As published on: oxfam.org, Wednesday 13 September, 2023.
Today, the European Commission unveiled its proposal for a single EU corporate tax rulebook: BEFIT (Business in Europe – Framework for Business Taxation).
In response, Chiara Putaturo, Oxfam EU’s tax expert, said:
“This long-overdue reform fails to make big multinationals in Europe finally pay their fair share of tax. It gives them a free pass to continue booking taxes where they only have empty offices and siphon off their profits to EU tax havens.
“The proposal is just a reshuffle of outdated rules. Most loopholes remain open for companies to continue escaping their tax obligations. Profits should instead be taxed according to factors, such as workforce size, sales and physical assets, like equipment and machinery. The only consolation is that all companies in the EU will have to report their profits in the same way and it forces big companies to comply.
“This is a lost opportunity for European countries to boost their coffers and soften the blow of the cost-of-living crisis in a time of rising inflation and dwindling government resources. A real European-level tax reform was now more important than ever, given the recent failure to agree on a similar reform at the OECD level."
Chiara Putaturo is available for interview and comment.
What has happened so far?
The European Commission presented BEFIT (Business in Europe: Framework for Income Taxation) - a set of EU corporate tax rules. These rules include a common corporate income tax base and the harmonisation of how multinationals report their internal transactions (transactions within the same company). The proposal does not include the redistribution of taxable profits among EU countries calculated using a pre-defined formula (so-called formulary apportionment), as proposed by the original impact assessment.
It follows a similar initiative to reform the EU tax system: the 2011 Common Consolidated Corporate Tax Base (“CCCTB”). EU countries failed to reach an agreement, complicated by the unanimous voting rules for taxation at the EU level.
At the international level, the OECD/G20 Inclusive Framework on BEPS (Base Erosion and Profit Shifting) also failed to agree on a comprehensive reform for profit redistribution. The final agreement only covers a small share of global profits (25% of profit in excess of 10%) and the redistribution is based only on sales. A recent UN report stated that many countries, especially low- and middle-income countries, criticised Pillar 1.
What does Oxfam want?
In the European Commission’s public consultation, Oxfam called the proposal a powerful opportunity to reshape the EU’s corporate tax framework. Oxfam made the following recommendations:
The redistribution formula is based on production factors (employee numbers, payroll, sales, tangible assets) and excludes intangible assets like intellectual property.
There are no carve-outs or exemptions for certain sectors; and
It includes a wide scope and is mandatory for big companies.
The European Commission’s proposal is mandatory for big companies and does not include sectoral exemptions. However, it does not include a formula to redistribute profits.
EU countries will discuss the Commission’s proposal. They must agree unanimously.
The European Parliament will present and vote on their opinion, but the Parliament is not a co-legislator.
According to Tax Justice Network, over 300 billion dollars (nearly 300 billion euro) is lost yearly due to multinationals shifting their profits to tax havens. Lower-income countries’ tax losses ($47 billion) are equivalent to half (49 per cent) of their public health budgets.
In previous analyses, Oxfam found that five EU countries – Cyprus, Ireland, Luxembourg, Malta and the Netherlands – have characteristics of tax havens despite not being on the EU’s list of tax havens.
During the OECD/G20 Inclusive Framework negotiations, Oxfam called for a redistribution of all companies’ profits and counting factors like employee numbers, payrolls and in profit allocation. The final OECD/Pillar 1 proposal fails to do this, leading to low- and lower-income countries receiving a small amount of revenue according to Oxfam estimates.