Europe's priority today is to promote sustainable growth and investment within a fairer and deeper Single Market. Europe needs a framework for fair and efficient taxation of corporate profits, in order to distribute the tax burden equitably, to promote sustainable growth and investment, to diversify funding sources of the European economy, and to strengthen the competitiveness of Europe's economy.
Corporate taxation is an essential element of a fair and efficient tax system. It is an important source of revenue for Member States and an important factor in influencing companies' business decisions, for example on investments and research & development activities.
The current rules for corporate taxation no longer fit the modern context. Corporate income is taxed at national level, but the economic environment has become more globalised, mobile and digital. Business models and corporate structures have become more complex, making it easier to shift profits. This has made it more difficult to determine which country is supposed to tax a multinational company's income.
Certain companies are exploiting this situation to artificially shift profits to the lowest tax jurisdictions and minimise their overall tax contribution. The fact that certain profitable multinationals appear to pay very little tax in relation to their income, while many citizens are heavily impacted by fiscal adjustment efforts, has caused public discontent. This perceived lack of fairness threatens the social contract between governments and their citizens, and may even impact overall tax compliance. There is an urgent need to challenge such corporate tax abuse and to review corporate tax rules in order to better tackle aggressive tax planning.
At the same time, other companies are still subject to double taxation of their income by more than one Member State. Complex and intransparent tax rules are inefficient. They put smaller businesses, which are the backbone of Europe's economy, at a disadvantage. They create uncertainties when businesses need legal clarity to invest. Increasing the already high tax burden on labour hampers growth. Tax systems which favour debt over equity financing discourage firms from building a strong equity base and tapping capital markets.
The current lack of coordination in corporate taxation between Member States creates obstacles for companies acting in the Single Market, as they are confronted with 28 different tax bases of corporate taxation, creating heavy compliance costs and administrative burdens which are detrimental to European competitiveness. It also allows companies to exploit mismatches. Intense competition for mobile tax bases has created new opportunities for aggressive tax planners, while other companies are still facing double taxation.
On 18 March, the Commission proposed a package of measures to create more transparency in corporate taxation in the EU. This Communication sets out a more comprehensive European approach to corporate taxation.
