EU Proposal Includes Increasing Corporate Tax to 15%

As part of the EU’s plan for global tax reform, the EU brought forward a proposal on implementing a minimum 15% Corporate Tax. This is formed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). With many EU nations agreeing to the proposal, including Ireland, it seemed positive for a global tax reform. However some concerns from Poland, Sweden, Estonia, and Malta; the implementation of this tax increase will not be as efficient as expected. The proposal requires the backing of all 27 EU nations. Some nations rejected a French proposal compromise on implementing the corporate tax in the EU.  

What the EU wish to Implement

The EU has proposed a Directive to implement a global corporate tax rate of minimum 15% for large companies that operate in the EU. This corporate tax rate would be calculated per jurisdiction with clear to ensure large companies pay the rate of 15% in every jurisdiction that they are operating in. Similarly in October 2021, members of the Organization for Economic Co-Operation and Development (OECD)/G20 Inclusive Framework worked on a global consensus-based solution to reform international corporate tax. It resulted in a global agreement of 137 jurisdictions. This solution consisted of two pillars, Pillar 1 addresses the partial re-allocation of taxing rights. Pillar 2 addresses the minimum level of taxation of profits of multinational enterprises.  

Who will be affected by the Corporate Tax increase?

The proposed tax increase will apply to any domestic and international group with a combined financial revenue of over €750 million a year. They must also have a parent company of subsidiary in an EU member state. To reduce compliance burdens, exceptions proposed include:

• De Minimis Exclusion: If the companies revenues and profits in a jurisdiction are under a certain amount, no top-up tax will be charged on the profits in this jurisdiction.
• Substance Carve-Out: Companies can exclude from top-up tax an amount of income that is minimum 5% of the value of tangible assets and 5% of payroll.
• More information 

Pushback on Corporate Tax Rate

Recently Poland, Sweden, Estonia, and Malta have blocked the tax deal. With Ireland in agreement to the proposal, Paschal Donohoe (Minister for Finance) wishes to legislate the bill for the beginning of next year. With pushback from other EU nations, suggestions have been made to change implementation to the end of next year to allow companies to adapt. French Minister for Finance Bruno Le Maire intends to readdress the proposal in April.