The European Union put forth new proposals to create a more fair tax system, close loopholes between EU and non-EU nations and provide dispute resolution rules to mitigate problems of double taxation for multinational corporations.
The proposal, which could strike fear and uncertainty into the hearts of multinational corporations, is called the “Common Consolidated Corporate Tax Base (CCTB).” The program would force multinationals to pay taxes where their physical assets (including human capital) are located, and where their business transactions take place.
If approved, the CCTB would mean grand changes for companies like Apple, Pfizer and Facebook, which have all faced scrutiny, and even fines, from the European Union government.
The EU Council of Ministers, the chief decision-making institution of the EU, is slated to begin reviewing the proposals in 2017, the Wall Street Journal reports.
“With the rebooted CCCTB proposal, we’re addressing the concerns of both businesses and citizens in one fell swoop,” European Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, said in a press release. “We need to drive forward our fight against tax avoidance, which is delivering real change. Finance Ministers should look at this ambitious and timely package with a fresh pair of eyes because it will create a robust tax system fit for the 21st century.”
Vice-President of the European Commission Valdis Dombrovskis said in a press release: “Tax policy should support the EU’s goals of economic growth and social justice. Today’s proposals aim to boost growth and investment, support enterprise and ensure fairness. The current corporate tax system treats debt financing of companies more favourably than equity financing.”
For the new proposals to become law, they must garner unanimous approval of all 28 EU member states and further approval from each member state’s parliament — which is no simple task.
The CCTB, if passed, would become law in two phases. The first phase aims to make sure companies “with global revenues exceeding EUR 750 million a year will be taxed where they really make their profits.” EU member states would still have the ability to set their own corporate tax rates under the law. So it would not prevent Ireland from keeping its low corporate tax rate, a rate that attracted the business of Apple and Facebook.
The second phase would ensure that multinationals pay taxes to the member state in which they have operations.
Once the legislation is fully operation, the Commission predicts it will “raise total investment in the EU by up to 3.4%.” EU officials predict that the CCTB would cut profit-sharing by 70 percent, the Journal reports.
One of the most interesting things to watch if the CCTB is approved by the Council of Ministers will be changes in the corporate tax rate among E.U. members. Speculation surrounding the future of U.S. business operations came to a head in August, the European Commission decreed that Apple pay $14.5 billion dollars (plus interest) in back taxes to Ireland.
A key driver of American business into the EU over the last decade has been the comparatively lower corporate tax rate that countries like Ireland, Germany and Poland offer. If taxes on multinationals raise following the passage of the CCTB, it could mean the exodus of multinational corporations to a less burdensome tax area.
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