Paul Farmer, the former Head of DG Taxud’s Tax Policy Unit, gives his personal take on the news.
In a speech to the International Fiscal Association’s Annual Congress this week Commissioner Kovacs announced the delay of the common consolidated corporate tax base (CCCTB) proposal. The proposal had been due in September of this year. He stated that he would rather present a “perfectly elaborated and well justified product at the appropriate time than present an incomplete one just to meet an artificial deadline”. At the same time he confirmed that he remained fully committed to the project and would present it to the Commission once the impact assessment and the proposal were properly ready.
While Kovacs attributed the delay to the need for further technical work, there is clearly a political dimension to the delay. The writing has been on the wall since the “No” vote in the Irish referendum on the Lisbon Treaty. The CCCTB is a major issue for Ireland, and it is unlikely that the President of the Commission, Jose Manuel Barroso, will want the proposal to be presented before the Irish problem is resolved. Given the absence of any clear strategy on this, it is now unclear when the proposal will see the light of day.
In the meantime DG Taxud will doubtless continue to work on the proposal and may welcome the additional time which they now have. The technical issues entailed by the proposal are hugely challenging, particularly given the intention to propose a cross-border consolidated base and to include all areas of business, including financial institutions, in the initial proposal. The Commission services may be expected to use the additional time to engage in a detailed consultation process.
The politics of the CCCTB are complex and evolving. The reports one sees about those in favour and those against tend to be unduly simplistic. This is unquestionably a major blow for the advocates of the proposal. However, it is premature to write the proposal off. Indeed it is dangerous to write off any Commission initiative, as for example those lobbying on Savings Taxation Directive found out to their cost a few years ago. Here the bulk of the work has been done, and the political climate in Brussels can change rapidly and unexpectedly.
Late Payment of Interest – Admission of Breach?
Revenue & Customs Brief 33/08 (28 July 08) announced a consultation on changes to the corporate tax rules on late payment of interest between connected companies. The previous interpretation of HMRC of para 2(1A) Sch 9 FA 96 was that interest paid in excess of 12 months after the end of the accounting period in which it would be treated as accruing is accounted for on a cash basis if paid to a non UK resident but remains on an accruals basis if paid to a UK resident.
HMRC seem to acknowledge that that interpretation of the rules may be considered contrary to the EC freedoms in light of recent ECJ case law and for that reason they seek to amend the law in order to put the point beyond doubt. The consultation is ongoing and until there is any amendment or new legislation, HMRC have said that they will not apply paragraph 2(1A) Sch 9 FA 96 to corporate tax return computations submitted on or after the date of Revenue & Customs Brief 33/08 or to any other accounting periods ending before the law is amended, in cases where the creditor company is not resident in the UK. HMRC have also said that, in such cases where enquiries into returns are currently open, the application of paragraph 2(1A) will not be pursued.
The effect of this would seem to be that where you fit within the rules for connected companies and your years are open you may now account for late paid interest either on an accruals or a cash basis.
This seeming admission gives opportunities to claimants where:
(1) interest was paid late because of difficulties in obtaining treaty clearance or by reason of negotiations with HMRC;
(2) a portion of interest was not paid at all because it would have been disallowed;
(3) debt was converted to equity to meet thin cap requirements by changing interest bearing loans to interest free.
C-418/07 Société Papillon (AG Opinion 4 Sept 08) Cross Border Relief for Losses in a Fiscal Integration
The French fiscal integration provisions give French groups of companies the right to an election which allows the ultimate parent to take into account all of the profits and losses of the group companies and thus become the only corporation tax paying entity in the group. The Claimant, Société Papillon (“Papillon”), made an election but its group structure meant that some French sub-subsidiaries were held through a Dutch subsidiary. The French rules required all companies in the chain to be French taxpayers and for that reason the election was rejected.
On reference to the ECJ the Advocate General has proposed that the Court should hold that the restriction inhibits the freedom of establishment.
The Advocate General recognised that the aim of avoiding double- counting of losses can, in principle, justify a restriction to the freedom of establishment. However, such a restriction would need to be proportionate and the Advocate General had considerable doubt that the total unavailability of the fiscal integration election was the least restrictive means of achieving that aim. She left it to the national Court to decide whether this aim could be achieved by other, less restrictive means.