Europe plans new directive on corporate tax

Economy commissioner tells Irish audience that he will seek ‘uniform implementation’

EU economy commissioner Paolo Gentiloni: ‘loopholes and mismatches’ between EU states’ tax systems are leading to ‘aggressive tax planning’ by multinationals. Photograph: Alberto Pezzali - WPA Pool/ Getty

EU economy commissioner Paolo Gentiloni: ‘loopholes and mismatches’ between EU states’ tax systems are leading to ‘aggressive tax planning’ by multinationals. Photograph: Alberto Pezzali - WPA Pool/ Getty

 

The European Commission plans to propose a new directive to ensure “uniform implementation across all European Union member states” of any deal on international rules for corporate taxation. The Government has previously suggested such rules could cost Ireland up to €2 billion annually.

The European economy commissioner, Paolo Gentiloni, on Monday told an online conference of the Dublin-based Institute of International & European Affairs (IIEA) that any deal on the so-called Pillar 1 talks at the OECD would be implemented in the EU through a new directive.

His said any OECD deal on so-called Pillar 2 issues, which deal with how to tax the digital economy, would not be enforced in the EU through a new directive. Instead, it would require changes to existing directives and proposed legislation to ensure a common approach.

The commissioner said he recognised Ireland was “wary” of the proposed new rules to rein in corporate tax avoidance which, it was feared by the Government, could rein in Ireland’s ability to compete for international investment.

But he insisted Ireland, with its workforce and business environment, still had “all the tools” to maintain its offering, even in the face of new tax rules that may crimp its advantages.

He said “loopholes and mismatches” between EU states’ tax systems were leading to “aggressive tax planning” by multinationals.

Mr Gentiloni, who served as Italian prime minister in 2016-2018, denied that the push for a global minimum rate of corporation tax, supported by the G7 and the European Commission, violated the EU principle that says tax should be a national competency.

Balance

He said the purpose of the proposed new tax rules was not to “harmonise” tax systems or make “central decisions” on the issue. He said “balance is needed between two EU pillars” – that tax is a national issue and also “the fairness” of the EU single market.

He said the proposed rate of 15 per cent was still well below the rates of other big EU countries.

“As a measure it is not destroying national ownership [of tax issues], but it is addressing the needs of the single market,” he said.

The commissioner said in his speech that extra revenues raised by combating corporation tax avoidance would help meet the expenditure of governments to combat the Covid crisis, and for investment and stimulus afterwards.

The online event was chaired by the IIEA’s chief economist, Dan O’Brien, who suggested to Mr Gentiloni that the cash raised won’t “make a big difference”.

“It is not the silver bullet for public investment. But it is a component. It also sends a message of fairness and social justice,” he said.

In response to a question about whether a minimum tax rate might first require a harmonisation of the European corporate tax base – something bitterly opposed by Ireland for years – the commissioner said it was “too soon to answer”.

He said he would be happy with an “agreement in principle and a number” for a minimum rate at the next G20 meeting. He also suggested “compromise” was possible and said the EU was conscious of the needs of small member states such as Ireland.