LEAK: Commission ramps up pressure on minimum corporate tax

Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, speaks with Eugen-Orlando Teodorovici, Romanian Minister for Public Finance, during the EU finance ministers meeting in February. [Council]

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

In a letter sent to EU Finance ministers ahead of the Ecofin Council, commissioner in charge of tax matters, Pierre Moscovici, shared a strategy to achieve a business taxation environment fit for the 21st century in the EU.

“There is an urgency to act at EU level, because work is advancing at the global level with solutions being actively discussed and developed,” the strategy said.

His “Business Taxation 21” includes three objectives: designing a proper tax system to capture current business models where companies can operate without physical presence and to tax new realities of value creation (digital tax); “putting a floor to tax competition and limiting profit-shifting”, especially for highly mobile income; and ensuring a “simple and stable” business environment and avoiding distortions and double taxation inside the single market.

Tax evasion deprives the EU of 20% of corporate taxes

Economists consider, based on tax havens’ statistics such as Bermuda or Ireland, that 40% of multinational companies’ profits avoid taxation. The EU would thus be deprived of a fifth of its income from companies. EURACTIV.fr reports.

The document sent to the ministers said that “the EU must seize the opportunity created by ongoing discussions at global level to modernise the corporate tax framework in its best interest.”

The Organisation for Economic Cooperation and Development (OECD) and the G20 are discussing proposals to ensure a minimum effective taxation threshold to avoid tax avoidance and a race to the bottom between jurisdictions.

The OECD has also been tasked with putting forward a proposal on digital tax. The first blueprint is expected this year, and the definitive plan for 2020.

Meanwhile, political parties have included a floor for corporate tax across Europe in their EU election manifestos, including the Socialists, Moscovici’s political family.

First clashes liven up last EU Spitzenkandidat debate ahead of election

The six lead candidates of the main political parties laid out their visions of Europe on Wednesday evening (15 May), clashing over jobs and climate change in their last televised debate before the EU elections.

Socialist lead candidate, and Commission vice-president, Frans Timmermans, defended the idea of a minimum corporate tax of 18% during a debate on Wednesday night,

Moscovici argued for a “commonly shared and holistic vision for EU tax policy” for this century.

He wrote in his letter that it is “essential” for the EU that “any global agreement on international corporate tax reform fits the particular needs and situations of member states and the EU as a whole”.

That implies that any global deal respects the single market.

Quantify the impact

In order to progress on that vision, the EU executive favours quantifying the economic impact of the reform proposals, and asks the national governments to help.

The Commission document calls on member states to “seize the opportunity” created by the OECD and the G20 discussions to “modernise” the corporate tax system “in its best interest”.

“Creating consensus on the design and moving at speed will be challenging. But the risk of non action would be a much greater danger,” the document states.

Member states unconvinced 

But despite the Commission’s repeated calls, some member states remain unconvinced.

The high level working party on taxation, which groups national experts on the matter, discussed Moscovici’s strategy on 7 May, a day after the letter was sent.

“Some member states expressed concerns with regard to the way forward towards reaching an agreement on the issues related to minimum effective taxation,” the Romanian Presidency of the EU said, in documents seen by EURACTIV.

“Many Member States also saw the need for a detailed impact assessment at both member state and EU level, based on a common methodology,” the paper stressed.

The Commission admitted that, despite some progress made during the past years, “it has not been possible to find EU level agreement on more structural reforms of the corporate tax system”.

The EU executive started the discussion on a minimum effective taxation by proposing an amendment of the Interest and Royalty Directive, to ban exemption if the interest of the royalties are not taxed at all.

The Brief – The shameful death of Europe’s Google tax

The celebrated attempt to set up a EU digital tax died today at the Council’s table. Killed by the questionable unanimity rule required on taxation, Europe lost another opportunity to become a global rule maker.

The Common Consolidated Corporate Tax Base (CCCTB) plan also remains stuck at the Council, while the digital tax was killed by Nordic countries.

The rotating presidency, held this semester by Romania, is expected to continue the discussion on Friday at the Ecofin Council.

The unanimity required among member states on tax matters complicates any progress on this holistic strategy. Its prospects will depend on the next Commission that will take over later this year, following the upcoming EU elections.

[Edited by Samuel Stolton]

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