Cross-Border Group-Taxation and Loss-Offset in the EU- An Analysis for CCCTB (Common Consolidated Corporate Tax Base) andETAS (European Tax Allocation System)

The European Commission proposed to replace the currently existing Separate Accountingby an EU-wide tax system based on a Common Consolidated Corporate Tax Base (CCCTB).Besides the CCCTB, there is an alternative tax reform proposal, the European Tax AllocationSystem (ETAS). In a dynamic capital budgeting model we analyze the impacts of selectedloss-offset limitations currently existing in the EU under both concepts on corporate crossborderreal investments of MNE. The analyses show that replacing Separate Accounting byeither concept can lead to increasing profitability due to cross-border loss compensation.However, if the profitability increases, the study indicates that the main criteria of decisionson location are the tax rate divergences within the EU Member States. High tax ratedifferentials in the Member States imply significant redistribution of tax payments underCCCTB and ETAS. The results clarify that in both reform proposals tax paymentreallocations occur in favor of the holding. National loss-offset limitations and minimumtaxation concepts in tendency lose their impact on the profitability under both proposals.However, we found scenarios in which national minimum taxation can encroach upon thegroup level, although in our model the minimum taxation’s impacts seem to be slight.Moreover, we identify harmful paradoxes in ETAS due to the tax credit mechanism. Ourresults can contribute to the current discussion on corporate group tax harmonization withinthe EU and other economic zones, e.g. the US, and help to anticipate the tax effects of lossoffsetrestrictions under the respective tax systems.