The Commission is abandoning a plan to redistribute profits among European Union countries as part of a new taxing system due to be unveiled on Tuesday, Politico informs.
Commission President Ursula von der Leyen last year promised to introduce “a single set of tax rules for doing business in Europe.”
Initially, the EU executive planned to use a formula for sharing total pre-tax profits. Under this formula, income earned by multinational corporations is allocated to jurisdictions based on the location of value creation.
The EU chief will propose that multinational companies with annual revenues of more than 750 million euros merge their tax accounts into a single tax base. This will not include oil and gas, shipping and aviation companies.
During the seven-year transition period, each company will be taxed according to its share of the total tax base.
The purpose of “apportionment” is to make it easier for multinational corporations to offset losses across borders. In addition, it will allow enterprises operating abroad to be more confident about their tax bills.
“We try to maximise benefits for businesses without rocking the boat for finance ministers.”
Chairman of the European Parliament’s subcommittee on taxation Paul Tang criticised this approach.
[EU Economy Commissioner] Paolo Gentiloni needs to maintain the ambition of the reform that is the formulary apportionment.
Business representatives criticised the Commission’s timing: entrepreneurs are preparing for the global corporate tax rate, which will be applied from next year.
Mariella Caruana, Head of Tax Policy at BusinessEurope, condemned the rush to adopt a new tax system, which could lead to destabilisation and other economic difficulties.
“We need to understand the compatibility of these proposed rules with the EU’s global tax commitments.”
The proposal, known as BEFIT, will be unveiled on Tuesday along with new “transfer pricing” rules. Under the new rules, multinational companies record their profits and costs in different countries to minimise their tax bills.
