EU endorses 15% minimum tax on multinationals

The EU on Thursday adopted a plan for a global minimum 15 percent tax on multinationals – an attempt to stop governments from reducing taxes to lure world’s richest firms.

It follows an original agreement signed in 2021 between nearly 140 countries which had intended to stop governments racing to cut taxes to lure the world’s richest firms to their territory.

The move comes after leaders gave final approval following months of wrangling. “Today the European Union [EU] has taken a crucial step towards tax fairness and social justice,” EU economy commissioner Paolo Gentiloni said. “Minimum taxation is key to addressing the challenges a globalised economy creates.”

Similarly, the Czech Republic Zbyněk Stanjura said, “I am very pleased to announce that we agreed to adopt the directive on the Pillar 2 proposal today. Our message is clear: The largest groups of corporations, multinational or domestic, will need to pay a corporate tax that cannot be lower than 15%, globally.”

The plan was drawn up under the guidance of the Organisation for Economic Cooperation and Development and already had the backing of Washington and several major EU economies.

But the implementation of the minimum tax in the 27-nation EE has already been delayed as member states raised objections or adopted blocking tactics.

Most recently, this week Poland blocked formal adoption of the measure while arguing about unrelated measures, such as sanctions on Russia.

But at Thursday’s summit these reservations were negotiated away, and the tax will now come into effect across the block at the end of next year.

In his reaction, Germany’s Chancellor Olaf Scholz said it was a “project close to my heart” and France’s President Emmanuel Macron said France had been pushing the idea for more than four years.

The global minimum tax is only one part, known as Pillar Two, of the OECD agreement.

The first pillar, which provides for the taxation of companies where they make their profits to limit tax evasion, primarily targets digital giants.  It requires an international agreement which is not yet finalised.

Background

On 8 October 2021, almost 140 countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached a landmark agreement on international tax reform, as well as on a detailed implementation plan.

The reform of international corporate tax rules consists of two pillars:

Pillar 1 covers the new system of allocating taxing rights over the largest multinationals to jurisdictions where profits are earned. The key element of this pillar will be a multilateral convention. Technical work on the details thereof is ongoing in the Inclusive Framework.

Pillar 2 contains rules aimed at reducing the opportunities for base erosion and profit shifting, to ensure that the largest multinational groups of companies pay a minimum rate of corporate tax. This pillar is now enshrined legislatively in an EU directive which was adopted unanimously by all member states voting in favour.

Reservations persist

However, the move hasn’t satisfied many because of the low minimum tax as Chiara Putaturo, Oxfam EU Tax expert, said the agreement showed how the EU was being held hostage by a handful of European tax havens.

“The minimum tax rate is far too low, bowing to the demands of EU countries that profit off low tax rates, like Ireland and Malta. It includes generous exemptions allowing super-profitable and undertaxed multinationals to escape the minimum tax. 

According to Putaturo, the deal won’t fix the problem of aggressive tax competition as it was a carbon copy of the weak international tax deal. “EU countries disregarded the opportunity to raise the bar and set in stone a tax system that is not fit for the many crises the world is facing.”  

“The OECD deal is unfair to poorer countries who only get crumbs from it. The least EU countries can still do is guarantee a more equal division of tax revenue with low-income countries. They can do this by reviewing unfair bilateral tax agreements.”

“Also, the EU should not blacklist poorer countries that do not sign up for tax agreements that go against their own national interests. Instead, the EU should listen to their demands to support a global UN Tax Convention.”

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