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The EU wants a sturdy, environment friendly and honest enterprise tax framework that helps the post-COVID-19 restoration, removes obstacles to cross-border funding and creates an setting conducive to honest and sustainable development.

That’s the reason, on 18 Could 2021, the Fee revealed the Communication on Enterprise Taxation for the Twenty first Century. The Communication units out each a long-term imaginative and prescient to supply a good and sustainable enterprise setting and EU tax system, and a tax agenda for the subsequent two years, with focused measures that promote productive funding and entrepreneurship and guarantee efficient taxation.

What are the principle issues this Communication addresses?

The context for EU enterprise taxation coverage has modified radically previously yr. The general public well being challenges stemming from the COVID-19 pandemic became essentially the most drastic financial disaster within the EU historical past, inflicting rising inequality, and deeply impacting social security nets.

The pandemic has additionally accelerated current developments, similar to digitalisation, and highlighted issues with the present company tax system:

• The present worldwide company tax system was designed greater than a century in the past and is predicated on outdated rules of tax residence and supply. Developments in globalisation and digitalisation have left these rules more and more out of synch with the financial system of at present and the made tax guidelines more and more troublesome to use to fashionable enterprise realities. 
• Within the EU, the patchwork of nationwide company tax guidelines creates complexities for companies working cross-border within the Single market. Grappling with as much as 27 completely different nationwide tax methods creates explicit challenges for EU SMEs, start-ups and different companies trying to develop, broaden and commerce cross-border. This hurts funding and development, in addition to the EU’s competitiveness.
• Whereas company earnings is taxed on the nationwide degree, enterprise fashions proceed to develop into ever extra worldwide, advanced and digital. This creates excessive compliance prices for enterprise and dangers of double taxation. On the similar time, some firms exploit loopholes between tax methods by way of aggressive tax planning methods. This additionally makes it troublesome for residents to know the way a lot firms are literally paying in tax, which dangers undermining belief within the tax system as an entire.

What’s going to the Fee suggest?

Within the long-term, the Communication will create a brand new framework for enterprise taxation within the EU, which can scale back administrative burdens, take away tax obstacles and foster a extra business-friendly setting within the Single Market. The “Enterprise in Europe: Framework for Earnings Taxation” (or BEFIT) will present a single company tax rulebook for the EU, primarily based on a formulary apportionment and a standard tax base. BEFIT will minimize pink tape, scale back compliance prices, scale back tax avoidance alternatives and assist jobs, development and funding within the EU.

Within the brief time period, the Communication additionally units out a collection of focused initiatives to handle present issues in enterprise taxation and create a extra secure, supportive and honest company tax framework for the long run. The Fee will suggest to:

• Higher assist enterprise, and significantly SMEs, of their restoration, with a Suggestion on the home therapy of losses. The Suggestion prompts Member States to permit loss carry again for companies to a minimum of the earlier fiscal yr. Loss carry again has the benefit of benefitting solely the companies that had been worthwhile within the years earlier than the pandemic, so it helps wholesome companies. Firms that had been making a revenue and paying taxes within the years previous to 2020 would be capable of offset their 2020 and 2021 losses towards these taxes. This ensures that the measure is focused at companies struggling as a direct results of the pandemic, and that public cash isn’t spent attempting to assist personal companies which can be failing for causes unrelated to the disaster. Member States will even should restrict the quantity of losses to be carried again to  €3 million per loss making fiscal yr. It will assist degree the enjoying area and higher assist enterprise through the restoration, and can significantly profit SMEs.
• Promote innovation by addressing the debt-equity bias in company taxation by way of an allowance system. The financial disaster following the COVID-19 pandemic has contributed to a major enhance in firms’ inventory of money owed. The present pro-debt bias of tax guidelines, the place companies can deduct pursuits connected to a debt financing, however not the prices associated to fairness financing, can encourage firms to build up money owed. This might result in excessive waves of insolvency, with a destructive impact for the EU as an entire. The Fee proposal will attempt to redress the debt-equity bias and contribute to the re-equitisation of firms financially weak due to the COVID-19 disaster.
• Guarantee larger public transparency on the taxes paid by companies, by proposing that sure massive firms working within the EU ought to should publish their efficient tax charges. The proposal will permit public scrutiny the place aggressive tax planning methods are used and can present policy-makers with a greater overview of the tax contribution made by massive multinational firms within the EU.
• Deal with the abusive use of shell firms, by way of new anti tax-avoidance measures. Shell firms are authorized entities and preparations which have little or no substance and financial exercise, and in some circumstances could also be used purely for aggressive tax planning. The Fee will suggest new monitoring and reporting necessities for shell firms, in order that tax authorities have higher oversight and may higher reply to aggressive tax planning by way of these entities.

What’s the timing for the upcoming proposals?

• Undertake a advice on the home therapy of losses for SMEs through the restoration (alongside this Communication) – revealed
• Desk a legislative proposal to handle aggressive tax-planning alternatives linked to using shell firms (ATAD 3)  – by This fall 2021
• Make a legislative proposal making a Debt Fairness Bias Discount Allowance (DEBRA)  – by Q1 2022
• Make a legislative proposal for the publication of efficient tax charges paid by massive firms, primarily based on the methodology beneath dialogue in Pillar 2 of the OECD negotiations  – by 2022
• Desk a proposal for BEFIT (Enterprise in Europe: Framework for Earnings Taxation), shifting in the direction of a standard tax rulebook and offering for fairer allocation of taxing rights between Member States – 2023

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