14 April 2021

FT: urope’s low-tax nations braced for struggle over US corporate tax plan

Europe’s low-tax nations have responded positively to the Biden administration’s plans for a radical reform of global corporate taxation, even though they will lose out — but signalled that Washington can expect a fight over much of the detail.

The proposal, which first emerged last week, seeks to break the deadlock in long-running global talks hosted by the OECD club of wealthy nations. It would give countries the power to raise corporate tax from US tech giants and other large multinationals, and introduce a global minimum corporate tax rate. That would be a blow to Ireland, the Netherlands, Luxembourg, Malta and Cyprus, all popular bases for the world’s largest companies, which have fiercely defended their right to set corporate tax at a level of their choosing.

Despite this, Dublin said it was “in favour of an agreement . . . that can bring stability to the international tax framework”, while Hans Vijlbrief, the Netherlands state secretary for finance, said the Biden plan was a “huge step towards finding global solutions and developing effective rules”. Pierre Gramegna, Luxembourg's finance minister, said the US initiative would help create a “global level playing field” and welcomed the renewed cooperation at the OECD. “Few countries will ever criticise plans to root out tax avoidance. But it is only when you start walking the talk that some countries walk in the other direction,” said Tove Maria Ryding, policy manager at the European Network on Debt and Development in Brussels.

Tax is now just one of the many points of attraction Ireland has [for multinational companies]. If this had happened 20 years ago it would have been more of a concern Feargal O’Rourke, PwC The ease with which the world’s biggest multinationals can channel their profits through these jurisdictions to reduce their overall tax burden has long been a cause for complaint among major European economies that lose out on revenue generated in their countries. However, any new EU-wide taxes require the unanimous agreement of all 27 member states, handing a veto to governments that are fiercely protective of their taxation rights. As a result, EU finance ministries have been struggling for years to agree on bloc-wide policies to root out multinational tax avoidance.

In 2018 an alliance of smaller countries blocked plans for a European tech tax in favour of holding international talks at the OECD. And earlier this year countries including Ireland, Malta and Luxembourg opposed draft EU plans to force multinationals with more than €750m in annual turnover to report how much profit they made and tax they paid in all EU member states. The proposal, which is subject to final negotiations between MEPs and national governments, is seen by its exponents as a first step towards documenting the scale of tax avoidance in Europe.

Brussels’ legal assaults on “sweetheart” tax arrangements between governments and corporate giants have had mixed results. The European Commission suffered an embarrassing defeat last year when its landmark decision to force Apple to repay €14.3bn in unpaid taxes to the Irish government was annulled by the EU’s general court. The commission will appeal against the decision, but in the meantime efforts to use EU law to crack down on multinationals have been stymied. All this helps to explain why the US proposals were greeted relatively warmly: the agreement under negotiation through the OECD would cover 135 countries and all of the world’s largest corporations, in effect taking the task out of Brussels’ hands. ...

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