Brussels, 22 December 2021 (TDI): The European Commission proposed a directive ensuring a minimum effective tax rate for the global activities of large multinational groups, on the 22nd of December 2021.

Aim of Proposed Directive

The proposal aims to initiate transparency to the international organization and businesses tax framework. The EU will be the first to implement the most recent historic global tax reform agreement.

Proposal of Fair Taxation

The proposal was agreed upon by the 137 countries that they will practice it within and across the EU under determining certain rules. It follows the international agreement, which imposes the 15% effective tax rate.

Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said, By moving quickly to align with the far-reaching OECD agreement, Europe is playing its full part in creating a fairer global system for corporate taxation.

This is important when we need to increase public financing for fair, sustainable growth and investment and meet public financing needs too–both for tackling the pandemic’s aftermath and driving forward the green and digital transitions.

Putting the OECD agreement on minimum effective taxation into EU law will be vital for fighting tax avoidance and evasion while preventing a ‘race to the bottom’ with unhealthy tax competition between countries. It is to step forward to the fair taxation plan.” 

The rules will be put on the domestic and international large group in the EU Member States. If the countries will not impose a minimum effective rate on a low-taxed company, there will be provisions for the Member State of the parent company to apply a “top-up” tax.

Subsequent Measures

According to European Commission, a new proposal for business taxation will be published for EU member states to minimize the administrative burden for businesses, by the end of 2023. It will help in eliminating tax obstacles, which will create a flexible business environment in the Single Market.