EU Business Taxation for the 21st Century
The European Commission has adopted a Communication on Business Taxation for the 21st century to promote a robust, efficient and fair business tax system in the European Union. The Communication sets out both a long-term and short-term vision to support Europe’s recovery from the COVID-19 pandemic and to ensure adequate public revenues over the coming years. The Commission will be proposing, by 2023, a new framework – “Business in Europe: Framework for Income Taxation” (or BEFIT). This will provide a single corporate tax rulebook for the EU, based on the key features for a common tax base and the allocation of profits between member states based on a formula. The objective is to provide for fairer allocation of taxing rights between Member States.
Furthermore, the tax agenda for the next two years will build on the roadmap set out in the Tax Action Plan, with measures such as:
- proposing that certain large companies operating in the EU publish their effective tax rates, so as to ensuring greater public transparency, and tackling the abusive use of shell companies through new anti-tax avoidance measures;
- Supporting the recovery from the COVD-19 pandemic by addressing the debt-equity bias in the current corporate taxation, to encourage companies to finance their activities through equity rather than turning to debt.
The commission also adopted a Recommendation on the domestic treatment of losses, which prompts Member States to allow loss carry-back for businesses to at least the previous fiscal year. This will benefit businesses that were profitable in the years before the pandemic, allowing them to offset their 2020 and 2021 losses against the taxes they paid before 2020. This measure will particularly benefit SMEs.
View the Communication on Business Taxation for the 21st century
European Parliament Calls For Swift Reform of International Tax Rules
The European Parliament has adopted Resolution 2021/2010/INI calling on international stakeholders to speed up the process of adoption and implementation of the international taxation framework, currently under multilateral negotiation at the OECD.
European Parliament is seeking to put pressure on the process, suggesting immediate overhaul of the “outdated international tax rules, including a minimum effective corporation tax rate”. The resolution calls on the European Commission and the Council to “go ahead alone” should the negotiations fail at OECD level. One of the key demands of the European Parliament is a 21% global minimum tax rate, in support of the recent proposals from President Biden’s administration. Members of the Parliament sought to support a minimum effective tax rate set at a “fair and sufficient level to discourage profit shifting and prevent damaging tax competition.” Should the OECD negotiations fail to produce an agreement by July 2021, the Parliament expects the EU Commission to produce a new proposal on digital services tax and and a Commission road map with different scenarios, with or without agreement at OECD level.
