EU Eyes New Tax Framework Going Beyond Current Global Plans

(Bloomberg) -- The European Union presented plans for a new corporate taxation framework for the bloc that would go further than a global deal currently under negotiation to change rules on how much and where multinational firms should pay levies.

The initiative follows the acceleration of talks between 140 countries after U.S. proposals to set a minimum rate for companies and make large businesses contribute more to governments in the countries where they actually operate.

The EU’s supplementary measure -- dubbed Business in Europe: Framework for Income Taxation, or BEFIT -- would create a single corporate tax rulebook and reallocate profits between member states.

The bloc’s proposal, which would cast aside a decade of inconclusive efforts on European corporate tax, arrives at a time of mounting pressure on governments to repair public finances after massive spending during the pandemic, and to tackle aggressive techniques big firms used to reduce their tax bills.

The situation is particularly problematic in the region, where the single market for goods and services is undermined by 27 different tax codes. That raises costs for business and reduces potential growth and investment, as well as creating loopholes and complexities, the EU Commission said.

“It’s time to rethink taxation in Europe,” said Commissioner for Economy Paolo Gentiloni. “BEFIT will cut red tape, reduce compliance costs, minimize tax avoidance opportunities and support EU jobs and investment.”

According to the proposals, a group or company would be able to determine its tax liability in each of the bloc’s member states according to a single set of rules, which could ultimately lead to the creation big firms filing a single EU tax return.

Within EU borders, the plans would go beyond the deal negotiated at the Organization for Economic Cooperation and Development, which is focusing on a U.S.-devised mechanism for redistributing taxing rights for only the 100 biggest global firms.

Existing rules for other firms would continue to exist alongside the new rules, while the EU’s new formula would replace allocation rules.

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