The EU is committed to the harmonization of corporation tax

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The EU is committed to the harmonization of corporation tax

The Commission and the European Parliament follow in the footsteps of the Biden administration, which has already opted for this measure

Protest in the US in favor of imposing more taxes on large multinationals, in this case chaired by Jeff Bezos, Amazon / Reuters

In the heat of the winds of change of cycle that blow in a West still in the heat of fight against the pandemic, the European Commission has presented this Tuesday its long-awaited proposal to harmonize the corporate tax and a digital rate with the aim of avoiding tax avoidance between member states. In line with the new US position in the ongoing OECD negotiations for a global minimum corporate tax rate, this roadmap, which provides for a battery of proposals to be developed over the next two years, seeks to adapt the European tax regime in the face of the challenges that will mark the post-pandemic 1920s: digitization, aging of the population, changes in the labor market and the climate crisis.

In the communication ‘Business taxation for the 21st century’, presented by Commissioners Valdis Dombrovskis and Paolo Gentiloni, the European Commission includes a proposal for large multinationals operating in the EU to publish their effective tax rates to ensure greater transparency, and also proposed new anti-tax avoidance measures to address the abusive use of shell companies. Multinational companies, billionaires and politicians have created these companies for the purposes of tax evasion, tax evasion or money laundering. Last February, the #OpenLux journalistic investigation, published by the French evening Le Monde, showed that Luxembourg is home to 55,000 shell companies with no economic activity.

Brussels plans to “reduce administrative burdens, remove tax obstacles and promote a more business-friendly environment in the single market.” For this, the star measure is the creation of the BEFIT mechanism (the acronym in English for ‘Companies in Europe: Framework for corporate tax’), which will establish a single regulatory code for the EU on corporate tax whereby, according to the sources consulted, the profits of multinational groups operating in the EU would be consolidated in a single taxable base and would be allocated to the Member States following a formula yet to be defined. In other words, profits and losses of a company across the Union would be added together to calculate a net profit for all its activity in the EU that would then be redistributed among member countries based on where it markets its goods or services, and where it maintains both its assets and its workers.

‘The EU needs a strong, efficient and fair fiscal framework that meets public funding needs while supporting the recovery and the green and digital transition by creating an environment conducive to fair, sustainable growth and investment and rich in employment, “read the communication from the Community Executive. Along these lines, Executive Vice President Dombrovskis stressed that “tax regulations must contribute to making the recovery inclusive, be transparent and put an end to tax avoidance, it must also be efficient for both large and small companies ».

Amazon judgment

The presentation of this roadmap comes days after the umpteenth blow by European Justice to Brussels’ plans to pursue unfair competition between capitals. Last week Amazon won another legal battle over the payment of 250 million euros to Luxembourg that the Commission imposed on this technology giant for having enjoyed preferential tax treatment.

From Oxfam they state that the annual account of Amazon Luxembourg shows that, despite the vertiginous sales of 44,000 million euros in Europe, the company registered a loss of 1,200 million euros in its tax returns and did not pay taxes in 2020 in its European headquarters in Luxembourg. “The Commission’s plan is a timely response to last week’s disappointing Amazon ruling,” says Chiara Putaturo, Oxfam’s EU tax advisor, in an NGO statement that remarks that “large companies, especially Tech companies pay very little taxes but make a lot of profit, even during the pandemic thanks to the antiquated EU tax system. ‘ This new European plan goes a step beyond global tax negotiations. “While the United States has raised the bar on minimum taxation, the EU can now lead the way in unit taxation by establishing an EU tax base for corporate profits with a reallocation formula between member states,” he adds.

During the debate this Tuesday at 8:00 p.m. in the plenary session of the European Parliament, several MEPs asked the member states to end the tax competition, led by member countries such as Ireland, the Netherlands and Luxembourg itself, so that the small and medium-sized European companies, shaken by the pandemic, stop paying more taxes than multinationals like Amazon. The EU loses tens of billions from tax evasion and fraud, Gentiloni told MEPs yesterday. The Italian Commissioner for the Economy asked once again to collect taxes in the country where large companies obtain the benefits, not where they have their headquarters in order to “combat fraud and tax havens, avoiding unfair competition between countries.”

However, the plenary session expressed its concern about the effectiveness of the Commission’s roadmap, which has already failed in its previous attempts, because fiscal sovereignty continues in the hands of the States and this communication does not address the eternal obstacle of the rules of unanimity of the Council.

Article 116

“We need to harmonize corporate taxes, but so far we have found the blockade of some governments in the Council and on the right,” said the socialist MEP Jonás Fernández. For her part, the popular MEP, Isabel Benjumea, who despite praising the attempts to fight tax fraud and the complexity of tax regimes in member states, was among those who asked the Commission for realism, taking into account that the capitals they continue to maintain the ability to decide on taxation. “We must promote free tax competition between states and advocate for tax cuts,” instead of wanting to “harmonize rates that are usually raised, harming small companies, self-employed workers and job creation,” he added.

Led by the German Sven Giegold, the European Greens applauded the proposal while emphasizing their doubts about the possibilities of implementation. “In the wake of the coronavirus crisis, national treasuries are on edge. We cannot afford to waste vital tax revenue through costly corporate tax breaks, inefficiencies, and discrepancies between national tax systems. The Commission must apply Article 116 (still to be used) (designed to circumvent the unanimity rule in situations of distortion of the internal market) to tax issues, in order to protect the integrity of the single market, “he said.

Even so, despite the innumerable obstacles, the Commission and part of the plenary session of the European Parliament want to believe that (this time, yes) times have changed due to the paradigm shift led by Biden and the need for their own resources to support the plans of Recovery. However, it will take much more than good intentions in Brussels not to fall back into melancholy at another possible blockade of the champions of tax competition.


Joseph Biden, Jeff Bezos, European Union (EU), European Commission, Europe