Following the announcement by the United States in January that it was withdrawing from the reform of the minimum tax on businesses (see EUROPE 13625/6), the Member States’ ambassadors to the EU had discussed the way forward on Wednesday 16 April. According to the document Agence Europe was able to obtain on Monday 28 April, originally published by the US media outlet Tax Notes, the Polish Presidency of the EU Council came up with three scenarios.
On the one hand, Poland has considered re-examining the Global Anti-Base Erosion rules (‘GloBE Information Return’ or GIR) relating to the treatment of tax credits. Currently, most U.S. tax incentives do not qualify under GloBE as qualified refundable tax credits, increasing the likelihood that U.S. multinationals will be taxed at an effective rate of less than 15% and subject to additional taxes in other jurisdictions.
Eliminating this tax could address US concerns while maintaining global tax cooperation. It could also encourage a more flexible approach to international tax rules, to the benefit of multiple jurisdictions, including EU Member States, since their tax credits would benefit from the same favourable treatment. However, if not carefully structured, the extended ‘recognition’ of tax credits could create loopholes that would weaken the ‘GloBE’ system. According to the Presidency, other jurisdictions could demand similar arrangements, which would increase fragmentation.
Poland has also proposed limiting the ‘Undertaxed Profits Rule’ (UTPR). UTPR allows a country to raise taxes on a company if it is part of a larger company that pays less than the worldwide minimum tax in another jurisdiction. This solution encourages diplomatic cooperation between the EU and the US and also offers greater tax certainty to US-based multinationals operating in the EU. However, it risks removing an incentive for jurisdictions to implement GIRs and creating an uneven playing field.
Finally, the Polish Presidency is considering the development of taxes equivalent to Global Intangible Low-Taxed Income (GILTI), a US tax on the worldwide low-taxed intangible income of corporate subsidiaries. GILTI calculates a blended tax rate across all foreign earnings of a given group. Either Article 52 of the Pillar II Directive could be amended to allow international tax cooperation to continue, but this could reduce the effectiveness of the GloBE system. Or the United States would amend GILTI to bring it into line with Pillar II, but this would require major legislative changes and could increase the tax burden on US-based multinationals.
According to a European source, Coreper has instructed the Working Party on Tax Questions to carry out a technical analysis of the various policy options and to report back to it. The European Commission’s Directorate-General for Taxation and Customs Union (DG TAXUD) will report back to EU Council delegations after the International Monetary Fund’s spring meetings. In its view, “the next Coreper meeting on this issue will be held towards the end of the Presidency”, in June.
See the document : https://aeur.eu/f/GLI (Original version in French by Anne Damiani with Camille-Cerise Gessant)