After the European Union agreed in principle late Monday night to implement a 15% minimum effective corporate tax rate throughout the 27-nation bloc, economic justice advocates rebuked officials for genuflecting to low-tax E.U. member states and warned that the deal does not go far enough to prevent large enterprises from tax dodging.
“E.U. countries disregarded the opportunity to raise the bar and set in stone a tax system that is not fit for the many crises the world is facing.”
“The agreement shows how the E.U. is being held hostage by a handful of European tax havens,” Chiara Putaturo, Oxfam’s E.U. tax expert, said Tuesday in a statement. “The minimum tax rate is far too low, bowing to the demands of E.U. countries that profit off low tax rates, like Ireland and Malta. It includes generous exemptions allowing super-profitable and undertaxed multinationals to escape the minimum tax.”
E.U. officials celebrated their plan, which seeks to ensure a baseline level of taxation on profits that corporations with annual revenues above €750 million ($797 million) generate through their activities on the continent. They argued that it brings the bloc closer to fulfilling its pledge to be among the first to implement international tax reforms negotiated by the Organization for Economic Cooperation and Development (OECD), including a 15% global minimum tax rate that has been denounced as woefully inadequate.
But according to Oxfam, the pact “includes a so-called ‘substance carve-out,’ which “allows companies to pay a lower tax rate than 15% in countries where they have many employees or tangible assets such as factories and machinery.”
The anti-poverty group noted that officials in Ireland, where the primary corporate tax rate is 12.5%, have “strongly advocated” against a global minimum tax rate that exceeds 15%, while Malta has been among “the most reticent E.U. countries” during European negotiations, which have dragged on for more than a year.
In recent months, Poland, Estonia, and Hungary—home to the bloc’s lowest corporate tax rate, at 9%—have also blocked progress on halting the race to the bottom in corporate tax rates within the E.U. and globally.
Following months of gridlock, E.U. ambassadors on Monday night only reached a tentative agreement on a minimum effective corporate tax rate, along with an €18 billion ($19 billion) funding package for Ukraine, “after Hungary dropped its veto as part of a wider political bargain giving Budapest the potential to access billions of euros of E.U. cash,” the Financial Times reported.
Putaturo argued that the newly struck deal “will not fix the problem of aggressive tax competition as it is a carbon copy of the weak international tax deal.”
“E.U. countries disregarded the opportunity to raise the bar,” she said, “and set in stone a tax system that is not fit for the many crises the world is facing.”
Once the E.U.’s proposed directive on a 15% corporate tax rate is formally adopted, member states will have until the end of 2023 to incorporate it into their own national laws.
The bloc’s plan follows in the footsteps of the OECD agreement on minimum effective taxation endorsed last October by 137 jurisdictions, which Putaturo characterized as “unfair to poorer countries who only get crumbs from it.”
Last year, Oxfam shared recommendations for how to improve international minimum taxation at the E.U. scale.
“The least E.U. countries can still do is guarantee a more equal division of tax revenue with low-income countries,” Putaturo said Tuesday. “They can do this by reviewing unfair bilateral tax agreements.”
Notwithstanding criticism from rich OECD countries, United Nations members on November 23 unanimously approved an African-led General Assembly resolution to begin discussions “on ways to strengthen the inclusiveness and effectiveness of international tax cooperation, including the possibility of developing an international tax cooperation framework or instrument” under the U.N. Tax Convention, as Common Dreams reported.
Putaturo, for her part, said Tuesday that “the E.U. should not blacklist poorer countries that do not sign up for tax agreements that go against their own national interests.”
“Instead,” she added, “the E.U. should listen to their demands to support a global U.N. Tax Convention.”
