Firms would be taxed where they earn their profits under a proposed harmonized corporate tax system which uses the online activities of digital firms to calculate their tax bills.
The Common Consolidated Corporate Tax Base (CCCTB) - part of a wide-ranging proposal to create a single, clear and fair EU corporate tax regime - was backed by MEPs on Thursday (15 March) in plenary by 438 votes to 145 votes, with 69 abstentions.
A separate, complementary measure which creates the basis for the harmonized corporate tax system - the Common Corporate Tax Base - was approved by 451 votes to 141, with 59 abstentions.
'Digital presence' in a country to determine taxable profits
Together, the two measures are aimed at plugging the gaps which have allowed some digital and global companies to drastically reduce their tax bills or avoid paying taxes where they create their profits. This would partly be achieved through proposed benchmarks which would identify whether a firm has a “digital presence” within an EU member state, and is therefore liable for tax.
Parliament also wants the EU Commission to set those benchmarks (such as the number of users or the volume of digital content collected) to produce a clearer picture of where a company generates its profits. Personal data is a highly valuable asset mined by companies like Facebook, Amazon and Google to create their wealth, but it is currently not considered when calculating their tax liabilities.
One-stop shop for tax
Companies would calculate their tax bills by adding up the profits and losses of their constituent companies in all EU member states. The resulting tax would then be shared between member states depending on where the profits were generated. The aim is to stamp out the current practice of firms moving their tax base to low-tax jurisdictions.
Once the proposals take effect, a single set of tax rules would apply in all member states. Firms would no longer have to deal with 28 different sets of national rules, and would only be accountable to a single tax administration (a one-stop shop).
“This is a fabulous opportunity to make a giant leap in the field of corporate taxation; not only would this legislation create a model that is more suitable to today’s economies through the taxing of the digital economy, but it would also halt unfettered competition between corporate tax systems within the single market, by targeting profits where they are made, " said Rapporteur on CCCTB Alain Lamassoure (EPP, FR).
“National and EU leaders understand that the current corporate tax system is outdated and leaves citizens and small companies worse off. International action is needed to turn the tide. The EU is our best chance to make our tax system more just and more modern,” said Rapporteur on CCTB, Paul Tang (S&D, NL).
The resolutions will now be passed on to the Council and Commission for their consideration.
Commission launches new learning portal for tax and customs professionals across the EU
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.
Tax policy: EU solutions to prevent tax fraud and avoidance
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.
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:
- Automatic exchange of information relating to financial accounts where a taxpayer is active in another country than the country of residence
- Exchange of tax rulings between member states to disclose to other EU countries and the European Commission, for example “tax planning schemes” offered to specific companies
- Country-by-country information provided by large multinational enterprises and shared between EU countries to prevent multinationals that are active in different countries from engaging in aggressive tax-planning practices not available for domestic companies
- Money laundering information
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
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.
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'Let's strike a deal on digital tax with the US now' says EPP
"We have to get the United States on board and strike an international tax deal with them as soon as possible. It is important, however, that the US Administration accepts that a common system is needed, where big US companies cannot opt out of whatever has been agreed internationally," said Andreas Schwab MEP, EPP Group negotiator on digital taxation, ahead of the adoption of the recommendations on digital taxation by the European Parliament’s Economic and Monetary Affairs Committee.
The United States has recently indicated that it is willing to drop the so-called ‘safe harbour’ rules, which - according to tax experts - would allow big US tech companies like Amazon, Alphabet’s Google and Facebook to opt-out. "The good news is, of course, that the US recently confirmed that we are again united across the Atlantic. We will fight for a solution at G20/OECD level, but if it doesn't seem possible to get a global solution, the EU should make a move on its own digital tax now. We need a minimum EU taxation without special national tax arrangements for digital companies that will profit from harmonised and fair digital taxation," Schwab added.
The EPP Group spokesman on Economic Affairs, Markus Ferber MEP, underlined that the European Parliament is ready to transpose an international solution as soon as possible into EU law. “The effective taxation of the digital economy is not only a question of fairness, but also a litmus test for multilateralism. A credible international solution is vastly superior to Europe going it alone. I call on the European Commission and member states to focus all their energy on finding an international solution to taxing the digital economy”, Ferber stated.
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