TEI comments on International Accounting Standards and European Union consolidated tax base: May 30, 2003

Tax Executive, The, May-June, 2003

On May 30, 2003, Tax Executives Institute submitted the following comments to the European Commission Directorate-General, Taxation and Customs Union Tax Policy on the use of the International Accounting Standards (IAS) for company tax purposes in the European Union (EU). The submission is the outgrowth of the European Chapter's participation in a workshop held by the Commission on March 18 on the use of IAS in developing a consolidated tax base for EU-wide activities. TEI's comments were prepared under the aegis of the European Chapter, whose president is Hilary A. Robinson of Kodak Ltd., and the International Tax Committee, whose chair is Bruce R. Maggin of IBM Corporation.

On behalf of Tax Executives Institute, I am writing to provide comments to the European Commission regarding the use of the International Accounting Standards (IAS) for company tax purposes in the European Union (EU).

As the preeminent international association of business tax professionals, TEI has a significant interest in promoting sound tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. TEI applauds efforts of the Directorate-General, Taxation and Customs Union Tax Policy, toward reducing costs and providing greater certainty for taxpayers, as well as enhancing coordination among Member States. In respect of using IAS for company tax purposes, TEI is pleased to submit the following written comments on the Consultation Document, 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 issued in February 2003 ("Consultation Document"). The Consultation Document explores the possibilities that the introduction of IAS as a common set of accounting standards in the EU might afford for the establishment of a common consolidated tax base.

These comments build on the efforts of representatives from TEI's European Chapter who participated in the workshop held by the Commission on March 18, 2003, in Brussels to discuss the Consultation Document and promote a free exchange of views on the issues it raises. We welcome further dialogue on any of the points raised in our comments.

Background

TEI was established in 1944 to serve the professional needs of business tax professionals. Today, TEI has 53 chapters covering North America and Europe. Our 5,300 members represent approximately 2,800 leading corporations. TEI is a non-profit organization that represents a cross-section of the business community; it is dedicated to the development and effective implementation of responsible tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and governments alike. As a professional association, TEI is firmly committed to maintaining tax systems that work--systems that are administrable and with which taxpayers can comply.

The majority of TEI members work for multinational companies that engage in international trade, including many non-U.S, based enterprises. Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the various tax laws relating to the operation of business enterprises. Consequently, TEI members have a special interest in the potentially sweeping changes in European Union tax policy under consideration by Commission staff. Implementation of any of the ideas being explored has major implications for the multinational enterprises represented by TEI members.

General Comments

The Consultation Document acknowledges that IAS accounts would serve, at most, as a starting point for arriving at a tax base and not the tax base itself. Since "it is questionable whether or not using IAS accounts as a starting point would be the most efficient way forward to establishing a common tax base," (1) TEI recommends any initiatives, particularly those designed to simplify the existing systems of taxation in the EU, progress incrementally through well-defined proposals. Such an approach would allow both taxpayers and Member States to evaluate and react to new rules, project their effects upon their operations, and plan for and measure the effects of the incremental change.

One example highlighting the importance of such an approach would be using consolidated accounts after the elimination of intercompany transactions as a common tax base. This would radically depart from the arm's-length principle, which is the basis of the tax conventions drawn up in accordance with the OECD model tax treaty. (2) Additionally, as expressed at the workshop, it may be more appropriate to agree upon basic tax principles before attempting any linkage to IAS.

Questions Raised in the Consultation Document

1. The current endorsement procedure of IAS provides Member States with the necessary level of "control" over accounting standards in the EU. Could it be extended or supplemented to provide sufficient taxation input for IAS to form the starting point for the tax base?