EU proposes unified corporate tax regime fit for 21st century

The European Union’s executive on Tuesday (18 May) adopted a plan for a more unified corporate tax regime across the bloc, whose 27 national systems are struggling to cope in a world where cross-border business, often via the Internet, is commonplace.

Under its proposal, certain large companies operating in the EU would have to publish their effective tax rates to ensure greater transparency, and there would be new anti-tax avoidance measures to tackle the abusive use of shell companies.

“It’s time to rethink taxation in Europe,” Paolo Gentiloni, European commissioner for the economy, said in a statement.

“As our economies transition to a new growth model… so too must our tax systems adapt to the priorities of the 21st century.”

Governments worldwide are desperate to raise extra revenue to rebuild their pandemic-ravaged economies, and corporate taxation has become an obvious target after decades of decline.

The Organisation for Economic Cooperation and Development (OECD) is to agree in June on global rules on where to tax large multinational corporations like Google, Amazon or Facebook, and at what effective minimum rate.

The OECD aims to stop governments cutting tax rates competitively to attract investment, and to create a way to tax profits in countries where the customers are, rather than where a company sets up its office for tax purposes.

The European Commission plans to use the OECD deal as a stepping stone to more unified rules for business taxation across the EU.

Its plan would also address the debt-equity bias in current corporate taxation, encouraging companies to finance their activities through equity rather than debt.

LEAK: Commission ramps up pressure on minimum corporate tax

European Commission will urge finance ministers on Friday (17 May) to agree on a floor to corporate taxation, as part of a strategy to shape the ongoing global debate on tax matters, according to documents seen by EURACTIV.com

EuroCommerce, which represents Europe’s retail and wholesale sectors, welcomed the plan, saying different tax regimes are a major cost barrier across the EU’s single market.

“The digital transformation of our ecosystem, and of the economy as a whole, needs a tax system which matches it,” it said in a statement.

The European Commission’s latest plan will now go to member states and EU lawmakers for approval. Its plans for EU corporate taxation rules have failed before, as setting tax rates is a jealously guarded prerogative of national parliaments.

The plan, dubbed BEFIT – Business in Europe: Framework for Income Taxation – will provide a single corporate tax rulebook for the EU, the Commission said, adding it will provide for fairer allocation of taxing rights between EU countries. It will replace an existing proposal for a Common Consolidated Corporate Tax Base (CCCTB), which will be withdrawn.

Anti-poverty activists applauded the Commission’s move, saying it takes global tax negotiations one step further. “With this plan, the EU is setting the pace for global tax reforms. Now it is up to the Commission to deliver,” said Chiara Putaturo, tax expert at Oxfam EU.

“The unprecedented COVID-19 crisis means the EU must scale up tax cooperation and individual European countries must no longer sabotage the fight against tax dodging,” she said.

“By stopping the aggressive race to the bottom in European countries and redistributing tax revenues for public services such as hospitals and schools, we can help bridge the inequality gap.”

Member states shield national vetoes on tax matters

A large majority of EU governments opposed on Tuesday (12 February) the European Commission’s proposal to end the unanimity required to pass legislation on taxation, saying they want to protect national sovereignty and avoid having decisions forced on reluctant countries.

[Edited by Frédéric Simon]

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