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Taxation: 2021 Annual Report highlights the contribution of taxation towards a more innovative, business friendly and healthier EU

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The European Commission has published the 2021 Annual Report on taxation, a yearly review of member states' tax policies and their contribution to the priorities of the EU, such as the twin digital and green transitions, social fairness and prosperity, or combatting tax fraud. Annual tax revenue in the EU was stable in 2019 across Member States, with slight reductions in the average tax burden on labour and average corporate income tax from 21.9% in 2019 to 21.5% in 2020. Member states have continued to introduce new tax measures to support innovation and productivity, address the corporate debt bias and reduce the time it takes to comply with taxes. The report found that while environmental taxation can be a useful policy tool to help achieve climate and environmental policy goals and contribute to the economic recovery, the report shows that it is still underused in many member states. Several EU member states have raised taxes on tobacco, alcohol, and soft drinks to improve public health. The report also highlights that most member states have introduced some measures to tackle aggressive tax planning but much remains to be done, notably in view of the current crisis. The report also pointed out that the COVID-19 pandemic forced member states and the EU to react with an unprecedented range of measures, including tax measures and direct support for households, businesses and the health sector. These helped cushion the impact of the crisis, providing liquidity to the hardest hit businesses and households and mitigating the adverse economic impact of the public health confinement measures introduced by member states. Against this backdrop, taxation policies can be an integral part of policy measures to support the recovery after the COVID-19 crisis. The analysis described in this report is used in the context of the European Semester. The full report is available here.

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Corporate tax rules

Nike’s attempt to block EU investigation into illegal state aid dismissed

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Today (14 July) the EU’s General Court dismissed an action brought against the Commission’s decision to initiate the formal investigation into Dutch tax rulings that may constitute illegal state aid, writes Catherine Feore. 

The EU’s investigation concerns tax rulings issued by the Netherlands tax administration to Nike European Operations Netherlands (‘Nike’) in 2006, 2010 and 2015, and to Converse Netherlands (‘Converse’) in 2010 and 2015.

Nike and Converse are subsidiaries of a Dutch holding company, owned by Nike Inc. The tax rulings concerned royalties which did not correspond to the amount that would have been negotiated under market conditions for a comparable transaction between independent companies. Companies are expected to apply an ‘arms length principle’ as if they are not part of the same group. 

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According to the Court, the contested decision contains a clear and unequivocal statement of reasons by the Commission that cannot be described as ‘incomplete’.

Nike argued that the Commission’s actions were prompted by the publication of an investigation by an international consortium of journalists in November 2017 and the ensuing political pressure that the Commission sent several further requests for information. They claimed that this “targeting” was unfair as they claim that the Netherlands issued 98 tax rulings similar to those of Nike.

The Court replied that the aim of initiating the formal investigation procedure was to enable the Commission to obtain all the views it needs in order to be able to adopt a definitive decision and was not bound beforehand to establish this. 

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Corporate tax rules

EU delays digital levy to focus on global minimum tax agreement

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The EU has decided to postpone its digital levy until the autumn after a two-day meeting of G20 finance ministers in Venice, where a historic agreement was reached on building a more stable and fairer international tax architecture, writes Catherine Feore. 

Much of the renewed impetus for progress in this area has come from the new Biden administration. Today (12 July) the US Secretary of State for the Treasury Janet Yellen (pictured) met with the president and executive vice president of the European Commission for the economy, as well as with Economy Commissioner Paolo Gentiloni and European Central Bank President Christine Lagarde, before participating in today’s Eurogroup meeting of finance ministers. 

The new proposal will build on the ‘base erosion and profit shifting’ (BEPS) work of the OECD and address the two components of this work, namely the allocation of profits of multinational companies (MNEs) and an effective global minimum corporate tax rate. The US initially suggested that a minimum corporate tax rate should be set at 21%, but swiftly moved to 15%. 

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Going into today’s Eurogroup meeting, Economy Commissioner Paolo Gentiloni said he had had an excellent meeting with the US Secretary of the Treasury Janet Yellen. Gentiloni said the main achievement of the weekend - the global agreement on taxation - would put an end to the “race to the bottom” to relocate taxes. He said: “In this framework, I informed Secretary Yellen of our decision to put on hold the proposal of an EU digital levy to allow us to concentrate on the last mile of this historic agreement.”

The European Commission’s spokesperson Daniel Ferrie said that the Commission would have to swiftly address the outstanding issues and finalize “various design elements”, together with a detailed implementation plan by October. The idea is that this would be approved by G20 heads of government at a summit in Rome. Ferrie said: “For this reason we have decided to put on hold our work on a proposal for a digital levy as a new ‘own resource’ during this period.”

The European Commission had tabled an announcement on a new EU digital levy for 14 July, then delayed to 22 July, it has now been delayed until after this agreement. The digital levy was envisaged as a new own resource which would help the EU in the repayment of the NextGenerationEU borrowing. New own resources need to be put in place by 1 January 2023.

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Corporate tax rules

Big-tech companies to be given historical changes to their international tax agreements

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Recently, some of the richest landmarks and countries of the world, have come to an agreement concerning the closing of international tax loopholes that have been endorsed by the biggest multinational corporations. Some of these tech companies have the largest share prices within the stock market, such as Apple, Amazon, Google and so on.

While tech taxation has long been an issue that international governments have had to agree on between themselves, betting too shares similar problems, especially due to its increase in popularity and allowed legalisation globally. Here we have provided a comparison of new betting sites which follow through on the correct taxation laws and legalities necessary for international usage.

During the G7 summit- which our last reports spoke about the topic of Brexit and trade deals, representatives of the United States, France, Germany, United Kingdom, Canada, Italy and Japan, came to a unified agreement to support the global corporation tax rates of at least 15%. It was in agreement that this should happen as these corporations should pay taxes where their businesses are in operation, and to the land they operate in. Tax evasion has long been propagated using initiatives and loopholes found by corporation entities, this unanimous decision will put a stop to hold tech companies responsible.

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This decision is believed to be years in the making, and the G7 summits have long wanted to reach an agreement to make history and reform the global taxation system for the rising innovation and digital age that is on the horizon. Making companies like Apple, Amazon and Google take accountability, will keep taxation in check for what is estimated to be the surge of their developments and involvement overseas. Rishi Sunak, the United Kingdom’s Chancellor of the Exchequer, has mentioned that we are in the economic crisis of the pandemic, companies need to hold their weight and contribute to the reformation of the global economy. Reformed taxation is a step forward in achieving that. Global tech companies such as Amazon and Apple have massively increased in shareholder prices for each quarter after the major drop last year, making tech one of the most sustainable sectors to obtain taxes from. Of course, not all would agree on such comments, being that taxation loopholes have long been a thing and issue of the past.

The deal agreed upon will put massive pressure on other countries during the G20 meeting that is to occur in July. Having a base of agreement from the parties of G7 makes it very likely that other countries will come to an agreement, with nations such as Australia, Brazil, China, Mexico etc. who are to be in attendance. Lower tax haven countries like Ireland will expect lower rates with a minimum of 12.5% where others may be higher depending. It was expected that the 15 percent tax rate would be higher at the level of at least 21%, and countries who agree with this believe that a base level of 15% should be set with possibilities of more ambitious rates depending on destination and region that multinational companies operate and pay taxes from.

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