On Tuesday 18 May,the European Commission unveiled its plans to put in place “a company tax system fit for the 21st century”. Its flagship measure: withdraw its proposal for a common consolidated corporate tax base (CCCTB) and replace it with a brand new proposal entitled ‘Business in Europe Framework for Income Taxation’ (BEFIT), to be presented in 2023 (see EUROPE 12720/15).
“It will create a common rulebook for groups of companies operating across the single market; reduce barriers to cross-border investment, cut compliance costs; ensure reliable and predictable corporate tax revenues”, said European Commission Executive Vice-President Valdis Dombrovskis, at a press conference.
In practical terms, BEFIT will consolidate the profits of the European members of a multinational group into a single tax base, which will then be apportioned between Member States according to a formula, to be taxed at national corporate tax rates. It will do so by taking over some elements of the CCCTB and building on the main principles of Pillar I (digital taxation) and Pillar II (minimum taxation) of the international tax reform discussed at the OECD.
But the future proposal will bring several new elements, the Commission assures. “In the BEFIT proposal, in contrary to the previous CCCTB we would also reflect how intangible assets should be taken into account, something that was not there before”, explained Mr Dombrovskis.
The concept of the tax base is also different, and the Commission could look at elements that reduce the impact of redistribution on domestic corporate tax revenues—one way to reduce Member States’ opposition to the proposal, the Executive Vice-President deemed.
According to a European official, there should be no overlap between the future proposal for a ‘digital levy’, which will be presented on 14 July, and BEFIT. While work is still underway, it is expected to be very different from the 2018 digital services tax proposal, with a very low rate and a very broad base, he said.
Closely linked to international discussions at the OECD on international tax reform (see EUROPE 12694/11), BEFIT is at least not entirely dependent on it, the Commission insisted.
“BEFIT will be our proposal in 2023. Of course, the fact that we can reach—and I’m quite optimistic on this possibility—a global agreement would be an extraordinary driver for this proposal. This is not saying that without a global agreement we will not have an EU proposal but it is to say that a global agreement will push an EU proposal in an extraordinary way”, said EU Commissioner for Economy Paolo Gentiloni.
The Commissioner is confident that an agreement in principle can be reached at the G20 meeting in mid-July on international tax reform, but warned that the details and implementation of such an agreement will take considerable time.
According to a European official, the technical work at the OECD is in any case sufficiently advanced for the EU to already announce its intention to present this proposal in 2023.
In its communication, the Commission also announces that it intends to implement the tax reform negotiated at the OECD, once an agreement has been reached, by means of directives.
The agreement on Pillar I will take the form of a multilateral convention, which will be binding on all participants. “By using an EU directive, we will make sure we will avoid any different interpretations and ensure a uniform implementation in the EU, so will be faster and smoother”, said the official.
The agreement on Pillar II will be non-binding and, again, the Commission has opted for a directive to implement it. A deliberate choice to avoid each Member State implementing “its own version of Pillar II”, he explained.
The implementation of a global agreement on Pillar II will also have an impact on some existing EU initiatives, such as the Anti-Avoidance Directive and the Interest and Royalty Payment Directive.
Article 116 of the TFEU will be used, but not immediately
No measures announced in the Communication will be presented under Article 116 of the TFEU, clarified the Commission. But it is not abandoning the idea of using this “passerelle” clause, which would allow a switch to qualified majority voting in the EU Council and to the ordinary legislative procedure for taxation.
“In this mandate, for the first time, we will use this article, but not for the issues we are discussing now”, said Mr Gentiloni.
He added, “We need a very strong case, so we do not use the article for a regular taxation decision. We need a strong case of distortion of the single market, unfortunately, we have some of them. We are working to prepare this”.
See the paper: https://bit.ly/3fl28io (Original version in French by Marion Fontana)