Global minimum tax hits roadblock as EU states disagree on directive

Bruno Le Maire, Christian Lindner, Paolo Gentiloni in discussion

The French minister of finance Bruno Le Maire in discussion with German finance minister Christian Lindner, and economy commissioner Paolo Gentiloni at the meeting of EU finance ministers on 15 March, 2022. [EU Council]

The finance ministers of EU member states failed to reach a unanimous agreement on the EU directive aimed at implementing the global minimum tax for large corporations when they met in Brussels on Tuesday (15 March).

The global minimum tax is one of two pillars that together make up a large international tax deal that was agreed upon in October 2021 by more than 130 countries to put a backstop to international tax competition.

As all EU member states signed up for the tax deal, the EU Commission presented a proposal for an EU directive to implement the minimum tax uniformly across the EU.

Implementing the global tax deal is on of the priorities of the French presidency of the EU Council of ministers that lasts until the end of June 2022.

Some governments left to be convinced

However, despite the French efforts to formulate a compromise, the governments of Sweden, Poland, Malta, and Estonia still voiced concerns about the directive and withheld their support for the compromise, although Estonian minister Keit Pentus-Rosimannus said she was “very positive that a good solution can be found very soon”.

Swedish finance minister Mikael Damberg said, “it is too early to agree on a general approach on the directive,” arguing that not all technicalities had been resolved yet.

As tax matters need the unanimous support of member state governments to become EU law, every member state government is able to veto the directive, making the job harder for the French finance minister Bruno Le Maire who presided over the meeting.

Slightly frustrated, he reminded his fellow finance ministers that their countries had all agreed to the international tax agreement past October and that the directive currently on the table was nothing but the implementation of that agreement.

Compromise

To reach a compromise, the French had proposed to delay the implementation of the directive by a year and to make the implementation of parts of the global minimum tax voluntary for member states who had only few companies that were concerned by the directive during the first five years of implementation.

Several finance ministers, as well as the economy commissioner, Paolo Gentiloni, who is responsible for the directive from the side of the EU Commission, criticised this deviation of the original text, but supported the text anyway, “in the spirit of compromise”.

Commission presents directives against tax competition and shell companies

The EU Commission presented its proposal for a directive to implement the minimum tax in the EU along with a directive that should make it hard to evade taxes through shell companies.

For four finance ministers this was not enough. The Polish state secretary Magdalena Rzeczkowska argued for a stronger, legally binding link between the global minimum tax and the other pillar of the international tax agreement.

This other pillar of the agreement would allocate some of the taxes of highly profitable large businesses like Apple or Facebook to the places where their turnover is generated instead of where the headquarter is based.

However the details of this deal are still being worked out and will result in an international convention, which is why Le Maire and the Commission argued that a legally binding link between the two pillars could not be implemented in the EU directive at hand.

Three more weeks

Nevertheless, Le Maire seemed determined to bridge the remaining rifts among EU finance ministers. “We are working on formulations, no formulation is insurmountable” he said.

“I have learnt patience,” he added, saying that he had been working on this issue for five years now.

“If it takes three weeks more, it doesn’t matter,” he said, sounding convinced that he would get to an agreement by early April, the next time that when EU finance ministers meet.

How rich countries profit from the OECD tax deal

Rich countries profit more from the recently announced OECD tax deal than developing countries, according to a new policy study, putting claims that the global tax system had become fairer into question.

[Edited by Nathalie Weatherald]

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