TAXATION: HOW SMES CAN COMPUTE CORPORATION TAX ACCORDING TO HOME STATE TAX RULES.

Pending the adoption of a genuine common consolidated base for company taxation, which is not likely before 2009 (see Europe Information 3001 and 3003), the Commission is pursuing its strategy of small steps on tax issues and, in the absence of anything better, proposing non-binding targeted measures to progressively phase out cross-border tax barriers. In this instance, the focus is on SMEs which play a key role in the economic development of the EU as a factor for growth and job-creation. Under discussion for several years, the idea is to help SMEs overcome the obstacles they face in order to strengthen the single market. On the basis of several studies, including one by Sven-Olof Lodin and Malcolm Gammie (IBFD Publications, Amsterdam) in 2001, the Commission argues that the costs of compliance with tax rules are proportionally higher for SMEs that for large enterprises. Furthermore, statistics show that cross-border activities generate much higher compliance costs which the Commission regards as "constituting a source of economic inefficiency".

The Communication naturally requires a "mutual and voluntary recognition of tax rules" on the part of member states and does not therefore require any harmonisation at EU level. In practical terms, the profits of a group of companies (before VAT, excise duties or rates, etc.) should be calculated according to a single corporate taxation system, namely that of the home state of the parent company or head office. It is clear that only member states with broadly similar tax bases will agree to apply such a system. Following countless consultation meetings, the Commission also provides a list of the fundamental characteristics defining this pilot system which the Commission insists "enjoys overwhelming support among the professionals concerned".

Regarding the enterprises concerned by this new provision, the Communication identifies three categories: medium-sized enterprises (fewer than 250 staff, turnover up to euro 50 million and/or a balance sheet total lower than or equal to euro 43 million); small businesses (fewer than 50 staff, turnover and/or a balance sheet total lower than or equal to euro 10 million); and micro enterprises (fewer than 10 staff, turnover and/or a balance sheet total lower than or equal to euro 2 million).

There is a major problem, though. Presenting the pilot project, Michel Aujean, head of the Commission's Unit on Fiscal Policy and Analysis, confirmed that the member states'...