EU moving towards 15% global tax for multinationals

EU Commissioner for Economy Paolo Gentiloni delivers a speech on the state of play of the Recovery and Resilience Facility (RRF) during a plenary session of the European Parliament, in Strasbourg, eastern France, on Dec 15, 2021. (JULIEN WARNAND / POOL / AFP)

BRUSSELS – A 15 percent effective tax rate should be applied to multinationals in the European Union, according to a directive issued on Friday by the European Commission.

Any large group, domestic or international, with combined financial revenues of more than 750 million euros per year and with either a parent company or a subsidiary situated in an EU member state, will be subject to the proposed rule

The 15 percent tax rate was agreed on by 137 countries in October this year, under the OECD (Organization for Economic Co-operation and Development) and G20 Inclusive Framework. The goal is to address the tax challenges of the digital economy.

"The directive we are putting forward will ensure that the new 15 percent minimum effective tax rate for large companies will be applied in a way that is fully compatible with EU law," said Paolo Gentiloni, European Commissioner for Economy.

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Meanwhile, the Commission's executive vice-president Valdis Dombrovskis explained: "This is particularly important at a time when we need to increase public financing for fair sustainable growth and investment and meet public financing needs too — both for tackling the pandemic's aftermath and driving forward the green and digital transitions."

Any large group, domestic or international, with combined financial revenues of more than 750 million euros per year and with either a parent company or a subsidiary situated in an EU member state, will be subject to the proposed rule.

If the effective tax rate of a large group in an EU member state falls below 15 percent, then the entity will be subjected to a 15 percent top-up tax. The directive also contains the "Undertaxed Payments Rule," a provision in case the parent company is located in a non-EU, low-tax country not applying equivalent rules.

To reduce the impact on groups carrying out real economic activities, companies will be able to exclude an amount of income equal to 5 percent of the value of tangible assets and 5 percent of payroll.

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The next step for the directive to become effective is to be agreed on unanimously by EU member states. The European Parliament and European Economic and Social Committee will also be consulted.