The proposal closely follows the international agreement and explains how the principles of the 15% effective tax rate will be implemented in the EU.
The European Union's Economic and Financial Affairs Council is scheduled to meet on January 18th.
Ministers will consider the Recovery and Sustainability Mechanism (MAA) as well as the directive on multinational corporation minimum taxation, among other things.
This is one of the French presidency's top priorities, as the head of the Commission, Ursula Von der Leyen, stated during a joint press conference with President Emmanuel Macron on Friday.
"The European Union is one of the first to implement this historic reform of the minimum tax rate, as agreed by the OECD and the G20, " Ms Von der Leyen said, referring to the Commission's proposal three weeks ago on multinational taxation.
"I hope that we will reach an agreement quickly during the French Presidency, because this reform is necessary to ensure fair global development."
The European Commission presented a directive on December 22nd to ensure a minimum real tax rate for large multinational groups' global activities.
The proposal reflects the EU's commitment to move quickly and be among the first to implement the recent historic global tax reform agreement, which aims to improve the international corporate tax framework's fairness, transparency, and stability.
The proposal closely follows the international agreement and lays out how the 15 percent real tax rate, which has been agreed upon by 137 countries, will be implemented within the EU. It includes a set of rules for calculating the effective tax rate that can be applied correctly and consistently throughout the EU.
The proposed rules will apply to any large domestic or international corporation with a parent or subsidiary based in an EU Member State, for which the parent company's Member State imposes an additional tax. The proposal also ensures effective taxation when the parent company is located outside of the EU, in a low-tax country with no equivalent rules.
Exceptions to the rule
The proposal also includes some exceptions to the global agreement. Companies will be able to exclude an amount of income equal to 5% of the value of tangible assets and 5% of payroll to reduce the impact on groups with real economic activity.
The rules also allow for the exclusion of small amounts of profit in low-risk situations, which reduces the burden of compliance. This means that if a multinational group's average profit and income in a jurisdiction falls below certain thresholds, the income is not factored into the rate calculation.
"Europe is rapidly aligning with the OECD High-Level Agreement and is fully committed to creating a fairer global corporate tax system," said Valdis Dobrovskis, the Executive Vice President of the European Commission for an Economy that Works for People. This is especially critical at a time when we need to increase public funding for equitable sustainable development and investment while also meeting public funding needs - both to deal with the pandemic's effects and to promote the green and digital transition. Incorporating the OECD agreement on minimum real taxation into EU law will be critical in combating tax evasion and evasion while avoiding harmful tax "downward competition" among countries. "This is an important step forward for our fair tax agenda."
European Commissioner for Economy, Paolo Gentiloni stated: "In October this year, 137 countries supported a historic multilateral agreement to transform the global corporate taxation by addressing long-term injustices while maintaining competitiveness. Just two months later, we are taking the first step towards ending downward tax competition, which is hurting the European Union and its economies. The directive we are proposing will ensure that the new minimum real tax.
The 15% rate for large companies will be fully implemented in line with EU law. A second directive will follow next summer to implement the other pillar of the tax redistribution agreement, once the relevant multilateral agreement is signed. "The European Commission has worked hard to facilitate this agreement and I am proud to be at the forefront of its global implementation today."
One of the two pillars of the global agreement is minimum corporate taxation; the other is partial redistribution of tax rights (pillar 1). Based on this, international rules for sharing corporate profit taxation among the world's largest and most profitable multinational corporations will be updated to reflect the changing nature of business models and companies' ability to operate without having a physical presence. Once the technical aspects of the multilateral agreement have been agreed upon, the Commission will present a proposal for the redistribution of tax rights in 2022.
The Commission's tax agenda is complementary, but it goes beyond what the OECD agreement covers. A new framework for corporate taxation in the EU will be published by the end of 2023, which will reduce administrative burdens for businesses operating in all Member States, eliminate tax barriers, and create a more environmentally friendly environment. businesses in the European Union's single market.
By fLEXI tEAM