Nairobi, 22 May 2022 (TDI): The European Commission has proposed that the EU create a global minimum tax agreement. The European Parliament approved the deal in a non-binding report.
On the other hand, Oxfam criticized the European Commission’s proposal for its lack of ambition. In March and April, the council was unable to reach an agreement on the EU minimum tax.
On Tuesday, May 24, the European Union Finance Ministers are scheduled to vote on a final deal.
Chiara Putaturo, an Oxfam EU Tax expert, responded by saying, “The European Parliament’s plan for an EU minimum tax is a step in what should be a leap forward. Small improvements introduce a sliver of flexibility in a proposal that risks setting in stone a European tax system low in ambition for years to come.
The report keeps the minimum tax rate low at 15 percent and makes no change to the several exemptions which companies can use as loopholes to continue to dodge paying their fair share of tax.
Yet, the report nudges the door open for a more ambitious tax regime as it allows EU countries to set alternative forms of minimum taxation domestically and the EU to review the text in five years, hopefully improving it.
The report also contains concrete steps which make it more difficult for companies to adopt fictitious arrangements to escape paying the minimum tax. Up until now, EU tax havens like Ireland and Malta have done their best to water down the minimum tax.
While peoples’ pockets are hit hard with living costs skyrocketing, big companies are raking in record profits. EU leaders cannot stand idly by and allow tax aggressive countries to, once again, decide the terms of the deal.
At next week’s meeting, EU finance ministers must not brush aside the European Parliament’s opinion in favor of a tax regime which works for EU tax havens.”
European Union minimum tax
Oxfam is in favor of implementing a global minimum tax. However, it finds the OECD-agreed and EU-implemented designs to be biased. It is skewed against low-income countries’ interests.
The 15% effective tax rate is thought to be far too low to eliminate tax competition. Furthermore, both the OECD agreement and the EU plan include a “substance carve-out.”
As a result, businesses can pay a lower tax rate. It will be lower than 15% in countries with a large workforce. It will be lower for tangible assets like factories and machines as well.
According to the EU Tax Observatory, this loophole affects revenue for EU countries. It falls by 23% in the first ten years and then by 14% after that. Malta was one of the more hesitant EU countries during the talks.
Ireland has been a major champion of keeping the minimum tax rate below 15% at the OECD level. It has a corporate tax rate of 12.5 percent. In Malta and Ireland, the European Commission noted the dangers of aggressive tax planning.