Debate: Business Taxation
Date: TUESDAY, 18 MAY 2021
Speaker: Paolo Gentiloni
Language: EN

While we continue to do everything we can to fight the pandemic, we also have to look ahead to shape the post-pandemic world. And to build back better, we need also a robust tax agenda with targeted measures that promote productive investment and entrepreneurship and ensure effective taxation. The current EU business taxation environment is not in line with the objectives of the new industrial strategy, with our ambitions for the green and digital transitions. Despite progress in removing barriers to the single market in many other areas, companies doing business in the EU still need to grapple with up to 27 different tax systems. This patchwork of national tax rules creates unnecessary compliance costs for businesses. It also leads to loopholes and mismatches that can leave open opportunities for aggressive tax planning, reducing the tax burden of some businesses at the expense of other taxpayers, eroding the citizens’ trust in the system. I believe it is time for bold proposals to change our rules so that they are fit for the realities of this century. Honourable Members, the current international corporate tax system was designed more than a century ago and is based on outdated principles of tax residence and source. The EU and its Member States, together with our partners at the G20 and the OECD, are currently negotiating rules that would overhaul this international corporate tax framework. As you know very well, the discussions are based on two pillars. Pillar one envisages the reallocation of some of the profits of the biggest multinationals worldwide towards market jurisdictions. And pillar two: a minimum level of effective taxation for multinational groups. The negotiations have taken a new dynamic after years recently, and indeed the new US Administration proved to be a game changer. Both pillars of the future global agreement are in line with the Commission’s vision. Following the agreement on a global solution, the Commission will act swiftly to ensure its effective implementation in the EU. Today it’s our turn to present a strategic agenda on business taxation. We are drawing on the momentum of Member States’ support for international reform to ensure that rules are adapted and agreed at domestic level too. The communication sets out that the Commission will bring forward a proposal for a EU business tax framework fit for the decades to come – the Business in Europe Framework for Income Taxation, or BEFIT. With the BEFIT proposal we will create a common rulebook for groups of companies operating in more than one Member State. We will reduce red tape and cut compliance costs in the single market. We will combat tax avoidance. We will provide a simpler and fairer way to allocate taxing rights between Member States. The new proposal will replace the pending CCCTB proposal and will build on progress in the ongoing global discussions on the international corporate tax reform. It will reflect the evolving nature of a digitalised economy by considering the contribution of intangibles and giving more emphasis to the taxing rights of market jurisdictions. The detailed design of BEFIT will be developed over the next two years in discussion with Member States, with the Parliament and stakeholders. Honourable Members, the communication adopted today includes also other important steps for the next two years to address the challenges in the areas of ensuring fair and effective taxation and to support productive investment and entrepreneurship. First, we cannot allow the toxic tax abuses of multinational corporations that leave holes in public finances and drive up the burden on honest taxpayers. We will take action to step up the fight against the misuse of shell companies. Those entities with no or only minimal substance and economic activity continue to be used for aggressive tax planning, tax evasion or money laundering. The Commission proposal will encompass action such as denying tax benefits linked to the existence or the use of the abusive shell companies and creative new tax information monitoring and tax transparency requirements. In addition, we must shed light on the darker side of globalisation. The communication announces forthcoming measures to ensure greater public transparency on the taxes paid by large economic actors, making use of the method of calculating an effective tax rate under Pillar 2 once it is agreed. Other measures will support the recovery by promoting innovation, notably by addressing the debt-equity bias in corporate taxation. In conclusion, presenting this strategy, I’m aware of the difficulties, but also of the extraordinary momentum coming from the recovery from the pandemic and from a possible global agreement. Working together, we can use this momentum and shape a new framework for our business taxation.