Big profits should mean fair taxes: the EU’s minimum tax rules need to be stronger to achieve tax justice

A new proposal on European minimum taxation is released today (22/12) by the European Commission. Our Greens/EFA MEPs Kira Peter-Hansen, Ernest Urtasun, Claude Gruffat, Damien Carême explain what’s included in the new plans and where they fall short of the changes needed to achieve tax justice.

New plans, released today by the European Commission, lay out the next steps needed to carry through on the recently agreed global tax deal for the world’s largest multinational companies.

At the end of October,  137 countries agreed on a minimum effective tax on multinationals after years of negotiations. The deal sets out a minimum tax of 15% for corporations with a yearly revenue of €750 million. This will directly impact the largest multinationals in the world.

What will a minimum tax rate change?

What this means in practice is that there would no longer be any incentive for a large German car manufacturer to shift profits to a country that has a lower effective tax rate, as Germany would tax the difference. The aim is to stop countries from ‘racing to the bottom’ by lowering their tax thresholds.

Large multinational companies in the EU are making millions in profits each year. Thanks to the differing tax rules in every country they’re able to pick and choose how much tax they pay. This means that they often shift profits to countries with very low tax rates. This means taxpayers are losing out. Giant companies take all the benefits of trading in the EU without giving back their fair share. Companies making huge profits should pay fair taxes.

The Greens/EFA wanted to see more ambition from this international tax deal. We strongly advocated for a minimum tax rate of 21%, in support of the Biden administration in the US. Unfortunately, this opportunity was lost during the international negotiations. Pressured by tax havens, the rate was lowered to 15% and part of the profits were made exempt from the minimum tax rate. Some EU member states were at the forefront of watering down the ambition in the deal. This raises questions about the EU’s requirement for a unanimous vote on tax matters. Right now, the threat of a single veto means that individual EU countries are able to water down international agreements despite opposition from other EU member states.

What happens next? The Commission’s proposal on European Minimum Taxation

Now all eyes are on the European Commission’s proposal. The same EU countries that helped to water down the international deal now stand ready to use their veto power against any attempt to increase minimum tax by the European Commission. In reality, the European Commission has the power to go beyond the agreed deal and propose minimum tax rules for the EU that are both stronger and more effective than the global minimum.

They could lower the threshold of €750 million in profits and target more multinational companies. They could also disregard the exemptions on certain profits when applying the minimum tax rules within the EU. This would significantly increase the effectiveness of the minimum tax.

Is European Minimum Taxation the path towards tax justice?

A European minimum tax is certainly a necessary step in the right direction, but the current plans will need to be significantly strengthened if we want to achieve tax justice. At the very least, the minimum tax should apply to more multinational companies and to all profits.

Tax justice is democratic justice. Stalling this deal and blocking its implementation only benefits European tax havens and business lobbyists.

EU countries such as Estonia, Hungary and Ireland attract profits by offering tax exemptions to large corporations. Business lobbyists have already mobilised to protect the benefits they get from countries competing aggressively against each other to lower tax rates at the expense of tax revenues. We cannot allow them to win and destroy any ambition for tax justice.

What needs to change on European Taxation?

We need to see a change on tax in the EU. The European Commission and the French presidency of the European Council must strive for the highest ambition when introducing the minimum tax in the EU. We cannot allow a few EU countries to block the needed progress in tax matters in 2022.

If needs be, the EU treaties offer the tools for the Commission to use a legal base that does not require a unanimous vote. If it’s not willing to use it, then European member states with more ambition should further their cooperation and move forward together.

This is the first step to achieve some form of tax justice across the EU. If we want to see this happen, we must spare no effort.