Europe finally adopts the minimum taxation of 15% for companies

A path full of pitfalls. Finally announcing the agreement of the twenty-seven countries of the European Union (EU) on the minimum effective taxation of 15% of the profits of multinationals, the European Commissioner for the Economy, Paolo Gentiloni, also acknowledged it. “It has been a long journey, with obstacles at every step. Today, unity has prevailed and all Member States and all EU citizens will benefit,” he exulted, in a declaration . The latest blockade operated by Poland was lifted on Thursday evening after Hungary, also among the troublemakers, had surrendered to general advice a few days earlier.

French President Emmanuel Macron, who has been at the forefront of this issue for several years, hailed “an important step forward for all those who support tax justice like us”. For his part, the French Finance Minister, Bruno Le Maire, hailed a “historic day” in a tweet against the race for the lowest tax.

Today is a historic day: after 5 years of fighting with @EmanuelMacronthe 27 have adopted the minimum tax of 15% for multinationals.
This French-led fight is a decisive step against the race for the lowest tax bidder.

— Bruno Le Maire (@BrunoLeMaire) December 16, 2022

“We are realizing one of the projects dearest to me in Europe: the minimum taxation of companies at a global level”, also greeted the German chancellor Olaf Scholz.

We welcome the unanimous agreement on our proposal for an effective minimum rate for large multinational groups.

With this historic deal, the EU’s commitment to be among the first to implement the OECD tax reform is getting closer to realisation.#Fair taxation

— European Commission 🇪🇺 (@EU_Commission) December 13, 2022

The result of an agreement concluded by almost 140 countries within the Organization for Economic Cooperation and Development (OECD) in the autumn of 2020, the Europeans will therefore transcribe pillar 2 of the tax reform elaborated by the organization. From 2024, large multinationals will have to pay an effective tax of 15% on their profits in the Union (implemented in 2023). The entry into force of the provision in Europe is in fact scheduled for 31 December 2023.

Waiting for the USA

The reform of international taxation has therefore just taken a big step. It remains to transform the test. For EU experts and authorities, this decision will perhaps encourage the US to follow suit. For the time being, the OECD reform pillar has not yet been validated by the US Congress.

Instead of tax havens withholding the profits of American companies, these profits can flow back to the United States instead, allowing us to invest more in our infrastructure.

On Friday, US Treasury Secretary Janet Yellen welcomed the European decision. Emphasizing that the United States was the first in the world to adopt a minimum foreign income tax on domestically headquartered multinationals, the secretary said she was determined “to take the additional steps necessary to implement” the agreement concluded under the aegis of the OECD. “Instead of tax havens withholding the profits of American companies, these profits can instead flow back to the United States, allowing us to invest more in our infrastructure, our economy and our people,” she said in her press release. .

The second part of the reform, the first pillar, remains to be done. Its ambition is to distribute the rights to tax the super-profits of multinational corporations differently internationally. This project aims to combat cross-border profit shifting that costs governments between $100 and $240 billion in tax revenues annually. It provides for the taxation of companies where they make their profits to put an end to some tax optimization practices. It is especially aimed at the digital giants.

A second installment next year

At this stage, the OECD is working on developing a multilateral convention to be ratified by the parliaments of 140 states. “We have made great progress towards the implementation of a new right to tax under Pillar 1 of our international tax agreement”, assured last July Mathias Cormann, Secretary General of the Organization, “We will commit ourselves as quickly as possible to complete this work, but we will take as long as necessary to get the rules in order,” he said. The text is expected in the first half of next year with the aim of implementing the reform at the beginning of 2024. The path, once again, is strewn with pitfalls.