The European Parliament approved the Common Consolidated Corporate Tax Base (CCCTB) proposal on Thursday (March 15). According to the bill which aims to create a EU-wide harmonised corporate tax system, companies would be taxed in the jurisdiction where they earn their profit.

The proposed system also envisions taking their online activities into account to determine their tax obligations. The measures are aimed at curbing loopholes which enable digital or global companies to avoid taxes in places where they earn their profit, HRT reported.

The Parliament also urged the European Commission to adopt benchmarks, such as the number of users or the volume of digital data collected, to get a clearer picture as to where the company generates its earnings, and where it should be taxed.

According to the proposal, companies would calculate their tax bills by adding up profits and losses of all their subsidiary companies in EU countries, and the tax collected would then be shared among countries according to a formula involving sales, assets, labour used, and personal data collected in each country. This would prevent companies from moving their profits earned in several EU countries to a single jurisdiction with the lowest tax rate.

Once in place, the system would apply to all EU member countries, which means businesses would no longer have to keep up with rules of 28 different national tax jurisdictions, but a single ‘one-stop shop’ instead.

“This is only about taxable profit, not tax rates. Better harmonisation of national tax systems should result in significant cost reductions for companies who do cross-border business within the EU, which will benefit Croatian businesses,” said Croatian MEP Dubravka Šuica.