EU fights tax ‘race to the bottom’ with 15% tax rate for large companies | European Union

The EU has taken a first step by setting a minimum corporate tax of 15% for multinationals, in line with a global agreement reached earlier this year, as the White House hit a snag in its effort to turn the pact in law.

Announcing the launch of a new EU tax directive, Paolo Gentiloni, Commissioner for the Economy, said he expected the 27 member states to agree on the details within six months despite the concerns expressed in certain European capitals.

The draft directive, which sets an effective corporate tax rate of 15% for multinationals and other large companies with a turnover of more than 750 million euros, enacts an agreement signed by 136 countries and jurisdictions at the start of this year.

US President Joe Biden has pushed the deal forward among members of the Organization for Economic Co-operation and Development (OECD) and elsewhere, but is having difficulty enacting national legislation. The tax rate change was incorporated into its Build Back Better Act, which includes funding for Social Security and tackling the climate emergency.

Hungary and Estonia have raised concerns about the minimum rate in recent months. But Gentiloni, a former Italian prime minister, said he was confident the directive would ensure the necessary EU unanimity and the White House would overcome its obstacles.

“I don’t think the current discussion in the United States is focused on this issue of corporate taxation, and the contacts that we have constantly with the administration show that the possibility of continuing with the legislation is absolutely there,” did he declare.

Hungary has a corporate tax rate of 9% and is at odds with the European Commission over its failure to approve plans to spend billions of euros in recovery funds. The Estonian government has expressed concern about the impact of the minimum rate on its attractiveness for foreign direct investment.

Gentiloni said: “We are not abolishing tax competition. We will always have very different corporate tax levels in different countries. What we are introducing is a ceiling, a limit, to the race to the bottom.

The draft directive includes a number of exemptions. Companies will be able to exclude an amount of income equal to 5% of the value of tangible assets and 5% of payroll when calculating the tax due. For a transitional period of 10 years, the exclusions will be higher, starting at 8% of tangible assets and 10% of payroll.

Tove Maria Ryding, from the European Network on Debt and Development, representing 53 NGOs working on the issue, said: “We are in the midst of a global crisis, but unfortunately neither the EU nor the OECD have had the courage to propose a truly ambitious reform of the corporate tax rules, which could have mobilized the billions needed to fill the gaps in the budgets.

“Today’s European tax package is a Christmas present for all multinationals who will be able to continue paying very low taxes.”