A European law to set a minimum tax of 15% to multinationals. The European Commission has presented this Wednesday a proposal on corporate tax, which fundamentally brings the OECD and G20 tax agreement into EU legislation.
The main economies of the world agree in the OECD a minimum tax for companies of 15%
Last October, the 137 OECD countries, after the agreement in the G20, approved rules to set corporate taxes, something that had been negotiating for years.
Pillar 1 of the agreement requires companies to pay more taxes where they operate. And pillar 2 introduces a new global minimum tax rate of 15% for companies with revenues of more than 750 million euros.
The European Commission has presented a proposal for a directive that converts pillar 2 into European legislation. In other words, guaranteeing a minimum global effective tax rate of 15% for large business groups operating in the European Union. “The proposal fulfills the EU’s commitment to act extremely quickly and to be among the first to implement the historic global tax reform agreement reached by the OECD and the G20,” the European Commission says of a proposal that “sets out how it will be calculated. the effective tax rate by jurisdiction, with clear and legally binding rules that will guarantee that multinationals pay a minimum rate of 15% for each jurisdiction in which they operate. ”
The proposed rules will apply to any large group, both national and international, including the financial sector, with financial income of more than 750 million euros per year, and with a parent company or a subsidiary located in an EU Member State.
Of course, according to the OECD / G20 agreement, “government entities, non-profit organizations, pension funds or parent investment funds of a multinational group will not fall within the scope of the directive, because such entities are usually exempt from national corporation tax, either because the entity is performing governmental or quasi-governmental functions, or to ensure that the funds or pensions do not run the risk of double taxation. ”
The effective tax rate is established by jurisdiction, dividing the taxes paid by entities in the jurisdiction by their income. If the effective tax rate for entities in a particular jurisdiction is below the 15% minimum, then the Pillar 2 rules are activated and the group must pay an additional tax to raise its rate to 15%.
This additional tax is known as the “income inclusion rule.” This recharge applies regardless of whether the subsidiary is located in a country that has subscribed to the OECD / G20 international agreement or not.
The rules provide that when income and profits in a jurisdiction are below a certain minimum amount, then no additional tax will be charged on group profits earned in this jurisdiction, even when the effective tax rate is less than 15%. “This is known as exclusion of minimis, “he says Brussels.
In addition, companies may exclude from the complementary tax an amount of income that is at least 5% of the value of business assets and 5% of the wage bill. This is called “substance carve-out”, reduction of the tax base on which the world minimum tax will be applied (a priori 15%).
The Member States must reach a unanimous agreement in the Council for the directive proposed this Wednesday by the European Commission to be applied. The vote of the European Parliament and the opinion of the European Economic and Social Committee will also be necessary.
But hopes that the process will be easy within the EU have been dashed after Hungary, Estonia and Poland showed their discontent, Politico informs, at a time when Budapest and Warsaw are in full swing with Brussels and the CJEU due to their authoritarian drift.
Hungary and Estonia already blocked agreement on a new mandate for the EU code of conduct group on business taxes at Ecofin in December, over concerns about the OECD agreement and the role of the European Commission in the group. .
Hungary has a 9% corporate tax, and is in full battle with the European Commission for access to money from the recovery fund, which remains blocked in Brussels.
Estonia, which has a unique distribution-based corporate tax system, fears that the new agreement will affect its attractiveness for foreign direct investment.
In parallel, France, which takes over the rotating six-month presidency of the Council of the EU in January, is eager to seal the agreement within its mandate, which requires unanimity from all EU countries.