The European Commission has proposed a directive ensuring a minimum effective tax rate for global activities of big multinational firms. The proposal delivers on the European Union’s (EU) pledge to move extremely swiftly and be among the first to implement the recent historic global tax reform agreement, aimed at bringing fairness, transparency and stability to the international corporate tax framework.

The proposal follows closely the international agreement and sets out how the principles of the 15 per cent effective tax rate–agreed by 137 countries–will be applied in practice within the EU. It includes a common set of rules on how to calculate this effective tax rate, so that it is properly and consistently applied across the EU.

The proposed rules will apply to any large group, both domestic and international, with a parent company or a subsidiary situated in an EU member state. If the minimum effective rate is not imposed by the country where a low-taxed company is based, there are provisions for the member state of the parent company to apply a ‘top-up’ tax.

The European Commission has proposed a directive ensuring a minimum effective tax rate for global activities of big corporations. The proposal delivers on the EU pledge to move quite swiftly and be among the first to implement the recent historic global tax reform agreement, aimed at fairness, transparency and stability in the global corporate tax framework.

The proposal ensures effective taxation in situations where the parent company is situated outside the EU in a low-tax country which does not apply equivalent rules, according to an official release.

In line with the global agreement, the proposal also provides for certain exceptions. To reduce the impact on groups carrying out real economic activities, companies will be able to exclude an amount of income equal to 5 per cent of the value of tangible assets and 5 per cent of payroll.

The rules also provide for an exclusion of minimal amounts of profit, to reduce the compliance burden in low risk situations. This means that when the average profit and revenues of a multinational group in a jurisdiction are below certain minimum thresholds, then that income is not taken into account in the calculation of the rate.

The European Commission’s tax agenda is complementary to, but broader than, just the elements covered by the OECD agreement. By the end of 2023, the Commission will also publish a new framework for business taxation in the EU, which will reduce the administrative burden for businesses working across member states, remove tax obstacles and create a more business-friendly environment in the single market.

Fibre2Fashion News Desk (DS)