Home Economy Europe's low-tax countries prepare for the US corporate tax plan

Europe’s low-tax countries prepare for the US corporate tax plan


Europe’s low tax countries have responded positively to the Biden administration’s plans for one radical reform on global corporate taxes, although they will lose – but signal that Washington can expect a war on many details.

Proposal, which first appeared last week, sought break the deadlock in Prolonged global negotiations is hosted by the OECD Club of Wealthy Nations. It will deliver to countries power to increase corporate taxes from US tech giants and other large multinationals, while also introducing a global minimum corporate tax rate.

That would be a blow to Ireland, the Netherlands, Luxembourg, Malta and Cyprus, all popular bases for the world’s largest companies, which have fiercely defended their right to set corporate taxes at they choose.

Even so, Dublin said it “supports an agreement. . . that could bring stability to the international tax framework, ”while Hans Vijlbrief, the Dutch State Finance Minister, said the Biden plan was a” big step towards finding solutions. and develop effective rules ”.

“Few countries have ever criticized plans to eradicate tax avoidance. But only when you start the conversation do some countries go the other way, ”said Tove Maria Ryding, policy director for the European Development and Debt Network in Brussels.

The ease with which the world’s largest multinationals can channel their profits through these jurisdictions to reduce their overall tax burden has long been the cause of complaints among Major economies in Europe on the loss of revenue in their home countries.

Any new EU-wide tax, however, requires the consensus of all 27 member states, giving veto powers to governments that are drastically defending their taxation rights. As a result, EU finance ministries have struggled for years to unify bloc-wide policies to thoroughly tackle multinational tax avoidance.

In 2018, a coalition of smaller nations The plan was blocked European technology tax to support the organization of international negotiations in OECD.

And earlier this year, countries including Ireland, Malta and Luxembourg protested against a draft EU plan forcing multinational companies with annual revenues of more than 750 million euros to report their profits and taxes. filed in all EU member states. This proposal is the subject of final negotiations between the MEP and national governments, considered by its interpreters to be the first step towards recognizing the scale of tax avoidance in Europe.

Brussels’ s legal attacks on “love” tax deals between the government and giant companies have had mixed results. European Commission suffers shameful failure Last year, when their landmark decision that forced Apple to return 14.3 billion euros of unpaid tax to the Irish government, it was canceled by the EU’s joint court. The Commission will appeal the decision, but meanwhile, attempts to use EU law to crack down on multinationals have been stymied.

All of this helps to explain why the U.S. proposals are relatively warmly welcomed: the deal being negotiated through the OECD will cover 135 countries and all of the world’s largest corporations, effect will take this mission out of the hands of Brussels.

“OECD measures mean the EU won’t need its own digital tax,” said an EU diplomat.

Paolo Gentiloni, EU economic commissioner, on Tuesday welcomed the US initiative and said a new global set of rules for taxing digital giants is “the best solution”. .

“The second best solution is to have a European [digital tax] suggestions. The most difficult is to have national solutions, which is what is happening now, ”he said. However, he notes that the US plans are “not quite the same” as those being developed in Europe.

“The criteria will be very important, but I think we can find very powerful joint solutions,” he said.

That leaves plenty of room for debate about the details of how the plan should be implemented.

The biggest battle could be the global minimum. The United States proposes a minimum effective corporate tax rate of 21%. While the Netherlands and Luxembourg have a tax higher than this, Ireland’s corporate tax rate is 12.5%.

The Irish Ministry of Finance stressed that a global minimum has not yet been agreed in principle.

“Small countries, such as Ireland, need to be able to use tax policy as a legitimate lever to offset the advantages of size, resources and location enjoyed by larger nations” , The Ministry of Finance said. “At the same time, we accept that there is a need to have boundaries to ensure any competition is fair and sustainable.”

Bar chart of the average effective corporate tax rate, 2019 (%) shows small countries, low tax rates

Feargal O’Rourke, PwC’s managing partner in Ireland, said the international minimum would be resisted by Ireland and countries like Hungary, which have a 9% stake. “Ireland is saying ‘we are going to fight our angle’, as you would expect,” said O’Rourke, noting that “in good times and bad times, Ireland has both kept the ratio. . . it is a symbol of stability and predictability ”.

However, he said, “there’s nothing to panic about” in Dublin about Ireland’s potential for undermining tax advantages. The ministers believe that the country’s highly skilled international workforce and long-term relationships with the country’s multinationals will keep the country competitive even if its tax position changes. change.

“Taxes are now just one of the many attractions that Ireland has [for multinational companies]. If this happened 20 years ago it would be more worrying ”.

The scope of US proposals is controversial in European countries: member states like France and Italy have long wanted to impose international tariffs on the tech giants, but Germany may seek to protect its mighty carmakers, which were not included in the original OECD proposals. but will be influenced by the plan of the United States.

The definition of what tax is levied on can also be disputed, Ryding said: “A way to reduce it [the minimum tax proposal] would be to promote rules that apply only to profits that do not comply with existing OECD measures of profit mobility ”.

Ultimately, the OECD negotiations will need to reach a broad consensus, leave plenty of room for alliances of nations to come together, and lessen elements of U.S. proposals.

Ryding says that while most governments are eager to generate more tax revenues, the history of recent international tax negotiations shows that negotiations will lead to a deal with a low common denominator. Best.

She said: “In the EU and OECD, we do not have the coalition of the progressive countries calling for more, but the coalition of tax havens, who want less.

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