On 18 May 2021 the European Commission adopted a Communication on Business Taxation for the 21st Century setting out its vision for supporting business during the economic recovery and achieving fairer taxation.
Ensuring effective taxation
The Commission will put forward proposals for raising revenue for its own resources. Initial proposals in July 2021 will include a proposed carbon border adjustment mechanism (CBAM), a digital levy and a revision of the EU emissions trading system (ETS). New measures to contribute to EU resources could include a Financial Transaction Tax.
Reform of international corporate tax
The Commission will propose a Directive for the implementation of the OECD/G20 Pillar 1 proposals in the EU. To ensure consistent application within the EU and compatibility with EU law, the principal method for implementing Pillar 2 will be an EU Directive that will reflect the OECD Model Rules with appropriate adjustments. The implementation of a global agreement on minimum effective taxation will also affect existing and pending EU Directives and initiatives.
Publication of effective tax rate
A fairer tax system requires greater public transparency for taxes paid by large enterprises. The Commission will propose the annual publication of the effective corporate tax rate of certain large enterprises operating in the EU, using the methodology agreed for the OECD/G20 Pillar 2 calculations.
The Commission proposal would require companies to report the necessary information to determine whether they have substantial presence and real economic activity, and would introduce new requirements for tax information, monitoring and transparency.
Treatment of losses
A recommendation to Member States on the domestic treatment of losses would provide better support businesses during the recovery and be of particular benefit for small and medium enterprises (SMEs). The Commission would look generally at coordinated treatment of cross-border loss relief to address issues encountered by SMEs and other businesses when they first expand within the EU.
Addressing the debt-equity bias
The Commission would make a proposal to address the debt-equity bias in corporate taxation. This would involve an allowance system for equity financing, which would facilitate the re-equitisation of vulnerable companies. The proposal would include anti-abuse measures.
Common Corporate Tax Framework
The Commission is to propose a new business income tax framework called Business in Europe: Framework for Income Taxation (BEFIT). This will involve a common tax base and the allocation of profits between EU Member States based on formulary apportionment. The proposal would replace the proposed Common Consolidated Corporate Tax Base (CCCTB).
Important considerations would include giving appropriate weight to sales to each destination country, reflecting the importance of the market where the taxpayer group engages in business, and taking into account assets (including intangibles) and labour (personnel and salaries) to arrive at a balanced distribution of corporate tax revenue among the Member States. The proposals would be based on the OECD/G20 approach and the apportionment formula will take into account the extent of digitalisation in current global business.
