EU business wants single, pan-European tax system, says KPMG International study

* Majority expect system to be in place by 2015
* Strong support for pan-European tax rate

Tax professionals in Europe’s biggest businesses are heavily in favor of European Commission proposals for a harmonized, pan European corporate tax system, a new study from KPMG International has found.

Finance directors, tax directors and tax managers from over 400 companies, including some of the largest companies from all 27 EU countries and Switzerland, were asked their view of European Commission plans for a Common Consolidated Corporate Tax Base (CCCTB).

The plans propose that the profits of businesses operating in more than one EU member state should be calculated according to a single EU-wide formula, rather than the 27 different formulae used today. Profits would then be reallocated to the countries in which the businesses are active, to be taxed at those countries’ tax rates.

The idea was supported by 78 percent of respondents across Europe. Tax professionals in the Czech Republic, Denmark and Spain were 100 percent in favor, along with 96 percent in Italy, 90 percent in Greece, Luxembourg, Poland, Romania, Slovenia and Sweden, 84 percent in Germany and 80 percent in Austria, Finland, Hungary and Portugal.

Among the large economies, the U.K, was most skeptical, with 62 percent in favor and 32 percent against. Only Ireland and Slovakia registered majorities against the proposal, with 50 percent opposed in each country.

The Commission has stressed that it is not proposing a single European corporate tax rate. But 69 percent of respondents said that in addition to the common corporate tax base they would like to see a single rate for the whole of Europe.

Only the U.K., Cyprus, Ireland, Poland and Switzerland recorded majorities against a single rate. Denmark was evenly split for and against, but in all other countries there was strong support for the idea.

Businesses were attracted by the prospect of more straightforward tax compliance and better business planning. While 22 percent thought the new system could increase the amount of tax their business pays, this was balanced by 21 percent who thought their tax bills would fall, and 42 percent who thought it would make little difference.

Speaking at KPMG’s Tax Summit in Lisbon, Portugal, where delegates from around 300 KPMG member firms’ clients have gathered to discuss European tax issues, Sue Bonney, Head of Tax for KPMG in Europe, the Middle East and Africa said, “We were surprised by the strength of opinion in favor of the CCCTB proposals. Even though the scheme has not yet been made public, 34 percent of respondents said that their companies would definitely choose to use it, with 48 percent reserving judgment until they see the detail.”

The proposals are due to be made public in 2008, and the Commission hopes that they will be in place by 2010. Many respondents thought that this timetable was optimistic, but 66 percent expected the system to be in place by 2015 and 85 percent by 2020. Only 15 percent said that it would never happen.

“Taken together with the support for a single European corporate tax rate, this is a very clear vote from business in favor of a simpler, clearer tax system, even if it requires companies to give up the benefits of choosing between the tax regimes of different countries.” said Ms Bonney.

“Business is sending a message to policymakers that they are prepared to trade choice for certainty, provided this does not result in higher tax rates and more compliance costs.”

She added that there are signs that the focus of tax competition is moving from the European to the global stage. "Eighty six percent of respondents indicated they trade outside the EU, and of these 42 percent said that a common EU tax base would make them more competitive in global markets, she said.

“Our annual Corporate and Indirect Tax Rate survey shows that European corporate tax rates are among the lowest in the world. The message from business seems to be that if EU member states are able to consolidate their low rates and simplify the compliance system, they have an opportunity to win a potentially lasting global competitive advantage for European companies.”