The European Commission proposes to unify the tax system for legal persons operating in the European Union. The communication lists the main assumptions of the planned CIT reform. The European Commission, with the aim of supporting the economy after COVID-19, understood as introducing effective and fair corporate taxation and removing obstacles to cross-border investments, has published a communication on business taxation in the 21st century. The communication contains a long-term and short-term two-year strategy for the planned economic development in the European Union countries, which is to be based on a stable and fair business environment. The European Commission noted that:
the current international corporate tax system is based on the principles of tax residence and source. Due to the development of globalization and digitization, these principles are more and more different from today's economy. Moreover, modern business realities make tax laws more difficult to apply;
the operation of diverse national corporate tax laws in the European Union member states complicates the activities of businesses operating across borders. Compliance with different regulations in force in different countries makes it difficult to carry out investments, and also limits the development and competitiveness of the European Union;
taxed corporate income proceeds at the national level, while business models are becoming more international, complex and digital. This has resulted in high corporate compliance costs as well as the risk of double taxation.
In view of the existing problems with the functioning of the current international corporate tax system, the communication presents a long-term vision that aims to create a new framework for corporate taxation in the European Union. The proposals put forward are aimed at reducing administrative burdens, removing tax obstacles and introducing a friendlier business environment in the single market. The project aims to provide a single set of corporate tax regulations for European Union countries. The current problems related to business taxation are to be dealt with within the short-term perspective included in the communication. The Commission proposes:
supporting companies with particular emphasis on enterprises from the SME sector by recommending that companies' losses should be carried over to the previous tax years. The beneficiaries of this solution would be enterprises that were profitable in the years preceding the pandemic, which would allow these entities to compensate for losses incurred in 2020 and 2021 through taxes paid before 2020;
ensuring greater public transparency of the taxes that companies pay, which would entail the publication of their effective tax rates for certain large companies operating in the European Union;
encouraging companies to finance their activities with equity. Currently, debt financing of enterprises is treated in a preferential manner, because interest related to debt financing is costs related to the operations of companies, while costs related to equity financing are not tax deductible costs. The changes proposed by the European Commission are aimed at preventing over-indebtedness of enterprises, which may result in their insolvency. As a result of the COVID-19 crisis, equity financing of enterprises will be promoted;
introduction of regulations in force in the European Union aimed at "neutralizing the abuse of sham entities for tax purposes". As a result of the proposal, companies would be required to report to the tax administration the necessary information on the basis of which it would be assessed whether they conduct significant economic activity and whether they conduct real economic activity. The measures taken to increase tax transparency would make it possible to refuse to grant tax advantages related to the existence or use of front companies.
It should be emphasized that the above is only planned changes. Nevertheless, it is worth being aware now that the tax system for legal persons in the EU may take a different shape.