European Commission proposes minimum corporate tax and end to tax havens in the EU

The Commission proposed before Christmas two initiatives for fair taxation in the EU. The first one is a directive ensuring a minimum effective tax rate for the global activities of large multinational groups. The other one is a directive against the misuse of shell entities for improper tax purposes in the EU.

Presenting the first directive at a press briefing last Wednesday (22 December), the Commissioner for Economy, Paolo Gentiloni, referred to the OECD multilateral agreement on minimum effective taxation reached in October by 137 countries.

The proposal sets out how the principles of the 15% effective tax rate 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 new 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 proposal also 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.