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On the 1st of January 2024, ground-breaking new EU rules came into effect introducing a minimum rate of effective taxation of 15% for multinational companies active in EU Member States
From now on, it is also up to the giants operating in many countries to pay a minimum rate of effective taxation of 15% for multinational companies active in EU Member States. In particular, Margrethe Vestager, a Danish politician who has been the European Commissioner for Competition since 2014, has been engaged for years in a battle against various multinationals such as Amazon, McDonald's, and Starbucks. These companies choose to establish their legal headquarters in countries with very favourable tax policies, such as Ireland, Luxembourg, and Cyprus. However, they operate in all European Union countries with the certainty that the taxes they will have to pay will be much lower than in the countries where they generate their highest profits.
This battle has been fought on various fronts, primarily in the judicial and political arenas. Since January 1 of this year, an agreement has come into effect throughout the European Union, establishing a minimum taxation of 15% for multinational companies whose turnover exceeds 750 million dollars. The new framework brings greater fairness and stability to the tax landscape in the EU and globally, making it more modern and better adapted to today's globalised, digital world.
The rules, unanimously agreed upon by Member States in 2022 through the Council Directive (EU) 2022/2523 of December 14, 2022, formalise the EU's implementation of the so-called 'Pillar 2' rules agreed as part of the global deal on international tax reform in 2021. Minimum corporate taxation is one of the two work streams agreed upon by members of the Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework, a working group of 141 countries and jurisdictions. They focused on the Two-Pillar Approach to address the tax challenges of the digital economy, leading to a global agreement among 137 jurisdictions in October 2021.
This is undoubtedly the biggest victory in Margrethe Vestager's ambitious battle against tax evasion. However, some criticise it, especially member countries that have served as European headquarters for large multinationals for years. These countries have greatly benefited from mild taxation and a high concentration of businesses over the years, often less densely populated nations whose state coffers have been enriched to the benefit of their citizens.
From now on, if a company operates in at least one of the 27 EU member states, it cannot pay less than 15% in taxes, regardless of the country it chooses to settle its headquarters. Critics argue that companies, especially those mentioned above, are already working to find loopholes, which could involve a series of tax breaks and incentives that offset the difference in what companies pay. Although this may seem like a battle only related to taxing profits and taxing those who have enriched themselves, as explained by the OECD, the issue is about fairness. In a world where the gap between the very rich and the very poor is widening, wealth redistribution through taxation becomes one of the few tools to combat social injustices.
If all countries were to decide on a minimum tax threshold, companies could no longer choose tax havens to establish themselves while operating in countries where their customers pay taxes regularly. Perhaps we can achieve a partial redistribution of wealth. The discussion could then be extended, for example, to the production of goods, materials, and clothing, compared to, for instance, a minimum wage for workers. All those companies exploiting low-cost production could no longer sell those products in more profitable markets. We could imagine creating a minimum standard that improves people's lives, but unfortunately, this latter hypothesis is challenging to implement and would also imply an increase in costs for us as consumers.
However, regarding multinational taxation, an important, albeit imperfect, step has been taken, and the European Union has been a pioneer in this battle.
Reference
Minimum corporate taxation - European Commission. (n.d.). Taxation and Customs Union.
Retrieved from https://taxation-customs.ec.europa.eu/taxation-1/corporate-taxation/minimum-corporate-taxation_en
Ceran, M. (n.d.). Tassazione delle grandi multinazionali: un accordo epocale targato EU. The Essential.
Retrieved from https://open.spotify.com/episode/2VqWI57yXqAVGmoEUtAZxt?si=fbafe448c8d64a83
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