Debate: Urgent need to adopt the minimum tax directive
Date: MONDAY, 4 APRIL 2022
Speaker: Frans Timmermans
Language: EN

Paolo and I strongly believe that this debate today is of great importance and will support us to come up with the right solutions. We are committed at the Commission to implement quickly the historic agreement of the OECD and the G20 on fair corporate taxation. It’s a watershed moment in reforming international taxation, and it’s an example of a multilateral success spearheaded by Europe that we can all be proud of.  As you know, the implementation of the two pillars of the global agreement in 2023 will make sure that our tax system reflects the new reality of our economies. It will level the playing field between businesses and ensure that all companies, including digital ones, pay their fair share of taxes in the right way.  As this Parliament knows very well, the OECD agreement has two pillars. Today we discussed the second pillar, establishing a 15% minimum effective corporate taxation rate. The first pillar on the distribution of taxation rights amongst jurisdictions to ensure fair taxation will be subject to a Commission proposal later this year.  Our main message today is that we urge the Council to adopt the minimum taxation rate now and not to delay this due to work on the other pillar. In our view, the reasons to do so are compelling.  By establishing a level of 15% minimum effective taxation, we put a floor on the race to the bottom on corporate tax rates, thereby ending 40 years of unfettered tax competition that was detrimental to public finances and to all of us. This isn’t just necessary to preserve the global reputation of the EU as a leader on fair taxation. It isn’t even just an imperative because we simply want fair taxation and a fair business environment in Europe. An early agreement on minimum effective tax rate for corporates will place social justice at the core of our global tax system, and that is a core value for Europe itself. And as I said, in this transition we’re in, in the industrial revolution, the climate crisis, the core element that links everything together is social justice.  Adopting this minimum tax rate also makes economic sense, especially now that we need to finance our economic recovery. According to the estimates of the OECD, a global minimum tax rate of 15% would generate worldwide around USD 150 billion in additional tax revenues per year. Even a minimum level of tax on income within Europe, where other jurisdictions have not exercised their primarily taxing rights, will allow Member States to protect their tax base and, as such, put a floor on tax competition. This is why our proposed transposition dates for Europe mirror the implementation deadline agreed by all global partners.  In fact, not acting comes with enormous risks. If the EU and its Member States fail to implement the income inclusion rule that is key for the minimum tax rate on time, the EU will suffer an immediate loss of tax revenues as the taxing rights will be transferred to the jurisdiction of an intermediate parent company that did implement this rule on time.  Even at the more technical level, all elements are in place for a quick agreement in Council on the minimum tax rate.  The Commission’s proposal follows closely the OECD model rules. The few adjustments primarily aim to ensure compliance with EU law. There is no gold plating compared to the OECD agreement. The Council is moving towards the Commission proposal to apply this minimum effective tax rate to the large businesses with a group turnover of over EUR 750 million that have the greatest capacity to exploit low tax rates globally. All EU Member States support the need for a directive and the political need for a continuous European leadership on this issue. The French Presidency worked in record time to present a compromise text. Unfortunately, not all Member States could support it at the time, despite their overall support to the proposal but the common will to act is there.  Making one pillar dependent on the other is legally questionable under the case-law of the EU Court of Justice. The political imperative and the expectations of our citizens are even higher. We need to urgently adopt the EU directive on minimum taxation.  Honourable Members, Of course we do see that we need to work on both pillars of the OECD agreement. The Commission would not object to have a Council statement accompanying the agreement on this directive, mentioning the political link between the two pillars. In fact, the French Presidency already circulated draft proposals on this, but these drafts are equally clear about the political commitment to the distribution of taxation rights under Pillar One, so also pave the way to agree politically on the minimum taxation rate.  I believe that all these reasons are strong encouragements to the Council, to simply act on this and support this minimum taxation rate. I want to thank Parliament once again, not just for your own upcoming opinion on this proposal, but also for scheduling this debate today. This shows that you are also committed to this drive to make corporate taxation fair and simple, and that makes sure they all here that in Luxembourg.