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International Accounting Standards as a possible starting point for a common EU tax base

Results of consultation

On 7 July 2003, the Commission’s Taxation and Customs Union Directorate-General published the summary report PDF document English - 71 KBfrançais - 53 KBDeutsch - 50 KB on the results of the open Consultation PDF document Deutsch - 163 KBEnglish - 138 KBfrançais - 162 KB on « The application of International Accounting Standards (IAS) in 2005 and the implications for the introduction of a consolidated tax base for companies’ EU-wide activities ».

Background

The Commission in its October 2001 Communication identified several steps which could be taken to remove individual tax obstacles to cross-border trade in the Internal Market and the Commission and Member States are currently considering these. However, the Commission also concluded that in the longer term Member States should agree to allow EU companies to use a single consolidated base for computing tax on their EU-wide profits. The Commission considers that the existence of fifteen separate sets of tax rules for calculating the taxable base in the Internal Market, in addition to creating compliance costs, causes numerous problems such as the absence of relief for losses in cross-border situations, transfer pricing and double taxation. The Commission Communication presented a number of options to achieve such a single tax base. These options included:

  • Home State Taxation - where a multinational group would be able to opt to calculate the taxable profits for all its EU operations according to the tax rules of the Member State where its headquarters are based, i.e. its 'Home State'; and
  • a Common (Consolidated) Tax Base - where a multinational group would be able to opt to calculate the taxable profits for all its EU operations according to a new common set of tax rules applicable across the EU.

IAS as a possible starting point for a common EU tax base

The Commission’s services have prepared a consultation document which sets out in detail the various arguments and technical issues related to using the IAS as a starting point for an EU-wide tax base for multinational companies. All listed companies, including banks and insurance companies, will be required to prepare their consolidated accounts in accordance with the IAS from 2005 onwards (see IP/02/827 ). The challenge is to plan how this development can be exploited for taxation purposes. Issues raised in the consultation document include whether the IAS are too investor orientated for use as a source for determining the tax base; whether the IAS principles of materiality, fair value and "substance over form" conflict with taxation principles; and to what extent the existing Community endorsement procedure for IAS could be developed, or modified to provide a model, for taxation purposes.

Further information on ongoing work: