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I think it is very important and useful that the EU puts on the table this Business Taxation Strategy in this very moment because we have a strong acceleration on the global discussion on taxation and having our view and plans for business taxation in the 21st century is I think timely and important.
First of all, the context of this proposal is one of recovery from the pandemic. As I said last week when I presented our Spring Forecast, the shadow of COVID-19 is beginning to lift from Europe's economy. But its legacy will remain in the form of strained public finances and increased investment needs, so Member States need stable revenues to tackle these imperatives.
And yet today, EU Member States are losing tens of billions each year to tax fraud, evasion and avoidance: an estimated 50 billion euros per year to cross-border VAT fraud; 46 billion euros per year to international tax evasion by individuals; and between 35 and 70 billion euros each year as a result of corporate tax avoidance in the EU.
So this calls for action.
The second point of context is what we call building back better, so the NextGenerationEU strategy, because taxes can be used to actively advance our policy priorities. Behavioural or environmental taxes and an effective taxation of capital income can all be part of the solution here.
And third, a context of longer-term megatrends. Our populations are ageing; our labour markets are undergoing an accelerating transformation. These will only strengthen the case for shifting the burden of taxation away from labour in the future.
So this is the framework of our strategy. Now on the global part of our strategy.
You know that mandated by the G20, discussions have been underway at the OECD for a number of years now on a reform of the international corporate tax framework. The discussions focus on two broad work streams: a partial re-allocation of taxing rights and a minimum effective taxation of multinationals' profits, the so-called Pillars 1 and 2 of this discussion.
The EU has been consistently and strongly in favour of a global agreement on international taxation reform. That's why we warmly welcome the constructive engagement of the Biden administration in these talks.. There is of course much work still to do to reach a global consensus– and we are ready to put in that work.
G20 Finance Ministers have recently reaffirmed their commitment to reaching a global agreement by mid-2021 and the Commission fully subscribes to this commitment. We are playing an active part in the international discussions, working with Member States to ensure that issues of common concern for the EU – such as Single Market compatibility and minimising administrative complexity – are taken into account, and that the solutions are beneficial to the EU.
Once agreed and translated into a multilateral convention, the application of Pillar 1 will be mandatory for participating countries. The Commission will then propose a Directive to ensure its consistent implementation in the EU.
We will also propose a Directive for the implementation of Pillar 2 on minimum effective taxation, though this will also have implications for other existing or already proposed legislation.
We are not yet there. This should be very clear but we will do all we can to seize this opportunity and facilitate a global deal. And when the global deal will be reached, to introduce it in the European legal framework.
We also intend to take a series of further actions immediately and in the short term, as Valdis just said.
By the end of this year, we will set out new anti-tax avoidance measures to tackle the abusive use of shell companies - i.e. companies with no or minimal substantial presence and real economic activity. The Commission will propose new tax monitoring and reporting requirements for these companies, so that tax authorities can better respond to aggressive tax planning.
By next year, we will propose that certain large companies operating in the EU should have to publish their effective tax rates.
We also want to promote investment and innovation by addressing the debt-equity bias in corporate taxation through an allowance system. Our proposal will come early next year and will contribute to the re-equitisation of companies that are financially vulnerable due to the pandemic crisis.
And today with the Communication we are taking an immediate step to support small and medium-sized businesses in particular, recommending that Member States allow businesses to carry back losses incurred in 2020 and 2021 to at least the previous fiscal year. This we are convinced will support healthy businesses that were profitable in the years before the pandemic.
And lastly, by 2023, also because this is connected to the global agreement that we are working for in the OECD level, we intend to present a major new initiative called BEFIT, which will replace the proposal for a Common Consolidated Corporate Tax Base (the CCCTB), which will be withdrawn.
BEFIT will cut red tape, reduce compliance costs, minimise tax avoidance opportunities and support EU jobs and investment. It will also provide for fairer allocation of taxing rights between Member States.
BEFIT will build on progress made in the global discussions, this I think is very clear, the connection between the global progress we are working for and this proposal that we plan to advance in 2023 taking further the principles included in Pillars 1 and 2 in order to form a corporate tax framework suitable for the EU Single market.
In conclusion today we have set out a tax agenda to support the recovery and create an environment conducive to sustainable growth and investment.
We know that these are ambitious proposals. It is always ambitious to deal with taxation in the EU. And we know how challenging it can be to make progress in this field. But if there in one thing that the pandemic has shown, it is that the our Union is still capable of taking decisive action when circumstances demand. And this is clearly the case for taxation. So let's rise to this challenge because it is now that it is possible to address it.