At the Ecofin meeting on Tuesday 20 February, the European finance ministers decided to close ranks over the American tax reform.
In the coming weeks, the European Commission will gather responses from European businesses to a questionnaire seeking to determine what effects this reform will have on them.
This "base erosion and anti-abuse tax" (BEAT) contains two elements of concern to the Europeans. Cross-border intra-group financial transactions will not be considered tax-deductible and will be taxed at a rate of 10%. The other measure under fire is the pro-intellectual property regime, proposed for the sales and licensing of American goods and services outside the United States, which will benefit from a rate reduced to 12.5%. This incentive would be tantamount to subsidising exports, in the view of the EU.
In the Commission’s questionnaire, of which EUROPE has had sight, companies are asked 11 questions such as, do you think that the new regime will have implications for your operations? Are you considering changing your commercial plans and strategy in order to benefit from the FDII?
“The response of the EU should be very careful, it should be a joint reaction, as it is not a topic that can be resolved or analysed by one member state alone. Each member state should make a careful analysis of the ways in which the reform will affect it”, the Bulgarian finance minister, Vladislav Goranov, explained on behalf of the Bulgarian Presidency of the Council of the EU.
There were few dissenting voices around the table, during the discussion between ministers behind closed doors. However, Denmark is reported to have explained that the EU was possibly concentrating too much on the negative aspects of this reform, whereas there are also positive ones, such as the fact that minimum taxation is being introduced, which will help to resolve the problem of American businesses carrying out activities in Europe without paying any tax. The Danish representative is also reported to have stressed that a lower taxation rate does not necessarily mean a fiscal race to the bottom, if the tax base was broadened.
The Luxembourg minister, Pierre Gramegna, said that the letter of five of his colleagues sent to the American authorities as a matter of urgency is a good idea, although in the future, the member states should all act together (see EUROPE 11923). The Irish minister warned against creating new problems in the international tax forum. Belgium’s Johan Van Overtveldt is reported to have stressed that the details of the reform had still to be finalised. The American legislative process will take time and could contain surprises, he said.
The trio of Italy, Germany and France see the matter as an opportunity to speed up tax integration in Europe. In particular, Germany reportedly stressed that certain aspects of the American reform were not necessarily problematic from a legal point of view. It referred to elements containing an incentive to invest in the US and called for consensus on the common consolidated corporate tax base.
“The US decision should prompt the EU to define a European tax model”, the French minister, Bruno Le Maire, told a press conference. He referred to the fact that this European model should be integrated, lead to tax convergence and reject tax dumping on the part of the member states. France and Germany wish to revive the old bilateral tax convergence project.
Furthermore, Goranov stressed that this reform had united the member states on the need for a quick joint action to change EU tax legislation. (Original version in French by Elodie Lamer)