On 25 October 2016, the European Commission has proposed to put in place pan-European incentives for research and development across Europe, as part of a broader package of corporate tax reforms.
Under a draft legislation, the costs of R&D for large companies would be 100 per cent deductible, while an additional 50 per cent deduction will be offered for R&D expenses of up to €20 million and another 25 per cent deduction will be allowed for R&D spending over €20 million.
The proposal is aimed at corporations with annual turnover of more than €750 million and which are tax-resident in a European Member State.
Smaller companies that voluntarily choose to join this scheme will be allowed to deduct up to 200 per cent of their R&D costs.
The proposal also aims to incentivise investment by giving equity and debt equal tax deductions, to encourage companies to finance their activities through markets rather than through debt.
These harmonised rules on R&D incentives form one part of the so-called common consolidated corporate tax base (CCCTB), an attempt to create an overarching corporation tax regime in Europe.
The Common Consolidated Corporate Tax Base (CCCTB) is an ambitious corporate tax reform in the EU. The CCCTB is a harmonised system to calculate companies' taxable profits in the EU. It offers one set of rules for companies to determine their tax base, rather than multiple national ones. It is meant to enable businesses to file a single tax return for all of their activities in the EU. Companies in the CCCTB system will also be able to offset losses in one Member State against profits in another, thereby enjoying the same treatment as purely domestic companies. The CCCTB is supposed to make it cheaper and more attractive for companies to operate across the Single Market. The CCCTB also has the potential to be a powerful instrument against tax avoidance.
The proposal was initially launched in 2011 but put on hold after facing opposition from several Member States, most prominently Ireland and the UK.
The legislative proposals will now be submitted to the European Parliament for consultation and to the Council for adoption.
The press release on the CCTB can be found here.