MEPs say the EU should go it alone on minimum corporate tax rate

European taxation of the digital economy: MEPs lay out plans

MEPs called for a reset of outdated international tax rules, including the setting of a minimum effective corporate tax rate and that the EU should go it alone if global negotiations fail.

The calls come in the form of a resolution adopted by MEPs of the economic and monetary affairs committee on Tuesday.

The European Commission submitted the Fair Taxation of the Digital Economy package of legislative proposals in March 2018. These included two proposals – on an interim (digital services) tax and on a longterm (significant digital presence) taxes – which received the support of the European Parliament in its consultative role, but not the Council’s, as it failed to reach political agreement.

Subsequently, some countries, such as France, Italy and Spain, adopted a national tax similar to the interim digital services tax; others, such as Czechia, are still deliberating on one. Almost all of the countries that have adopted such a tax insist that it is an interim solution until a global one in the area of direct taxation is found.

Reacting after the vote, German rapporteur Andreas Schwab (EPP) said: “We have asked the US to accept that a common system is needed, where no ‘safe harbour’ rules apply. We need to fight together for a solution at the G20/OECD level. If a global solution is not possible, the EU should make a move now. It's time for the legislator to shape a clear and complete digital tax policy in the EU: minimum taxation across the EU, no market distortions due to national toolboxes, and tax certainty for digital companies that will benefit from harmonised and fair digital taxation.”

Martin Hlaváček (Renew) said: “We want to ensure for our citizens that digital companies making large business in Europe pay their fair share of contributions to our public finances, regardless of their physical presence. In absence of an OECD agreement with our external partners by July 2021, the European Parliament will make sure that the Commission presents our own European solution without any delays.”

MEPs said the current international tax rules date back to the early 20th century, with the emphasis on physical presence and next to no factoring in of digitalisation of business. The result was that taxes paid in one jurisdiction no longer reflect the value and profit created there, leading to Base Erosion and Profit Shifting (BEPS).

The rules have also led to traditional companies being taxed on average nearly three times as much as digital businesses.

To remedy the existing discrepancies and increase fairness, MEPs make a number of suggestions. They call for a minimum effective tax rate to be set at a fair and sufficient level to discourage profit shifting and prevent damaging tax competition.

They also call for a reallocation of taxing rights to reflect that the interaction with users and consumers by businesses as a result of digitalisation significantly contributes to value creation in highly digitalized business models.

Finally, MEPs insist that the EU should develop its own fall-back position which would kick-in if global negotiations do not yield results by the end of the year. As a first step this fall-back position would include a digital services tax.

The resolution will now be tabled for a European plenary vote, expected at the end of April.

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This article is part of a content series called Ewropej. This is a multi-newsroom initiative part-funded by the European Parliament to bring the work of the EP closer to the citizens of Malta and keep them informed about matters that affect their daily lives. This article reflects only the author’s view. The European Parliament is not responsible for any use that may be made of the information it contains.

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