scope of the directives. The mandatory scope primarily serves the objective of fairer taxation. It aligns the CCCTB with the policy priority for clamping down on the opportunities for tax avoidance but only targets those who possess the resources to engage in such practices. This is why it is limited to larger multinational groups with a consolidated revenue exceeding €750 million. As already mentioned by our colleagues just now, these are the same companies which are subject to the country-by-country reporting between tax administrations, a proposal which was agreed by the Council earlier this year.

I will not go into too much detail on the CCCTB. I would, however, like to give an overview of how this system works, especially for those who are not familiar with it. I will then briefly present some of the specific new elements introduced by the relaunch. The first step in applying the CCCTB is the calculation of the individual tax bases. For the companies that form part of the CCCTB group, tax bases will be calculated according to a common set of rules, which will be provided for in the directives. The next step is that all results are added up by the principal tax authority to create a consolidated tax base for the group in the EU. This means that loss-making results of one company of one member state are automatically set off against the taxable profits of others in the same group. The tax return will be filed in one member state. This is the so-called one-stop shop. The advantage of a common base is there will be no transfer pricing formalities within the group. The principal authority will apply the apportionment formula to distribute the consolidated tax base across the group. Taxable revenues are allocated to each company of the group based on the weight of the three factors. They are assets, labour and sales by destination, which each account for one third of the formula. As already mentioned, member states are and remain free to set tax rates on their taxable shares individually.

There are a number of important new elements in the proposals. One concerns research and development. The treatment of research and development has always been rather generous under the CCCTB. The proposal of 2011 provided for full deductibility of research and development costs in the year in which they were incurred. There is therefore no capitalisation and depreciation of research and development over a number of years. This basic regime has been retained under the relaunched proposals with the exception of immovable property. We included it in the initial 2011 proposal but one of the results of the discussions with member states was that it was better to leave this element of the immediate deduction out of the treatment of research and development. In addition, the relaunched rules on the common tax base provide for a so-called super-deduction whereby research and development costs up to the first €20 million receive an extra deduction of 50%. In total, there will be a deduction of 150% of the costs. For amounts above €20 million, the extra deduction is 25%. In that case, the deduction will be 125% in total.

Innovative startups are entitled to an enhanced super-deduction which allows them to deduct up to 200% of their research and development costs for amounts up to €20 million. We went for a rule that supports innovation and the actual research and development activity itself. This is contrary to intellectual property, IP, boxes, where one looks at the income coming from an already developed asset. Our rule promotes the employment and the fact that research is being undertaken. Given that most of research and development costs involve payroll, our rule should be expected to bring forth considerable benefits in terms of jobs and growth. By giving larger-scale deductions for costs up to €20 million, the research and development incentive will give a boost to smaller companies with limited research and development budgets to allow them to grow. It will therefore encourage the creation and expansion of young, innovative enterprises.

The second new element in the CCCTB proposals is the allowance for growth and investment, AGI. This is an adjustment mechanism for neutralising the debt bias in current tax systems. It will put debt financing and equity financing on an equal footing. The rule is entirely in line with the objectives of the capital markets union and is aimed to discourage excessive indebtedness and so bring greater stability to companies and therefore also to the union. The AGI will reward companies that strengthen their financing structures by boosting their equity base. In particular, small and medium-sized enterprises that often struggle to secure loans should be expected to reap the benefits from this rule. The AGI framework is designed in such a way as to prevent cascading effects in the deductibility of what is commonly referred to as notional interest.

We have taken measures to ensure the system cannot be abused, for example, by excluding participations. Where there is a parent company with a subsidiary, we have made sure the parent company cannot claim the notional interest deduction for the capital of the subsidiary because that is capital from which a deduction should be claimed at the level of the subsidiary.

A final element is a temporary cross-border loss relief with recapture mechanisms. This is a cash flow facility to make up for the absence of cross-border consolidation at the first stage. The repercussions of this facility are, however, contained by a series of anti-tax abuse measures. For example, there will be automatic recapture of relief after five years if the subsidiary has not returned to profit in the meantime.

The CCCTB, common consolidated corporate tax base, can offer many benefits to Irish businesses, particularly in terms of tax certainty and simplicity for Irish-based multinationals which operate in other member states. These benefits, combined with Ireland's 12.5% rate, would enhance Ireland's competitiveness, not reduce it. Foreign investors and cross-border businesses are keen to have the CCCTB in place. They are among our strongest supporters. Ireland's primary concern is with consolidation. The two-step approach means that once the common base is secured, we can give full focus to finding an approach to consolidation that all member states can accept. In any case, with unanimity, Ireland can feel secure that its views will be taken on board before the final CCCTB is agreed. It would send an important signal in the EU and internationally if Ireland were to constructively engage on this file.