The European Commission proposed an EU directive on Wednesday that would guarantee a minimum effective tax rate of 15% for large multinational corporations' global activities.
The EU is moving quickly to enforce the historic global tax reform agreement by October of this year, 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 principles of the 15% effective tax rate, which has been agreed upon by 137 countries, will be implemented in the EU. It includes a set of common rules for calculating the effective tax rate, ensuring that it is applied correctly and consistently across the EU.
"In October of this year, 137 countries supported a historic multilateral agreement to transform global corporate taxation, addressing longstanding injustices while preserving competitiveness" Economy Commissioner Paolo Gentiloni said. "Just two months later, we are taking the first step to put an end to the tax race to the bottom that harms the European Union and its economies. The directive we are putting forward will ensure that the new 15% minimum effective tax rate for large companies will be applied in a way that is fully compatible with EU law."
Any large group, both domestic and international, with a parent company or a subsidiary in an EU Member State will be subject to the proposed rules. If the country where a low-taxed company is based does not impose the minimum effective rate, there are provisions for the parent company's Member State to impose a "top-up" tax. The proposal also ensures effective taxation in cases where the parent company is based outside of the EU in a low-tax country that does not follow the same rules.
The proposal also includes some exceptions, which are in line with 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 engaged in real economic activities.
To reduce the compliance burden in low-risk situations, the rules allow for the exclusion of small amounts of profit. This means that if a multinational group's average profit and revenues in a jurisdiction fall below certain minimum thresholds, that income is not factored into the rate calculation.
By fLEXI tEAM