EU sets the foundations for a corporate tax system in Europe

It will increase transparency and help small and large businesses to recover, grow and invest

Photo: EU Valdis Dombrovskis (L) and Paolo Gentiloni (R).

In view of the changing business environment, the Commission adopted on Tuesday a Communication on Business Taxation for the 21st century to promote a robust, efficient and fair business tax system in the EU. It is part of a wider EU tax reform agenda for the coming years.

The plan sets out both a long-term and short-term vision to support Europe's recovery from the COVID-19 pandemic and intends to ensure adequate public revenues over the coming years.

Its objective to fashion an equitable and stable business environment, which can boost sustainable and job-rich growth in the EU and increase its open strategic autonomy.

The agenda to reform corporate taxation in the EU is complementary to the ongoing global discussions in the OECD.

Valdis Dombrovskis, EC Executive Vice-President for an Economy that Works for People, commented "taxation needs to keep up to speed with our evolving economies and priorities”.

Our tax rules should support an inclusive recovery, be transparent and close the door on tax avoidance, he specified adding that they “should also be efficient for businesses big and small”.

Today's Communication will set the foundations for a corporate tax system in Europe that is fit for the 21st century, helping us to build a fairer and more sustainable society, EVP Dombrovskis emphasised.

It's time to rethink taxation in Europe and as our economies transition to a new growth model supported by NextGenerationEU, so too must our tax systems adapt to the priorities of the 21st century,  Paolo Gentiloni, EU Commissioner for Economy, said.

Referring to the renewal of the transatlantic relationship, he also pointed out that this offers an opportunity to make decisive progress towards a global tax reform.

“We must work to seize that opportunity, while ensuring that an international agreement protects Europe's key interests. Today we set out how a global deal will be implemented in the EU - and the other steps we will take over the coming three years to increase tax transparency and help businesses small and large to recover, grow and invest,” Commissioner Gentiloni explained.

According to the proposed plan, the Commission will present by 2023 a new framework for business taxation in the EU. It will reduce administrative burdens, remove tax obstacles and create a more business-friendly environment in the Single Market.

As the Commission underscores, the “Business in Europe: Framework for Income Taxation”, or BEFIT, will provide a single corporate tax rulebook for the EU, providing for fairer allocation of taxing rights between Member States.

It will cut red tape, reduce compliance costs, minimise tax avoidance opportunities and support EU jobs and investment in the Single Market. BEFIT will replace the pending proposal for a Common Consolidated Corporate Tax Base, which will be scrapped.

The EU executive will launch a broader reflection on the future of taxation in the EU, which will culminate in a Tax Symposium on the “EU tax mix on the road to 2050” next year.

The adopted document also defines a tax agenda for the next two years, with measures that promote productive investment and entrepreneurship, better safeguard national revenues, and support the green and digital transitions.

This builds on the ambitious roadmap set out in the Tax Action Plan, presented by the Commission last summer.

Among the necessary measures is ensuring greater public transparency by proposing that certain large companies operating in the EU publish their effective tax rates. The abusive use of shell companies will also be tackled through new anti-tax avoidance measures.

Supporting the recovery by addressing the debt-equity bias in the current corporate taxation, is also on the agenda.

The adopted on the same day Recommendation on the domestic treatment of losses prompts Member States to allow loss carry-back for businesses to at least the previous fiscal year.

This will benefit businesses that were profitable in the years before the pandemic, allowing them to offset their 2020 and 2021 losses against the taxes they paid before 2020, a measure that will particularly benefit SMEs.

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