The EU Commission wants to reform corporate taxation in order to make legal tax avoidance more difficult. In the medium term, tax rules for the 21st century are to be created that take digitalization and the globalization of the economy into account in particular. In addition, taxes should stop as a means of curbing climate change and conserving natural resources.
In your Corporate Tax Notice on Tuesday the Commission announced some shorter term initiatives. Next year she would like to propose specific standards according to which “certain large corporations operating in the EU must publish their effective tax rates”. The EU Council of Ministers has already agreed on an obligation for large companies to report publicly on their profits and taxes paid per business country.
These steps are intended to provide control over “aggressive tax planning strategies” and to give policy makers a better overview of contributions paid. At the same time, the Commission wants to combat the abuse of letterbox companies for tax purposes with a draft that is due this year. New monitoring and reporting regulations are planned for such constructs so that tax authorities can better fulfill their supervisory duties.
Less debt incentive
The Commission recommends that EU countries allow companies to carry back losses for at least the previous financial year. This is intended to benefit companies that were profitable in the years leading up to the coronavirus pandemic so that they can offset their losses suffered in 2020 and 2021 against the taxes they paid before 2020.
At the same time, the Brussels government agency wants to promote equity financing for companies. This should no longer be placed in a worse position than interest as borrowing costs. In this way, false tax incentives in favor of debt financing could be eliminated. According to critics, this part of the package carries the risk of significant tax revenue shortfalls.
OECD also wants new taxes
In the medium term, a uniform legal framework for the taxation of companies in the European Union is to be created. Taxation rights are to be divided between the member states according to a fixed formula. The Organization for Economic Co-operation and Development (OECD) takes a similar approach. She is hoping for a levy for the 100 largest companies that could generate up to 500 billion euros per year.
The Commission also wants to collect money directly for the EU with a minimum and digital tax. This project is to be closely linked with the ongoing negotiations on global corporate tax reform at the OECD. Tax initiatives require the unanimous support of EU governments. So far, Denmark, Ireland, Luxembourg, Malta, the Netherlands and Sweden in particular have openly spoken out against the relevant legislative proposals.
The MEP Markus Ferber (CSU) described the paper as not very revolutionary. Uniform rules for determining the taxable profit would be “a real added value” for the internal market. The commission has already got a bloody nose with similar proposals.
The financial expert of the Greens in the EU Parliament, Sven Giegold, spoke of an ambitious and courageous project. He calls for the unanimity rule to be lifted on tax issues. In the course of the corona crisis, the public coffers were empty: The EU could therefore not afford to delay necessary reforms any further. Europe had to be more resolute in the OECD talks.
Commission Vice Valdis Dombrovskis said that an OECD agreement would give the announced initiatives “more momentum”. Taxation in the area of the environment is becoming more and more important. In the long term, it is crucial to bring the 27 national tax laws in line. “Now or never,” said Economic Commissioner Paolo Gentiloni as the motto. Even without consensus at the OECD level, there will be various EU directives, but an international approach would be an “enormous drive”. A strong distortion of the internal market, which, according to Article 116 of the EU Treaty, would enable the Commission to intervene even against the no of individual member states, is not yet known to the Italian in tax matters.