Brussels unveils new tax agenda ahead of crucial G20 meeting in July
The European Commission has unveiled a new fiscal agenda that aims to ensure that EU countries are able to raise the revenues needed to fund the post-coronavirus recovery as well as both green and digital transitions.
The presentation comes just weeks before a crucial meeting of G20 finance ministers in Venice, where world powers will seek to reach a long-overdue deal to reform the international corporate tax system, which many saw as obsolete due to transformations and challenges arising from the digital economy. .
The EU’s new fiscal agenda and the G20 negotiations are designed around the two-pillar framework of the Organization for Economic Co-operation and Development (OECD).
The first pillar of the OECD focuses on the partial reallocation of taxing rights to ensure that the taxation of profits is no longer determined exclusively by the physical presence of a company. The second focuses on establishing a minimum effective tax rate for the profits made by large multinationals, regardless of the country in which they are based.
Discussions within the OECD have continued for years, but the devastating impact of the coronavirus pandemic and the rise of teleworking have created momentum for a successful conclusion.
Advanced economies have pumped out unprecedented levels of budget support that have translated into a sharp rise in public debt, which governments must gradually repay. Raising the tax rate on large corporations, many of which saw their profits skyrocket during the pandemic, has become one of the easiest and most immediate solutions to getting income.
This sense of urgency has led US President Joe Biden to lend his support to global efforts to find consensus around corporate taxes, a process that previous US administrations have hampered. Biden needs funds to finance his ambitious $ 2.3 trillion infrastructure bill.
“We are working with the G20 countries to agree on a minimum global corporate tax rate that can stop the race to the bottom,” said US Treasury Secretary Janet Yellen. At the beginning of April. “Together, we can use a global minimum tax to ensure that the global economy thrives on a more level playing field in the taxation of multinational corporations, and drives innovation, growth and prosperity.”
Brussels has moved quickly to embrace America’s U-turn and move forward with its economic plans.
“It is time to rethink taxation in Europe,” said Paolo Gentiloni, European Commissioner for the Economy, on Wednesday afternoon, presenting the new fiscal agenda.
“The renewal of transatlantic relations offers an opportunity to make decisive progress towards comprehensive tax reform. We must work to seize this opportunity, while ensuring that an international agreement protects Europe’s key interests.”
Gentiloni added that it might be possible to reach an “agreement in principle” when G20 finance ministers meet in Venice in mid-July, but warned that implementation and details will take more time. time to develop due to the complexity of publishing it. The commissioner said any deal would be a “big success” compared to the situation six months ago.
Once there is consensus on the two pillars proposed by the OECD, the European Commission will propose legislative texts to ensure application throughout the bloc. Not all EU member states are part of the G20 and the OECD.
What’s in the EU’s new fiscal agenda?
The European Commission wants to make it easier for companies operating in several Member States to pay their taxes. Currently, cross-border business operations may face up to 27 different national tax systems, a daunting prospect that may deter small businesses from expanding.
In addition to the ongoing fragmentation, the executive believes that the current tax structures are outdated as they do not reflect the new business reality created by digitization and globalization.
“This creates high compliance costs for businesses and risks of double taxation. At the same time, some businesses exploit loopholes between tax systems through aggressive tax planning strategies,” notes the Commission.
According to Gentiloni, the EU annually loses 46 billion euros in personal tax evasion and between 35 and 70 billion euros in corporate tax evasion.
With this in mind, Brussels offered short and long term solutions.
Short-term proposals include publication by large corporations of their effective tax rates to ensure transparency and repression of the use of shell companies (legal entities with low economic activity that are typically used for tax evasion and money laundering). silver). The Commission also recommends that Member States allow companies to carry forward their losses recorded during the pandemic to the previous financial year to compensate for damage and obtain tax refunds.
The main item on the agenda is a long-term tax framework that will be officially introduced next year. Under the name ‘Business in Europe: An Income Tax Framework’ (BEFIT), the EU will propose a common tax base for businesses and a single regulation with the aim of reducing bureaucracy, encouraging investment and reduce tax evasion.
In addition, the Commission will continue to push for a European tax on digital services, a controversial idea which some Member States have opposed while others have already implemented at national level. A proposal is expected to arrive in the coming months and will be designed to contribute directly to the EU budget and the € 750 billion stimulus fund.
The new tax program will remain, for the time being, a simple policy document. Any resulting legislative proposal will require the unanimity of the 27 EU countries, a condition that is far from guaranteed due to long-standing differences and disagreements over tax policy. Member states like Luxembourg, the Netherlands, Ireland and Malta have been accused of operating tax havens and are expected to challenge any plans that could threaten their business environment.
However, the urgency of the pandemic and the arrival of Joe Biden could cause the EU to come together and find common ground.
“This time it could be different for two main reasons. The first is the economic crisis we are facing. And therefore the emergency situation which forces us to collect more public revenue. We can no longer accept tax competition. aggressive among member states, “Chiara Putaturo, inequality and tax policy adviser at Oxfam’s European office, told Euronews.
“And the second [reason] are tax reforms at the global level, because both the first and second pillars [OECD] tax negotiations can help set up this unitary tax system. “