EU to combat taxation ‘race to the bottom’ with 15% rate for big companies
The EU has taken a first step in setting a 15% minimum corporate tax for multinationals, in line with a global agreement struck earlier this year, as the White House has hit a hurdle in its efforts to turn the pact into law.
Announcing the launch of a new EU tax directive, Paolo Gentiloni, commissioner for the economy, said he expected the 27 member states to agree on the fine details within six months despite concerns held in some European capitals.
The draft directive, which sets an effective corporate tax rate of 15% for multinationals and other large businesses with a turnover in excess of €750m, enacts an agreement signed by 136 countries and jurisdictions earlier this year.
The US president, Joe Biden, drove that agreement forward among members of the Organisation for Economic Co-operation and Development (OECD) and elsewhere, but is facing difficulties in enacting domestic legislation. The tax rate change has been bundled into his Build Back Better Act, which includes funding for social security and battling the climate emergency.
Hungary and Estonia have raised concerns about the minimum rate in recent months. But Gentiloni, a former Italian prime minister, said he was convinced that the directive would secure the necessary EU unanimity and that the White House would overcome its obstacles.
“I don’t think that the discussion ongoing in the US is concentrated on this issue of corporate taxation, and the contact that we have constantly with the administration shows that the chance to go on with the legislation is absolutely there,” he said.
Hungary has a corporate tax rate of 9% and is at odds with the European Commission over its failure to sign off plans for spending billions of euros in recovery funds. The Estonian government has raised concerns about the impact of the minimum rate on its attractiveness to foreign direct investment.
Gentiloni said: “We are not abolishing tax competition. We will still have very different levels of corporate taxation in different countries. What we are introducing is a ceiling, a limit, to the race to the bottom.”
The draft directive includes a number of exemptions. Companies will be able to exclude an amount of income equal to 5% of the value of tangible assets and 5% of payroll when calculating tax due. For a transition period of 10 years, the exclusions will be higher, starting at 8% of tangible assets and 10% of payroll.
Tove Maria Ryding, from the European Network on Debt and Development, representing 53 NGOs that work on the issue, said: “We are in the midst of a global crisis, but unfortunately neither the EU nor the OECD has had the courage to propose a really ambitious reform of the corporate tax rules, which could have mobilised the billions needed to fill gaps in the budgets.
“Today’s EU tax package is a Christmas present to all the multinational corporations that will be able to continue paying very low taxes.”