Minimum corporate tax rate will not abolish competition, says EU

The European Union on Wednesday began the process to make a corporate tax of at least 15% across the bloc legally binding, with proposals to transpose the OECD agreement into law. ‘EU.

“We are not abolishing tax competition. we are not introducing corporate tax harmonization in the EU, we will always have a very different level of corporate tax in different countries. What we are introducing is a ceiling, a limit, for the race to the bottom, ”said European Economic Commissioner Paolo Gentiloni, unveiling the plan.

“We know that many countries have a much higher level of corporate taxation, including Italy, and the differences will always be there. But we cannot accept the idea that this competition is a true race to the bottom.

The European Commission’s legislative proposal is based on an agreement reached by 137 OECD countries and supported by the world’s largest economies in the G20 earlier this year.

The Minimum Company Tax Act would apply to any business located in the EU with a combined income of € 750million per year or more, whether domestic or international, dashing the Irish government’s hopes that large local businesses would be exempt.

“The 15 percent applies, according to the OECD model, also to national subsidiaries and to large purely national groups. It is also a matter of guaranteeing respect for our fundamental freedoms, in order to avoid any risk of discrimination between cross-border and national situations and therefore of violation of EU treaties, ”said Mr. Gentiloni.

Additional tax

The 15% level refers to the “effective” tax rate, and the rules would allow countries to hit companies with an “additional tax” on their profits when their actual tax rate paid is deemed to be below the minimum. .

The rules will allow for a phased-in period that provides for certain “exclusions” from the rate. When it comes into force for the first time, companies could exclude from the tax calculation an amount of income equivalent to 10% of payroll and 8% of tangible assets. The authorized level will gradually decrease over 10 years until it reaches 5% of the wage bill and 5% of tangible fixed assets.

This compromise had been essential in getting China to support the deal, Gentiloni said.

It is part of a package to crack down on aggressive tax planning, including a crackdown on the use of shell companies for tax purposes by individuals as well as businesses.

The new rules would use reporting requirements and measures, including income, staffing and premises, to “help national tax authorities detect entities that only exist on paper” and establish transparency standards “in order to that their abuses can be more easily detected by the tax authorities ”, declared the European Commission.

Any Member State could request an audit of a shell company located in another Member State under the rules. If a company’s income is considered passive, the majority of its cross-border transactions and its management and administration outsourced, it will be subject to specific tax obligations and its access to tax breaks and benefits will be restricted.

Other proposals are expected to be presented in 2022, including a plan to implement the other part of the OECD-G20 agreement on the reallocation of taxing rights. The commission will also propose rules to force multinationals to publish their effective tax rates, as well as a directive to increase fiscal oversight of crypto-assets, with the aim of a comprehensive modernization of taxation in the era. digital.

Gentiloni said the commission would propose a second law in mid-2022 to implement the other part of the OECD-G20 agreement on the reallocation of taxing rights.

Biden administration

The support of Joe Biden’s American administration had been crucial in securing the agreement of the OECD and the G20 on tax reform. Difficulties for Democrats to pass part of its economic program through the Senate have raised fears that the tax rule will also face tough opposition.

Legislation within the EU is also far from final. It has yet to be approved by the European Parliament and member states, and there are indications that some capitals may have lingering doubts about the plan.

The Republic was initially reluctant to sign the deal, alongside Estonia and Hungary, which has a 9 percent corporate tax rate and is in conflict with the committee on separate issues. Mr Gentiloni downplayed reports that Tallinn and Budapest were once again raising objections to the plan.

“All European member states joined after an initial difficulty. You may recall that three Member States did not join the agreement. . . Estonia, Hungary and Ireland. I must say that [in] the successive weeks and months that they have been able to join and I really appreciate the effort they have made, ”he told reporters.

“It would be quite difficult to reverse this decision they made only a few months ago.”

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Luisa D. Fuller