EU presses ahead with minimum tax for large multinationals
Paolo Gentiloni - Photo - © European Union 2021
(BRUSSELS) - The European Commission put forward its proposal Wednesday for an EU directive ensuring a minimum 15 per cent effective tax rate for the global activities of large multinational groups.
The EU is moving swiftly to implement the historic global tax reform agreement in October this year, which aims to bring fairness, transparency and stability to the international corporate tax framework.
The proposal follows closely the international agreement and sets out how the principles of the 15% effective tax rate – agreed by 137 countries – will be applied in practice within the EU. It includes a common set of rules on how to calculate this effective tax rate, so that it is properly and consistently applied 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," said Economy Commissioner Paolo Gentiloni: "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."
The proposed rules will apply to any large group, both domestic and international, with a parent company or a subsidiary situated in an EU Member State. If the minimum effective rate is not imposed by the country where a low-taxed company is based, there are provisions for the Member State of the parent company to apply a “top-up” tax. The proposal also ensures effective taxation in situations where the parent company is situated outside the EU in a low-tax country which does not apply equivalent rules.
In line with the global agreement, the proposal also provides for certain exceptions. To reduce the impact on groups carrying out real economic activities, companies will be able to exclude an amount of income equal to 5% of the value of tangible assets and 5% of payroll.
The rules also provide for an exclusion of minimal amounts of profit, to reduce the compliance burden in low risk situations. This means that when the average profit and revenues of a multinational group in a jurisdiction are below certain minimum thresholds, then that income is not taken into account in the calculation of the rate.
Minimum corporate taxation - background guide