EU Halts Digital Tax Plan, Amid Ongoing OECD Effort

Finance ministers from the G20 at the weekend have agreed to support the OECD’s global effort to agree a minimum corporate tax rate of 15 percent.

The G20 finance endorsement means that it will be forwarded to the G20 as a whole in October this year for official blessing.

The historic global agreement endorsed by the G20 finance minister was welcomed by the European Commission in an announcement, saying it would “bring fairness and stability to the international corporate tax framework.”

G20 agreement

“This unprecedented consensus will usher in a complete reform of the international corporate tax system,” said the EC. “This will include a reallocation of taxing rights that will mean the world’s largest companies will have to pay tax wherever they conduct business. At the same time, a global minimum effective tax rate of at least 15 percent will help curb aggressive tax planning and stop the corporate tax ‘race to the bottom.’”

“The G20 has today endorsed the unprecedented global agreement on corporate tax reform reached last week and now supported by 132 jurisdictions,” said European Commissioner for Economy Paolo Gentiloni.

“A bold step has been taken, one that few would have thought possible just a few months ago,” said Gentiloni. “This is a victory for tax fairness, for social justice and for the multilateral system. But our work is not done. We have until October to finalise this agreement. I am optimistic that we will be able in that time also to reach a consensus among all European Union Member States on this crucial issue.”

The Organisation for Economic Co-operation and Development (OECD) plan calls for all multinational businesses to be subject to a minimum effective level of tax on all of their profits each year.

It has set the rate of at least 15 percent, and would apply to all multinational groups making more than 750 million euros (£641 million) in combined financial revenues.

EU Digital Tax

But now the EU has told the BBC that it will suspend its plans to tax online tech giants in the light of the global efforts to agree a minimum corporate tax rate of 15 percent.

“We have decided to put on hold our work on our new digital levy,” European Commission spokesman Daniel Ferrie told the BBC.

“We need to put an end to corporations shifting capital income to low-tax jurisdictions, and to accounting gimmicks that allow them to avoid paying their fair share,” she reportedly said.

That decision came amid a visit to Brussels by US Treasury Secretary Janet Yellen, who urged all 27 EU countries to join the global deal.

Plan opposition

But there is some countries opposing the global agreement, including three EU countries in the form of Ireland, Hungary and Estonia.

Ireland’s Deputy Prime Minister Leo Varadkar, was quoted by the BBC as saying that his country’s 12.5 percent corporate tax rate had “worked for Ireland” and said the reform plan was about “big countries trying to get a bigger share of the pie.”

“We’ve taken about €10bn a year in corporation profit tax, double what the average European country does per head,” he reportedly said.

“It’s one of those examples of where low taxes result in higher revenues, in a world where wealth capital, labour, corporations are very mobile,” he reportedly said.

So far, 132 countries have signed up to the framework, but it needs ratification from those countries’ parliaments.

It also needs approval from the US Congress, and there is concern that US Republicans may try to block it.

The UK’s digital tax came into force on 1 April 2020, charging 2 percent on revenues by large businesses that provide a social media service, search engine or online marketplace to UK users.