EU tables long-awaited text on 15% corporate tax

The EU explained how big companies should calculate a minimum tax of 15% on their worldwide income and decided to crack down on shell companies.

Under a bill published today, EU countries will be required to impose an additional tax on companies that book profits in low-tax locations.

Ireland signed the agreement, accepted by a total of 137 countries in October, after pledging that the minimum rate would not exceed 15%.

EU Economics Commissioner Paolo Gentiloni said the bill “is fully in line” with that agreement, fleshed out in detail by the Organization for Economic Co-operation and Development (OECD) this week.

“That means no gold plating, no derogation from the international agreement,” he told reporters in Brussels.

“We maintain the cautious consensus that has been forged between EU member states and our international partners.”

The Department of Finance has estimated that the whole deal – which includes another “pillar” that shifts the taxing rights of some 100 of the world’s biggest companies to the countries where they make their sales – will cost around €2 billion. euros per year when it enters into force. play in 2023.

The OECD estimates that it could raise an additional 150 billion dollars (133 billion euros) worldwide.

Talks on the so-called “Pillar 1” rules on the transfer of taxing rights are still ongoing and should be completed next spring.

Pillar 1 is expected to cost Ireland the most, while tax experts say the government could gain from the 15% minimum rate, known as Pillar 2.

The EU wants part of the revenue from the Pillar 1 tax to go to its budget.

France, which will take over the EU presidency in January, hopes to adopt the rules by the end of its mandate in July.

Paris has led EU attempts to change how and where multinationals account for profits, viewing Ireland and its 12.5% ​​corporate tax rate as unfair competition.

Mr Gentiloni said the EU was “not suppressing tax competition” and corporation tax remained a sovereign right.

The rules will only apply to companies with a combined group turnover of at least €750 million for two consecutive years. It will also apply to purely national companies, as well as to multinationals.

Businesses can exclude 5% of labor costs and tangible assets from their taxable profit calculations. There is no exclusion for intangible assets such as patents or royalty payments.

Gerard Brady, chief economist at the Ibec group of companies, said the draft EU directive and detailed OECD rules “represent important technical steps in the process of global tax reform”, but cautioned. warns of potential setbacks in the United States.

“The biggest challenges remain political,” he said.

“President Biden’s ‘Build Back Better’ bill, which would have brought U.S. legislation in line with the new rules, suffered a major setback in Congress this week and will need to find new momentum very early in the new year if a goal of 2023 for global taxation the reform to come into force will remain achievable.

Mr Gentiloni said the difficulties in passing the US Build Back Better bill did not hinge on opposition to the OECD deal and the chances of it passing are “absolutely there”.

Meanwhile, the EU is also cracking down on front companies, which it defines as companies that generate at least 75% of their revenue from one type of transaction – for example, payment of royalties – and have no no “substantial activity” in any particular EU country.

Businesses designated as shell corporations can be denied tax residency and even fined if they fail to provide additional information on their tax returns.

Luisa D. Fuller