Business opportunities exploiting proposed EU tax base, CCCTB

Patslatt1

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Nov 18, 2009
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The EU Commission has revived a modified version of its CCCTB that was rejected by the EU a few years ago. The key proposal is for an economically crude allocation of country taxable profits based on assets, sales and employment. The problem with this is that it ignores the role in creating profits of good management, efficiencies of operations, R&D, country infrastructure etc., with the result that profits would be allocated inefficiently and contrary to sound accountancy practices and principles. Country tax systems would be incentivised to maintain or increase assets and employment just to attract taxable profits, distorting market forces.

If CCCTB is adopted, it would present opportunities for exploiting the new tax advantages and tax loopholes that would be created. Obviously, to shift profit allocations to countries with low tax rates,corporate assets and employment should be redeployed to those countries to the extent possible. Ireland and eastern Europe's low tax rates would benefit from that.

Companies with high margin intellectual property earnings would proably have to devise new tax avoidance methods. In the case of a high margin prescription drug, most of the profit attributable to the R&D might be taxed in countries where the drug is sold, not in the country where the R&D took place. To prevent that, the drug could be sold to a wholesale distributor in the latter country where profit on most of the value added would be taxed. As a result, the distributor's profit from distributing the drug would be a lot less under the CCCTB rules. It is possible that to control marketing, the drug company might set up a separate marketing subsidiary.
 


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