Mandatory Common Corporate Tax Base (‘CCTB’ ) and the Consolidated Common Corporate Tax Base (‘CCCTB’)

26 oktober 2016

The European Commission (‘EC’) relaunched the CCTB and the CCCTB on 25 October 2016 together with a proposal to amend the Anti-Tax Avoidance Directive (‘ATAD’) regarding mismatches involving third countries and a Directive on dispute resolution.

In a nutshell, this proposal aims to facilitate business within the EU by subjecting taxpayers to one single rulebook of corporate tax legislation to apply across the internal market and also make the system more robust end resilient to aggressive tax planning. The proposals are tax related proposals, which means that these proposals can only be approved if the ECOFIN Council (consisting of Ministers of Finance from 28 Member States) reaches unanimity.

The original CCCTB proposal from March 2011 have been withdrawn by the Commission at the same time as the EC adopts the new proposals for a CCTB and a CCCTB. The two-staged CCCTB proposal will have a significant impact on European operations if adopted.

According to the EC, the discussions since March 2011 have shown that the CCCTB proposal is unlikely to be adopted by the EU Member States without a staged approach. The EC suggests that first agreement must be secured on a CCTB and until that time the CCCTB will remain pending.


The CCTB proposal is the first step in a 2-stage approach towards a EU wide corporate tax system and lays down common corporate tax rules. The proposal sets mandatory rules for calculating the corporate tax base and agrees on certain anti-tax avoidance measures. The effective date is set on January 1st, 2020. Some of the measures were already unanimously agreed in the ATAD (i.e.: interest limitation rules, CFC).

If adopted, the CCTB will be mandatory for EU tax-resident companies, including permanent establishments (‘PEs’) of non-EU companies, belonging to a consolidated group for financial accounting purposes whose total consolidated group revenue exceeds EUR 750.000.000. Once a company is obliged to apply the CCTB Directive, it will cease to be subject to the national corporate income tax system for all items covered under the CCTB Directive, except where specifically stated. Member States can opt to continue to have their own tax rate. At this stage, we just highlight some topics in the proposal, and will not give an comprehensive description of the rules, as they probably change before they will be adopted by the Member States. The proposal includes:

  • A tax base calculation, including a yearly super-reduction for R&D expenses (50% for R&D expenditure up to EUR 20.000.000 and if the costs reach beyond this amount, the taxpayer may deduct 25% of the exceeding amount. Further, even 100% is deductible if a company qualifies as a start-up[1]) and a definition for depreciation rules of a PE between Member States;[2]
  • Allowance for Growth and Investment (‘AGI’), which in brief is a deemed deduction on equity (however, against the not so favorable percentages we have nowadays);
  • Participation exemption for shareholdings of 10 % and more and the shares should be held for at least 12 months;
  • Loss carryforward rules and a temporary loss relief with recapture;
  • ATAD measures: The General Anti-Abusive Rule (‘GAAR’) is drafted in line with the ATAD and is supplemented by measures designed to curb specific types of tax avoidance. Also Controlled Foreign Company (‘CFC’) rules are drafted in line with the ATAD. CFC legislation has the effect of re-attributing the income of a low-taxed controlled subsidiary to its parent company in an effort to discourage profit shifting. Further, there is a new interest limitation provision introduced in line with the ATAD. Under this provision, interest and other financial costs are explicitly deductible to the extent that they can be offset against taxable interest and other financial revenues. Any surplus will be deductible up to a maximum of 30% of the taxpayer’s earnings before interest, tax, depreciation and amortization (EBITDA). It escapes us to comprehend why the CCTB proposal does not contain an option for Member States to apply a worldwide ‘group escape’ measure, as was part of the ATAD. Finally, an exit taxation provision is drafted similar to the one in the ATAD. However, a tax deferral mechanism for transfers within the EU/EEA is not included (it was under the ATAD) Hence, the ATAD proposals would appear to overrule the GAAR proposals. We consider it questionable if this would be accepted accordingly; and
  • Hybrid mismatches. Under the CCTB, hybrid mismatches should in principle no longer arise. However, this would not necessarily be the case as regards the interaction between the CCTB and national Member State or third country tax systems. The new proposal therefore sets out comprehensive rules for hybrid mismatches.


The second step in the proposals is the CCCTB. The effective date for the CCCTB will be January 1st, 2022, but as mentioned in the introduction will remain pending until the CCTB is adopted.

The proposal includes:

  • Mandatory approach for EU entities and EU PEs part of the consolidated group. The available threshold will refer to a total consolidated revenue of the group of EUR 750.000.000. There is also an optional regime for groups falling below the EUR 750.000.000 threshold;
  • The formulary apportionment, which is a mechanism to allocate the tax base to Member States is further developed under the proposal. In brief, it will have tree equally weighted factors, labour, assets and sales by destination. The labour factor will be divided into payroll and the number of employees. We do emphasize that this is definitely not in line with actions 8-10 of the BEPS action plans where taxation should take place there where the value is created, as opposed to this newly developed allocation key. The asset factor consists of all fixed tangible assets, as intangibles and financial assets are mobile and there is a risk of circumventing the system. The proposal continues that the three factors should ensure that profits are taxed where they are earned. However, there is a safeguard provision available in case the outcome does not fairly represent the extent of business activity. There are also rules applicable to address specificities of certain industries (i.e.: Oil and Gas, Shipping, Insurance and Financial services). As we indicated hereabove, we believe that this proposal requires very serious efforts and does not appear to get adopted accordingly; and
  • The aspect of tax consolidation across the EU. A company can be part of a consolidated tax group if they own more than 50% of the voting rights (control requirement) and more than 75% of the equity or rights giving entitlement to profits (ownership requirement). Both requirements should be met throughout the year, otherwise the company should immediately leave the consolidated group.


The ATAD proposed rules that follow the corresponding provisions in the CCTB proposal and are in line with the ATAD provisions. For hybrid PEs, whereby a payment is not recognized as income in the state of residence or the state were the PE is located, the mismatch is resolved by requiring the state of residence to tax the receipt of ‘interest’.

The new hybrid provisions also are applicable if mismatches arise in third countries, so not only in the EU situations. They also deal with mismatches involving permanent establishments, imported mismatches, hybrid transfers and dual resident mismatches. The general principle to resolve mismatches in relation to third countries is to the Member State to align its tax treatment with the treatment in the third country unless the mismatch is already eliminated by that third country.

Finally, the proposal includes a mandatory dispute resolution system procedure for double taxation disputes including arbitration with stricter deadlines.

It is BANNINGs view is that a lot has to be done on the technical and explanatory side of the proposals, before the 28 Member States will reach an unanimous agreement. (For the Netherlands in particular, the Participation Exemption proposed in the CCTB (10% and a 12 months holding period) is much narrower than our national participation exemption (5% and no minimal holding period)). The CCCTB seems most unlikely given the significant impact on Member States autonomy. CCTB in some shape or form could be conceivable and the updated ATAD implementation is likely. However, it is impossible to say something about the final outcome of the proposals at this stage.

If you have any further questions based on the above, please do not hesitate to contact John Linders or Elise Houtgraaf of our Dutch desk in NYC for further information.

Hans van den Hurk

John Linders

Elise Houtgraaf


[1] The following conditions should all be met in order to qualify as a start-up under the proposal: An unlisted enterprise with less than 50 employees and an annual turnover/ balance sheet that does not exceed EUR 10.000.000; no registration for longer than five years or established, started to be liable to tax longer than 5 years ago; not formed by a merger and it does not have any associated enterprises.

[2] We believe that it is unlikely that these rules will be adopted as proposed, as R&D is increasingly important for small and mid-size companies that would, under these rules be discriminated.