Friday, January 28

A European minimum tax: a first step towards true social justice

The new plans published by the European Commission set out the next steps necessary to carry out the recently agreed global tax deal for the world’s largest multinational companies.

At the end of October, 137 countries agreed on an effective minimum tax for multinationals after years of negotiations. The agreement establishes a minimum tax of 15% for companies with annual revenues of 750 million euros, which will directly affect the world’s largest multinationals.

What will this minimum tax rate change?

What this means in practice is that there will no longer be any incentive for, for example, a large German automaker to shift its profits to a country with a lower effective tax rate, since, in this case, Germany would tax the difference. The goal is to prevent countries from running a “race to the bottom”, competing with each other to lower their tax rates.

Large multinational companies in the EU make millionaire profits every year, but thanks to the different tax rules of each country they can choose the amount of taxes they pay. They often pass the benefits on to countries with very low tax rates, and this means that all taxpayers lose out. Large companies benefit from all the advantages of doing business in the EU without paying their fair share. So you have to be very clear: companies that make large profits must pay fair taxes.

From the Greens / ALE group we wanted this international tax agreement to be more ambitious. We strongly advocate a minimum tax rate of 21%, like the one proposed by the Biden administration in the United States. Unfortunately, this opportunity was lost during international negotiations. Pressured by tax havens, the rate was reduced to 15% and part of the profits were exempted from the minimum tax rate, with some EU member states being the first to lower the ambition of the agreement. This again raises the serious problem of unanimous decision-making in the EU on tax matters. Currently, the threat of the veto to which a single member state can subject any tax agreement, allows EU countries to lower international agreements, even when they have the support of a large majority.

What will happen next? The Commission’s proposal on the European minimum tax

Now all eyes are on the European Commission proposal. The same EU countries that helped dilute the international agreement are now ready to use their veto power against any attempt to increase the minimum tax by the European Commission. In reality, the European Commission has the power to go beyond the agreement and propose minimum fiscal rules for the EU that are stronger and more effective than the global minimum.

They could lower the 750 million euro profit threshold and cover more multinational companies. They could also waive certain benefit exemptions by applying the minimum tax rules within the EU. This would considerably increase the effectiveness of the minimum tax.

Is the European minimum tax the way to tax justice?

A European minimum tax is certainly a necessary step in the right direction, but current plans will have to be considerably strengthened if we are to achieve tax justice. At a minimum, the minimum tax should apply to more multinational companies and to all profits.

Stopping this agreement and blocking its application would only benefit European tax havens and corporate lobbyists. EU countries such as Estonia, Hungary and Ireland draw profits by offering tax breaks to large companies. Corporate lobbyists have already mobilized to protect the profits they make from countries that are aggressively competing with each other to lower tax rates at the expense of tax revenue. We cannot allow them to win and destroy any ambition for tax justice.

What should change in European taxation?

We need a change in EU taxation. The European Commission and the upcoming French presidency of the European Council must strive to achieve the highest ambition by introducing the minimum tax in the EU. We cannot allow a few EU countries to block the necessary progress on tax matters in 2022.

If necessary, the EU treaties provide the tools for the Commission to use a legal basis that does not require a unanimous vote. If it is not willing to use it, the more ambitious European Member States should foster their cooperation and move forward together.

This is the first step towards achieving some form of tax justice across the EU. If we want this to happen, we must spare no effort.

Signed: Damien Carême, Claude Gruffat, Kira Peter-Hansen and Ernest Urtasun, Members of the European Parliament of the Green / ALE group