Menu
Tax Notes logo

EU Parliament Calls for One Voice in OECD Global Tax Talks

Posted on Dec. 19, 2019

Members of the European Parliament (MEPs) have called for a common EU position — and backup plan — as OECD negotiations continue to find a multilateral solution to adapt international tax rules for the digital age.

In a resolution that passed December 18, the EP urged the European Commission and EU member states to put up a united front during the talks “to ensure a fairer allocation of taxing rights and a minimum level of taxation.”

More than 130 countries are discussing proposals within the inclusive framework on base erosion and profit shifting, a group of jurisdictions committed to implementing key measures of the OECD BEPS project and  working on remaining standard setting.

The proposals are organized under two pillars, which are the foundation of the OECD’s work toward a consensus-based solution by the end of 2020 to address the tax challenges of the digitalization of the economy. Pillar 1 focuses on revised profit allocation and nexus rules, while pillar 2 focuses on global minimum taxation.

To help develop a joint EU position, the commission should provide revenue impact assessments of both pillars for each EU member state, including analyses of spillover effects, according to the resolution. In turn, EU member states should share all relevant data with the OECD and the commission to ensure that their impact assessments are as accurate as possible, the resolution says.

While MEPs were in favor of the commission and member states working to reach a global solution, they also expressed support for Commission President Ursula von der Leyen to propose an EU approach to tax the digitalizing economy in case international talks fail. In addition to targeting digital businesses, such a solution should “strengthen the single market by establishing a minimum level of tax that would prevent unilateral measures,” according to the resolution.

MEPs also urged the commission and the EU Council to prepare a legal basis for the EU to adopt a global tax deal, and to consider avoiding one that requires unanimity in the council, the resolution says. Unanimity is required among EU member states to approve measures in certain areas, including tax matters, but there have been growing calls within the EU for qualified majority voting on tax.

The resolution also sets out the EP's position on certain aspects of the proposals under both pillars. MEPs welcomed the OECD secretariat’s so-called unified approach under pillar 1 but recommended that the OECD “make a clear distinction between sectors and business sizes in its proposal” when it comes to scope.

MEPs were also supportive of pillar 1’s proposed allocation of taxing rights that venture beyond the arm’s-length principle, but they raised concerns about an approach that attempts to differentiate routine and nonroutine profits — “concepts that are not yet clearly defined and could lead to artificial distinction only” — the resolution says, adding that a more comprehensive reform of the arm’s-length principle would be more appropriate.

Under the pillar 1 unified approach, large consumer-facing companies would be taxed on three categories of profit: amounts A, B, and C. Amount A would consist of some portion of the group’s deemed residual profit, subject to simplifying conventions; amount B would provide fixed remuneration for baseline marketing and distribution activities occurring in market jurisdictions; and amount C would reflect local group functions beyond routine activities in amount B, and would be determined under the arm's-length principle.

On pillar 2, which focuses on a global anti-base-erosion proposal put forth by France and Germany, MEPs noted that any international talks on a minimum effective tax rate “should be set at a fair and sufficient level to discourage profit shifting and prevent damaging tax competition,” among other concerns.

Chiara Putaturo, EU tax policy adviser for Oxfam, cheered the resolution. “We now urge the OECD, and EU member states around the table, to heed the call of their citizens and fundamentally revise current tax rules,” she said in a statement. “They must support an ambitious minimum effective tax rate to stop the race to the bottom on corporate taxation.”

MEP Sven Giegold, financial and economic policy spokesperson for the Greens/European Free Alliance group, welcomed the resolution in a December 18 blog post, underscoring recent objections from the United States, which “show that an agreement at a global level is by no means certain.”

Giegold was referring to a December 3 letter from Treasury Secretary Steven Mnuchin to OECD Secretary-General Angel Gurría, in which he raised concerns about pillar 1 and called for it to be a “safe-harbor regime,” which surprised many stakeholders.

If the OECD-level talks fail, then the commission must act, according to Giegold. “If ten out of 28 EU member states levy their own digital tax or plan to do so, this clearly distorts competition in the internal market,” he said. “We need a European response to the cross-border problem of low to zero taxation of digital value added.”

While MEPs weren’t able to recommend a concrete minimum tax rate in the resolution, “the fundamental commitment of the entire European Parliament to minimum taxes is an important signal in the fight against tax avoidance,” Giegold said. “It is time for all companies in the EU — large and small — to pay their fair share.”

Copy RID