Future-proof taxation – Commission proposes new, ambitious business tax agenda

This article is brought to you in association with the European Commission.

The European Commission has today adopted a Communication on Business Taxation for the 21st century to promote a robust, efficient and fair business tax system in the European Union. It sets out both a long-term and short-term vision to support Europe’s recovery from the COVID-19 pandemic and to ensure adequate public revenues over the coming years. It aims to create an equitable and stable business environment, which can boost sustainable and job-rich growth in the EU and increase our open strategic autonomy. The Communication takes account of the progress made in the G20/OECD discussions on global tax reform.

First, the Commission will present by 2023 a new framework for business taxation in the EU, which will reduce administrative burdens, remove tax obstacles and create a more business-friendly environment in the Single Market. The “Business in Europe: Framework for Income Taxation” (or BEFIT) will provide a single corporate tax rulebook for the EU, providing for fairer allocation of taxing rights between Member States. BEFIT will cut red tape, reduce compliance costs, minimise tax avoidance opportunities and support EU jobs and investment in the Single Market. BEFIT will replace the pending proposal for a Common Consolidated Corporate Tax Base, which will be withdrawn. The Commission will launch a broader reflection on the future of taxation in the EU, which will culminate in a Tax Symposium on the “EU tax mix on the road to 2050” in 2022.

Second, today’s Communication also defines a  tax agenda for the next two years, with measures that promote productive investment and entrepreneurship, better safeguard national revenues, and support the green and digital transitions. This builds on the ambitious roadmap set out in the Tax Action Plan, presented by the Commission last summer.  Measures will include:

• Ensuring greater public transparency by proposing that certain large companies operating in the EU publish their effective tax rates. The abusive use of shell companies will also be tackled through new anti-tax avoidance measures;
• Supporting the recovery by addressing the debt-equity bias in the current corporate taxation, which treats debt financing of companies more favourably than equity financing. This proposal will aim to encourage companies to finance their activities through equity rather than turning to debt.

Third, the Commission has adopted today a Recommendation on the domestic treatment of losses. The Recommendation prompts Member States to allow loss carry-back for businesses to at least the previous fiscal year. This will benefit businesses that were profitable in the years before the pandemic, allowing them to offset their 2020 and 2021 losses against the taxes they paid before 2020. This measure will particularly benefit SMEs.

Background

Today’s Communication is part of a wider EU tax reform agenda for the coming years. In addition to the corporate tax reforms set out in the Communication, the Commission will soon present measures to ensure fair taxation in the digital economy. The Commission will propose a digital levy, which will serve as an EU own resource. The Commission will also soon come forward with a review of the Energy Taxation Directive and the Carbon Border Adjustment Mechanism (CBAM), in the context of the “FitFor55” package and European Green Deal. 

Members of the College said:

Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “Taxation needs to keep up to speed with our evolving economies and priorities. Our tax rules should support an inclusive recovery, be transparent and close the door on tax avoidance. They should also be efficient for businesses big and small. Today’s Communication will set the foundations for a corporate tax system in Europe that is fit for the 21st century, helping us to build a fairer and more sustainable society.”

Paolo Gentiloni, Commissioner for Economy, said, “It’s time to rethink taxation in Europe. As our economies transition to a new growth model supported by NextGenerationEU, so too must our tax systems adapt to the priorities of the 21st century. The renewal of the transatlantic relationship offers an opportunity to make decisive progress towards a global tax reform. We must work to seize that opportunity, while ensuring that an international agreement protects Europe’s key interests. Today we set out how a global deal will be implemented in the EU – and the other steps we will take over the coming three years to increase tax transparency and help businesses small and large to recover, grow and invest.”