Taxation is a major tool for meeting public financing needs, as well as for supporting growth and job creation, both during the recovery and in the future, for a green and digital transition in the EU. In an opinion, adopted at its plenary on 23 February, the European Economic and Social Committee (EESC) welcomed the long-awaited European Commission (EC) initiative on the strategy on business taxation in the 21st century. However, the Committee also points out possible shortcomings and suggests additional key areas to be addressed.
The EESC strongly supports the alignment with the new OECD two-pillar plan on the reform of the international corporate tax framework. Mechanisms such as the Debt Equity Bias Reduction Allowance (DEBRA) and the Business in Europe Framework for Income Taxation (BEFIT) are welcome, along with the recommendation of a loss deduction scheme in the Member States. However, the international agreement should be implemented both in the EU and in major trading partner countries. In addition, EU rules covering the area of Pillar 2 of the OECD package (effective corporate minimum tax) should match the ones in the package exactly, and effective tax rate (ETR) calculations must follow a fully developed and agreed global approach. Finally, cross-border remote working situations should be an integral part of the business taxation strategy, and the coverage of VAT should be reviewed.
Integrating the OECD package
The EESC welcomed the G20 finance ministers' endorsement of the agreement signed on 8 October 2021, agreed by 137 out of 140 countries in the OECD Inclusive Framework. At the same time, the Committee underlines the effects of the complexity of such ambitious objectives.
EESC rapporteur Krister Andersson comments:
We call for uniform, globally concerted and coordinated implementation of Pillars 1 and 2 of the OECD package. The implementation should also happen both in the EU and, at the same time, in major trading partner countries. If Pillar 1 is not implemented in the US and other major trading partners at the same time, European businesses may be at a competitive disadvantage.
With regard to the effective corporate minimum tax, the Committee also highlights the importance of having exactly the same rules in Europe as the agreed complex rules worked out in the global agreement. Member States should therefore allow sufficient time for a final agreed text to be available before adopting a directive. Finally, the requirements to calculate effective tax rates (ETR) must follow the agreed global approach, so that administrative costs are not increased. ETR calculation is intended to determine whether the ETR of a given multinational enterprise (MNE) Group is above or below the minimum tax rate with regard to the jurisdiction considered.
Additional key areas
The pandemic may have changed the workplace for many in such a way that teleworking will be more frequent in the years to come. Cross-border teleworking (or remote working) has given rise to tax questions both for firms and for individuals. For a company, an unintended permanent establishment, with its tax consequences and the increased risk of international double taxation, may arise. The individual may face taxation claims from multiple countries, and social benefits and protection may be adversely affected. Pension rights may also be affected. This is why the EESC encourages the Commission to address cross-border working situations as an integral part of the business taxation strategy.
Lastly, another area that needs to be reviewed is VAT coverage. Exclusions and loopholes create complexity and result in an uneven playing field, as well as in foregone tax revenues. The Committee encourages the Commission to review the coverage of the VAT system.