IAS as Starting Point
'Home State Taxation' Project
The European Commission recently concluded two consultations in relation to company taxation in the European Union.
The consultations are intended to further the commission's aim of achieving a real internal market without national corporate obstacles. In this respect the commission believes that EU companies should be allowed a consolidated corporate base for their EU activities, so as to avoid the costly inefficiencies of 15 separate sets of domestic tax rules. According to the commission, EU companies should use one single consolidated base for computing tax on their EU-wide profits.
The first consultation relates to the use of International Accounting Standards (IAS) as a possible starting point for a common EU tax base. The second consultation relates to the 'Home State Taxation' pilot project for small and medium-sized enterprises (SMEs).
From 2005 onwards all listed companies, as well as banks and insurance companies, will have to prepare their consolidated accounts in accordance with IAS (see the IAS Regulation, IP/02/827).
The consultation prepared by the commission aims to explore how this development can be exploited for taxation purposes. The consultation sets out several technical issues and arguments, such as (i) whether IAS are too investor-oriented for use as a source for determining the tax base, and (ii) whether the IAS principles of materiality, fair value and 'substance over form' are in conflict with taxation principles.
Comments were invited until April 4 2003.
The second consultation proposes that SMEs may opt to calculate their taxable profits for all EU transactions according to the rules of the member state in which their registered office is located.
According to the commission, the home state taxation system would be of particular benefit to SMEs, due to the specific tax problems they encounter in relation to cross-border activities. For example, tax compliance costs are excessively burdensome for companies of this size, and the tax formalities and book-keeping requirements are also more difficult for SMEs to fulfil.
Comments were invited until March 31 2003.
The findings will be made available on the European Commission's website. These will form the basis of a report which the commission will present in October 2003 on the reform of company taxation. The report may constitute an alternative to tax harmonization in the European Union.
For further information on this topic please contact Sylvie Leyder at Afschrift by telephone (+32 2 646 46 36) or by fax (+32 2 644 38 00) or by email ([email protected]).