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Corporate tax rules

Big countries' tax deal to reveal rift in Europe

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European Competition Commissioner Margrethe Vestager wearing a protective mask leaves the EU Commission headquarters in Brussels, Belgium July 15, 2020. REUTERS/Francois Lenoir/File Photo

A global deal on corporate tax looks set to bring to a climax a deep-seated European Union battle, pitting large members Germany, France and Italy against Ireland, Luxembourg and the Netherlands. Read more.

Although the smaller EU partners at the centre of a years-long struggle over their favourable tax regimes, welcomed the Group of Seven deal on June 5. for a minimum corporate rate of at least 15%, some critics predict trouble implementing it.

The European Commission, the EU's executive, has long struggled to get agreement within the bloc on a common approach to taxation, a freedom which has been jealously guarded by all its 27 members, both large and small.

"The traditional EU tax holdouts are trying to keep the framework as flexible as possible so that they can continue to do business more or less as usual," Rebecca Christie of Brussels-based think tank Bruegel said.

Paschal Donohoe, Ireland's finance minister and president of the Eurogroup of his euro zone peers, gave the G7 wealthy countries' deal, which needs to be approved by a much wider group, a lukewarm welcome.

"Any agreement will have to meet the needs of small and large countries," he said on Twitter, pointing to the "139 countries" needed for a wider international accord.

And Hans Vijlbrief, deputy finance minister in the Netherlands, said on Twitter that his country supported the G7 plans and had already taken steps to stop tax avoidance.

Although EU officials have privately criticised countries such as Ireland or Cyprus, tackling them in public is politically charged and the bloc's blacklist of 'uncooperative' tax centres, due to its criteria, makes no mention of EU havens.

These have flourished by offering companies lower rates through so-called letter-box centres, where they can book profits without having a significant presence.

"European tax havens have no interest in giving in," Sven Giegold, a Green-party member of the European Parliament lobbying for fairer rules, said of the prospects for change.

Nevertheless, Luxembourg's finance minister Pierre Gramegna welcomed the G7 accord, adding that he would contribute to a wider discussion for a detailed international agreement.

Although Ireland, Luxembourg and the Netherlands welcomed the long-fought for reform, Cyprus had a more guarded response.

"The small EU member states' should be acknowledged and taken into consideration," Cyprus's Finance Minister Constantinos Petrides told Reuters.

And even G7 member France may find it hard to completely adjust to the new international rules.

"Big countries like France and Italy also have tax strategies they are determined to keep," Christie said.

The Tax Justice Network ranks the Netherlands, Luxembourg, Ireland and Cyprus among the most prominent global havens, but also includes France, Spain and Germany on its list.

Europe's divisions flared up in 2015 after documents dubbed the 'LuxLeaks' showed how Luxembourg helped companies channel profits while paying little or no tax.

That prompted a clampdown by Margrethe Vestager, the EU's powerful antitrust chief, who employed rules that prevent illegal state support for companies, arguing that such tax deals amounted to unfair subsidies.

Vestager has opened investigations into Finnish paper packaging company Huhtamaki for back taxes to Luxembourg and investigating the Dutch tax treatment of InterIKEA and Nike.

The Netherlands and Luxembourg have denied the arrangements breach EU rules.

But she has had setbacks such as last year when the General Court threw out her order for iPhone maker Apple (AAPL.O) to pay €13 billion ($16bn) in Irish back taxes, a ruling which is now being appealed.

Vestager's order for Starbucks to pay millions in Dutch back taxes was also rejected.

Despite these defeats, judges have agreed with her approach.

"Fair taxation is a top priority for the EU," a spokesperson for the European Commission said: "We remain committed to ensuring that all businesses ... pay their fair share of tax."

The Netherlands in particular has underscored a willingness to change after criticism of its role as a conduit for multinationals to move profits from one subsidiary to another while paying no or low taxes.

It introduced a rule in January taxing royalties and interest payments sent by Dutch companies to jurisdictions where the corporate tax rate is less than 9%.

"The demand for fairness has grown," said Paul Tang, a Dutch member of the European Parliament. "And now it is combined with a need to finance investment."

($1 = €0.8214)

Corporate tax rules

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

Commission launches new learning portal for tax and customs professionals across the EU

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The European Commission has launched a new EU learning portal offering tax and customs professionals across the EU an opportunity to build, upscale or share their knowledge on important topics in the field. Capitalising on the advantages of online learning, it aims to build common expertise and improve the skills of customs and tax professionals working in national administrations and authorities, businesses, academia and researchers in the field of tax and customs, with some specific content for staff of public administrations.

The new portal includes a combination of different learning formats – from self-paced learning and development to interactive exchanges of best practices - and should help to modernize customs and tax competencies in the EU by providing a new way for people working in the field to share experiences and knowledge. It can also help professionals to build common skillsets to address shared challenges, such as fraud, tax avoidance and digitalisation. Tax and customs play a vital role in our societies and in the functioning of the EU's Single Market by ensuring efficient revenue collection, contributing to the prosperity of businesses, supporting the safety and security of citizens, and by facilitating legitimate trade. Customs and tax professionals and their administrations and enterprises must be able to respond to and anticipate change to remain effective in a constantly evolving social, political and economic global context. More details and the new learning portal can be found here.

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Corporate tax rules

Tax policy: EU solutions to prevent tax fraud and avoidance

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Fair taxation is a priority for the European Parliament. Find out how it wants to tackle issues such as tax avoidance, tax fraud and more, Economy.

Infographic showing total tax revenue
Total tax revenue by EU country  

Tax policy, including the fight against tax fraud, has become a hot topic over the past decade due to journalistic investigations such as LuxLeaks, the Panama Papers, Football Leaks, Bahamas Leaks and the Paradise Papers, which revealed tax leaks and tax havens. They led to increasing unhappiness about damaging tax practices, particularly after the recession and the resulting budget constraints. Unpaid taxes result in smaller budgets both nationally and at EU level.

Tax policy has remained EU countries' own responsibility since the EU’s beginning, but the fight against tax fraud is shared by EU countries and the EU.

Taxation a priority for the European Parliament

Since September 2020, the Parliament has had a permanent sub-committee on tax matters. The committee was established to assist the economic and monetary affairs committee with taxation issues and deals with the fight against tax fraud, tax evasion and tax avoidance, as well as financial transparency in taxation.

During the 2014-19 parliamentary term, Parliament set up temporary special committees, including a special committee on financial crimes, tax evasion and tax avoidance and an inquiry committee Inquiry to investigate alleged contraventions and maladministration in the application of EU law in relation to money laundering, tax avoidance and tax evasion. These committees identified a number of flaws in tax provisions.

EU tax measures

Some of the main legislative proposals in recent years regarding tax relate to the exchange of information through the Directive on Administrative Cooperation, which has been amended many times to provide:

Other proposals relate to corporate taxation and tax avoidance for example:

  • The common consolidated corporate tax base (CCCTB), which addresses the tax obstacles that arise from different national tax systems for companies that operate in the internal market in order to avoid the risks of double taxation or aggressive tax planning
  • Corporate taxation of a significant digital presence to allow members states to tax profits made in their territory, even if a company is not physically present there
  • A common system for a digital services tax, a tax on revenues stemming from for example the transmission of data collected about users on digital interfaces
Infographic about gross domestic product for each EU country as well as direct and indirect taxes
Infographic showing for each EU country the gross domestic product as well as direct and indirect taxes  

In addition, there have been many proposals to update the VAT framework. The tax matters subcommittee is currently working on a report on how to create a new basis for taxing the profits of digital companies in countries where they operate, even when they do not have a physical presence.

The report will set out Parliament’s views ahead of the final global negotiations at the OECD, which are expected to be finalised by mid-2021. By June at the latest, the Commission is also expected to put forward a proposal on a digital levy as part of reforming the EU's system of own resources and financing the economic recovery after the Covid-19 pandemic.

About the infographics


Our infographic at the top shows the income from direct and indirect taxes for each EU country as well as total tax revenue as a percentage of the gross domestic product. The latter is divided between taxes on capital, consumption and labour. In addition, our map shows how wealthy countries are.

Infographic showing the VAT rates for EU countries
Standard VAT rate for different EU countries  

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