Business taxation: Commission is strong on proposals, weak in willingness to enforce them

The European Commission has presented its plans for modernising corporate taxation in Europe


On Tuesday, the European Commission presented its plans for modernising corporate taxation in Europe, with the aim of making business taxation fit for the 21st century, especially with regards to the digitalisation and the globalisation of the economy. Likewise, taxes should be used to curb greenhouse gas emissions and conserve natural resources.

The Commission pledged to tackle tax evasion and avoidance with a series of legislative proposals and recognised the need for fair and effective taxation of capital income of both individuals and corporations.

In 2022, EU Commissioner for Economy Paolo Gentiloni plans to present, among others, a legislative proposal for the publication of effective tax rates paid by large companies. With the introduction of public country-by-country reporting, the public would thus have two important sources of information on the contribution large companies make to the public purse. In addition, the Commission intends to present a proposal by the end of this year to prevent the abuse of shell companies for tax purposes.

In the longer term, a uniform legal framework for the taxation of companies throughout Europe is to be created. Here, the Commission is presenting a new plan for a common consolidated corporate tax base under a different name (BEFIT), with a new methodology for allocating taxing rights between Member States.

In addition, the Commission holds out the prospect of introducing a digital levy as well as a minimum tax, closely linked to the ongoing negotiations on corporate tax reform in the OECD. However, the Commission is also planning a so-called "Debt Equity Bias Reduction Allowance".

This is intended to compensate for the tax disadvantage of equity costs compared to interest as the cost of debt. The Commission argues that this would eliminate tax incentives in favour of debt financing. However, this proposal carries the risk of considerable tax revenue shortfalls.

MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group said that the EU Commission presented an ambitious plan for fair and effective corporate taxation in Europe.

“The proposals are good, but a plan for enforcement is lacking. Plans for more tax justice are worth very little if they can be blocked by individual tax havens with a simple veto,” Giegold said. “These are bold proposals which suffer from a lack of courage in their enforcement.”

He said that the EU Commission must go beyond the unanimity principle in tax matters.

“The proposal for a common consolidated corporate tax base has been blocked by individual Member States for ten years. For years now, Member States have blocked important tax reforms in VAT and corporate taxation. A pushback from the European Commission and the aggrieved Member States is sorely lacking,” he said.

In the wake of the Corona crisis, public coffers are empty. Giegold said the EU cannot afford to delay necessary reforms any longer and the Commission must now move swiftly to apply Article 116 of the EU Treaty, designed to protect the integrity of the internal market. The far-reaching tax breaks for Amazon, Apple and Co. represent a massive distortion of competition in the European single market.

“As guardian of the treaties, the EU Commission can no longer accept this deplorable state of affairs,” he said. “Europe also needs an ambitious agreement at the OECD. There is still no clear commitment from Member States to support Joe Biden's proposal for an effective minimum tax rate of 21 percent. Germany and France must throw their weight behind this progressive proposal for a  21% effective minimum tax now.”

Giegold said that in times of empty coffers, it is not justifiable to give tax gifts to large companies.

“The Commission's plan to promote equity financing for companies makes economic sense. We can only afford such plans if at the same time we actually adopt effective measures against aggressive tax avoidance,” he said. “Under no circumstances should an expensive tax giveaway for large companies be decided without simultaneously launching a common consolidated corporate tax base.”

These articles are part of a content series called Ewropej. This is a multi-newsroom initiative part-funded by the European Parliament to bring the work of the EP closer to the citizens of Malta and keep them informed about matters that affect their daily lives. These articles reflect only the authors’ view. The European Parliament is not responsible for any use that may be made of the information it contains.

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