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The EU Commission on Tuesday (18 May) adopted plans for a unified corporate tax rule book for the bloc, to stop a race to the bottom among member states.
The commission already previously attempted a common corporate tax in 2011, and in 2016, but those attempts failed.
The EU executive argues times have changed and a global effort underway to reach a deal on rules on how much, and where, multinational firms pay taxes could give momentum to the renewed efforts.
Governments have also been under pressure to tackle aggressive tech firms, which are often seen as not paying their share in taxes.
“Taxation needs to keep up to speed with our evolving economies and priorities. Our tax rules should support an inclusive recovery, be transparent and close the door on tax avoidance”, commission vice-president Valdis Dombrovskis said in a statement.
Under the commission’s plans – called Business in Europe: Framework for Income Taxation (BEFIT) – the EU would create a single corporate tax rulebook and reallocate profits between member states.
“It’s time to rethink taxation in Europe,” economy commissioner Paolo Gentiloni said.
“BEFIT will cut red tape, reduce compliance costs, minimise tax avoidance opportunities and support EU jobs and investment,” he added.
The commission will only put forward the actual legislative proposal in 2023.
The move follows talks at the Organisation for Economic Cooperation and Development between 140 countries, following US proposals to set a minimum rate for companies and to make the largest global firms contribute more to the coffers of governments in countries where they actually operate.
Countries want to agree during the summer to a system that would eventually raise €500bn a year, to be shared globally.
The commission wants to use the OECD deal as a basis to propose unified rules for business taxation for member states, which currently have 27 different tax systems.
The EU executive wants governments to stop undercutting with each other, through lowering tax rates to attract investment.
It also wants to create a way to tax profits in countries where the customers are – rather than where a company sets up its office for tax purposes.
Currently, companies are able to shift their profits to EU countries with low tax rates such as Ireland, Luxembourg or Malta.
Previous efforts for a unified corporate tax framework have run into the ground because the unanimity required by the member states to agree such a scheme was not there.
Countries that benefit from the current system oppose plans which would make them to give up some of their tax sovereignty.
Ireland, Denmark, Luxembourg, Malta, Sweden and the Netherlands led the opposition to the previous plans.
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