The European Commission is abandoning a plan to reallocate the profits of multinationals between European Union countries in a new framework for taxing large companies at the European level, expected Tuesday, according to draft proposals obtained by POLITICO.
Commission President Ursula von der Leyen last year promised “a single set of tax rules for doing business in Europe”.
The EU executive originally wanted to opt for “formula allocation”, or a formula that distributes the total pre-tax profit made by multinationals between the jurisdictions where they operate, based on where the value is created .
But this option has received a lot of resistance from countries fearing losing tax revenue. Countries with relatively low corporate taxes, such as Ireland or Lithuania, would not benefit from the tax bill of large companies that benefited from booking profits with them, and would instead have to file their returns income where they make their sales or where they keep the majority of their income. labor or productive assets.
The EU executive will instead suggest that multinational companies with an annual turnover exceeding 750 million euros consolidate their tax bills, into what the Commission calls a global tax base. Oil and gas, maritime and aeronautical groups are excluded from the proposal.
In practice, companies continue to pay taxes to different countries based on national tax rates, but they would do so within a European framework on what is taxable.
During a seven-year transition phase, each company will be taxed according to its share of the overall tax base, calculated as its average taxable income over the last three years.
The Commission’s hope is to “Paving the way for a permanent distribution method that could be based on formula distribution,” he writes.
The aim is to make it easier for multinationals to claim cross-border compensation for their losses, as well as to give businesses operating across borders more certainty over their tax bills.
“We are trying to maximize profits for companies without disturbing finance ministers,” said an EU official.
This approach has been criticized by MEP Paul Tang, a Dutch socialist who chairs the European Parliament’s subcommittee on taxation. “(European Economy Commissioner) Paolo Gentiloni must maintain the ambition of the reform,” he said, adding “it’s distribution according to the form.”
All proposals in the area of taxation require the unanimous support of EU countries, and multiple attempts to adopt common tax rules have been thwarted by vetoes.
Since then, however, the 27 EU countries have signed a global tax deal including a minimum corporate tax rate of 15 percent and the partial reallocation of profits of the world’s richest companies between jurisdictions. This is why the Commission believes that this time it has a chance of reaching a consensus.
“Something has changed,” the European official said.
But businesses have criticized the Commission’s timing, just as they prepare for the global corporate tax rate that will start to apply from next year.
“We need to understand the compatibility of the proposed rules with the EU’s global tax commitments,” said Mariella Caruana, head of tax policy at BusinessEurope.
“Why is he in such a hurry to propose a new tax framework? This could lead to more complexities and does not promise a more stable and attractive environment,” she added.
The proposal, known as BEFIT, is expected to be unveiled on Tuesday, along with new rules on “transfer pricing” by which multinational companies book their profits and costs in multiple countries to minimize their tax bill, also achieved by POLITICO, and proposals requiring EU countries to collect taxes for each other to allow small businesses to interact only with their home administration in their own language.