EU Finance Ministers Reject Calls for Minimum Corporation Tax Rates

On 17th May 2019, The European Commission urged the bloc’s finance ministers to agree an EU-wide minimum level of corporation tax. The letter sent to all finance minister ahead of the Ecofin Council raised concerns about the EU’s activity on the matter and called for a unified strategy as part of the council negotiations. It concluded that a strategy was needed to make business taxation “fit for the 21st century”.

Pierre Moscovici’s Business Taxation 21

The report asked finance ministers to modernise the framework within the bloc and Single Market with three broad objectives listed in Mr Moscovici’s plan:

• Design and implementation of a fit and proper tax system to adapt to new business models permitting businesses to operate without a physical presence within jurisdictions. Also, to further develop and adapt to the taxation needs of digital business
• Standardising tax competition to limit and prevent so-called profit shifting between jurisdictions
• To simplify the business taxation process and end double taxation and other complex distortions of the examination of tax payable for countries inside the Single Market

Issues for the OECD and G20

This issue does not exist in isolation for the European Union and those trading in the Single Market under EU rules. Both the G20 and the Organisation for Economic Cooperation and Development (OECD) are currently looking at the viability of a minimum corporation tax threshold for a number of reasons, not least of all the standardisation of rates to promote sustainable competition between jurisdictions.

On a similar note, OECD is presently looking at new ways of administering digital taxation. It is expected that the first blueprint plan will go public later in 2019 while the first firm plan should arrive sometime in 2020.

European Elections

The changes to corporation tax came ahead of the European Parliamentary Elections in late May. Many of the socialist parties across the EU recommended a corporation tax floor. It is that party bloc from which Moscovici hails. In an earlier debate, the socialist group’s leader and the Commission’s VP suggested a minimum 18% rate of corporation tax which Moscovici praised as a visionary move for EU-wide tax policy.

In the letter, Moscovici stated that any corporate tax policy decided on a global scale should fit the needs of the European Union and its member states. The implication here is that such globally-decided tax deals should be compatible with the Single Market (European Union members and those who trade closely with it).

Most Are Unconvinced at Minimum Corporation Tax

The EU Executive has said that it is in favour of examining the potential impact of the proposals contained within the document which goes on to state that to not modernise taxation would present long-term consequences. It will ask member nations national governments for its views and to examine the potential impact.

The initial letter was sent on the 6th May and the proposed strategy discussed the next day by a working party dedicated to taxation. Most member nations, including the EU’s own finance ministers, are not convinced that it would be a good idea.

Concerns include:

• The plan itself and the way forward on coming up with an effective taxation strategy when introducing a minimum tax
• A need for greater and better impact assessments both across the EU, and within and for member states
• Despite some level of progress, this is an ongoing issue for the European Union with little to no agreement on the structure of corporate taxation reforms

The meeting opened with a proposal of amendment to the Interest and Royalty Directive. In the interest paid on royalties is not taxed, that the previous exemption to tax is banned. The digital tax, killed earlier this year, is seen as a victory but the EU remains locked on a number of other tax issues, not least of all the Common Consolidated Corporate Tax Base (CCCTB).

Taxation change across the EU is slow and complex due to the requirements of unanimous decisions of implementation. Discussions are ongoing and will continue through the remainder of 2019.