On July 29, 2022 the Opinion of the European Economic and Social Committee on the Proposal for a Council Directive on ensuring a global minimum level of taxation for multinational groups in the Union (COM(2021) 823 final — 2021/0433 (CNS)) was published in the Official Journal of the European Union.
The Commission proposal aims at transposing the GloBE Model Rules included in Pillar 2 of the OECD/G20 Inclusive Framework in the EU. The EESC states that it welcomes the fact that the Commission is working fully in line with international discussions and agreements and strongly supports the Commission's objectives.
The EESC also states that it agrees with the Commission that ‘the effectiveness and fairness of the global minimum tax reform heavily relies on its worldwide implementation’. The EESC considers it very important that the negotiations are successful and concluded in a timely manner. Common global implementation without gold-plating is essential to make the rules effective and not to distort competition.
Furthermore the EESC strongly agrees with the Commission that it is ‘imperative to ensure uniform implementation of the OECD Model Rules in the EU’ and that ‘this can only be achieved if legislation is enacted centrally and transposed in a uniform fashion’.
While it is essential that technical discussions and preparatory work already take place at EU level, the EESC notes that the OECD is still working on drafting further detailed rules and clarifying definitions. Member States should therefore pay attention and include all the recommendations and working results from the ongoing OECD negotiations.
The EESC backs any effort aimed at reducing compliance costs for European companies and tax authorities when devising the new system. The full implementation of Pillar 2 will be complex and is going to require a long time and significant effort, both by companies and tax authorities. In the coming months, the OECD is expected to present important rules concerning safe harbours, simplified administrative filing etc., which could smooth the implementation of the new tax regime for both businesses and tax authorities. These rules should be included in the directive.
The EESC considers that specific tax provisions enacted by parliaments in Member States as deliberate incentives for investments and employment efforts should not be neutralised by the Model Rules. It is important to promote the achievement of a greener and digitalised economy, and taxes should play a role in this.
The EESC calls for the directive to include a provision making it possible to apply the directive on dispute resolution, at least between Member States, for disputes regarding Pillar 2.
The Committee agrees with imposing penalties for non-compliance and calls on Member States to perform thorough tax inspections to ensure full compliance with the Directive's provisions.
The EESC calls for the revision of the EU list of non-cooperative third countries in relation to the tax package.
The EESC would like to point out that the fair taxation of multinational companies represents a long-standing request from the general public and expects a swift agreement on Pillar 2 in the EU and world-wide.
Specific Comments made by the EESC
It is important that other tax provisions enacted by parliaments in Member States as deliberate incentives for investments and employment efforts are not neutralised by the Model Rules. Rules in place for a long time, for instance allowing for accelerated depreciation for fixed investments, incentives for R&D activities or newer initiatives to promote the development of a greener and more digitalised economy, should not be inhibited. This applies both to the economic recovery initiatives in connection with the pandemic, but also to future technological developments, which should be encouraged.
The implementation of the GloBE Model Rules in the EU will impact on existing provisions of the Anti-Tax Avoidance Directive (ATAD) and, more specifically, on the Controlled Foreign Company (CFC) rules, which could interact with the IIR as the basic rule of Pillar 2. The Commission Communication on Business Taxation for the 21st Century stated that governments have engaged in adopting a patchwork of anti-tax avoidance and evasion measures and that the measures have added further complexity. Even if it is not necessary to amend the ATAD, a review of the effectiveness and the administrative burden of the combined rules could be beneficial, both for tax administrations and businesses.
The EESC shares the Commission’s view that the transposition of the GloBE Model Rules in the EU could pave the way to agreement on the pending proposal to recast the Interest and Royalties Directive (IRD).
The EESC calls for close monitoring of the effectiveness of the rules and the administrative costs. Member States should avoid excessive use of tax rulings if they are harmful to the provisions of the global agreement.
The EESC agrees with imposing penalties for non-compliance and calls on Member States to perform thorough tax inspections to ensure full compliance with the Directive’s provisions.
The EESC calls for a revision of the EU list of non-cooperative third countries in light of the implementation of the agreed OECD tax package.
The EESC would like to point out that the fair taxation of multinational companies represents a long-standing request from the general public and expects a swift agreement on Pillar 2 in the EU and world-wide.
The full text of the opinion of the EESC on the proposal for the EU Pillar 2 directive as published in the Official Journal of the European Union of July 29, 2022 can be found here.
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