The EU is hoping it is third-time lucky in preventing companies from shopping around the bloc.
The European Commission will on Tuesday take another stab at introducing a single corporate tax rulebook for the EU — a proposal that would effectively prevent individual countries from competing against each other to offer sweetheart deals to companies.
But with taxation initiatives requiring unanimous support from EU governments, there’s little to suggest this effort will be more successful than two past failed attempts, even as momentum grows globally for new tax rules to ensure giant corporations pay their dues.
The 16-page policy paper due out Tuesday, reported by POLITICO ahead of publication, sets out the Commission’s anti-tax avoidance agenda for the next two years. The flagship initiative is the “Business in Europe: Framework for Income Taxation” bill (BEFIT), to be proposed in 2023, which would consolidate multinational companies’ profits and parcel them out across EU countries.
Under BEFIT, a company’s profits and losses from across the bloc would be added up to produce a net profit for all of its EU activity and then distributed to countries. That distribution would depend on where the company sells its goods or services, holds assets and keeps its workers.
The initiative would upend the EU’s current set-up, which allows companies to shift their profits to countries with low tax rates such as Ireland or Malta.
It’s a similar approach to the one that global policymakers at the Organization for Economic Cooperation and Development are taking. Negotiators aim to develop a levy for the world’s 100 biggest companies this summer that would raise €500 billion a year, to be shared across the globe.
“The current EU business tax environment is not fit for purpose,” says the Commission paper, which also previews EU transparency initiatives to crack down on shell companies and expose how little tax some companies pay. “Billions of euros are lost in the EU each year to tax fraud, evasion and avoidance.”
Current losses from corporate tax avoidance within the EU stand at between €35 billion and €70 billion each year, the paper said. International tax evasion, meanwhile, is estimated to starve EU governments of €46 billion a year.
Commission officials are hoping that the EU’s broad support for the ongoing OECD negotiations will mean capitals will also back BEFIT. National treasuries are also seeking new streams of income to pay for the debt they’ve raised to cushion the coronavirus pandemic’s economic impact.
But that hope might be ill-founded, according to four tax officials from countries across the bloc, speaking on condition of anonymity, who expressed skepticism that the proposal will receive the necessary unanimous support.
“It will be difficult to reach consensus among EU member states,” said Tove Ryding, tax coordinator at the NGO the European Network on Debt and Development (Eurodad). “There are still EU member states such as Luxembourg, Ireland and Malta, which hold on to tax structures that facilitate corporate tax avoidance and strongly oppose ambitious reforms.”
The Commission tried and failed to deliver similar initiatives twice in the past 10 years.
BEFIT wouldn’t touch corporate tax rates, and the distributed profits would be taxed at national rates. But that’s of little comfort to smaller countries, which could lose out from a structure that distributes proceeds to other countries in which corporates locate more of their economic activity.
Many nations also oppose any plans that would force them to give up some of their tax sovereignty, which they say will damage their chances of attracting big companies to set up shop on home soil.
Ireland, Denmark, Luxembourg, Malta, Sweden and the Netherlands have been outspoken in their opposition to previous initiatives.
The Commission first proposed a common consolidated corporate tax base (CCCTB) in 2011.
The second came in 2016 on a wave of anti-tax avoidance crackdowns, when the Commission accused U.S. tech giant Apple of getting up to €13 billion in illegal tax breaks from Dublin. The General Court ruled last July that the Commission was wrong, a decision that’s now subject to appeal.
EU countries are comfortable with the OECD initiative because its global tax is set to target companies with annual global revenues of $20 billion and high profit margins. While the details of BEFIT will only come in 2023, the 2016 CCCTB sought to home in on firms with revenues exceeding €750 million a year.
“The OECD approach still gives some flexibility to member states regarding corporate income tax policy decisions,” one tax official said, expressing concerns that BEFIT “will be more ambitious than the OECD.”
Commission officials acknowledge it will a challenge to win support for BEFIT. But they say it could be politically difficult for EU countries to argue against consolidation once the OECD secures its global tax deal.
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Source: POLITICO https://www.politico.eu/article/european-commission-fights-stop-corporate-tax/?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication