To eliminate the current practice of firms moving their tax base to low-tax jurisdictions in the European Union, the European Parliament’s Economic and Monetary Affairs Committee has tabled proposals for a harmonised corporate tax system in the EU. Under the plans, firms would be taxed where they earn their profits and online activities would also be used to calculate their tax.

The planned Common Consolidated Corporate Tax Base (CCCTB) was approved by the Economics and Monetary Committee on Wednesday by 38 votes to 11 votes, with 5 abstentions.

A separate, complementary measure which creates the basis for the harmonised corporate tax system – the Common Corporate Tax Base – was also approved by 39 votes to 12, with 5 abstentions.

According to the MEPs, the two measures, together, aim to create a tax system for the 21st century global and digital economy.

“This is a fabulous opportunity to make a giant leap in the field of corporate taxation,” said Rapporteur, CCCTB, Alain Lamassoure (FR, EPP). “Not only would this legislation create a model that is more suitable to today’s economies through the taxing of the digital economy, but it would also put a halt to unfettered competition between corporate tax systems within the single market, by targeting profits where they are made.”

Proposals include benchmarks to determine whether a firm has  a “digital presence” within an EU member state which might make it liable for tax even if it does not have a fixed place of business in that country.

The MEPs also urged the European Commission to monitor technical standards for the number of users, digital contracts and the volume of digital content collected, which a company exploits for data-mining purposes.  These measures should produce a clearer picture of where a firm generates its profits, and where it should be taxed.

Firms would calculate their tax bills by adding all the profits and losses of their constituent companies in all EU member states. Taxable profits would then be allocated to each member state where the firm operates according to a sharing formula based on sales, assets, and labour, as well as their use of personal data.

Now, both reports will be voted on by Parliament as a whole at the March plenary session.

According to Lamassoure, the transitional period between introducing the CCTB and allowing companies to set off the earnings in one country against the losses in another country (CCCTB) must be as short as possible.

“We want both parts of the law to enter into force at the same moment,” he said. “A transition period would just create new problems. A transition period would be an excessive consideration for the naysayers among national finance ministers.”

According to the Progressive Alliance of Socialists and Democrats (S&D) Group’s negotiator on the common consolidated tax base, Hugues Bayet MEP, it’s a step towards a far corporate tax system in Europe.

“Member states should not engage in a negative tax race to the bottom. Nor should big multinationals be able to do their tax shopping across Europe,” he said. “This kind of competition favours intra-European offshoring and essentially encourages multinationals to look for places with lower tax rates to the detriment of employment. We want Europe to stand behind its citizens and not behind multinationals.”