EU: New business tax framework is proposed

The plan sets out both a long-term and short-term vision to support Europe's recovery from the COVID-19 pandemic.

The plan sets out both a long-term and short-term vision to support Europe's recovery.

The European Commission today released a Communication on Business Taxation for the 21st century [PDF 620 KB] that is intended to promote “a robust, efficient and fair business tax system in the European Union.”

The plan sets out both a long-term and short-term vision to support Europe's recovery from the coronavirus (COVID-19) pandemic; is intended to provide adequate public revenues over the coming years; and aims to create an equitable and stable business environment.

As noted in an EC release, the communication takes account of the progress made in the G20/OECD discussions on global tax reform.

  • The EC will present by 2023 a new framework for business taxation in the EU—one that would reduce administrative burdens, remove tax obstacles, and create a more business-friendly environment in the single market. It would provide a single corporate tax rulebook for the EU, with a goal of providing for fairer allocation of taxing rights between EU Member States and would replace the pending proposal for a Common Consolidated Corporate Tax Base (to be withdrawn).
  • The 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. There are measures that would:
    • Provide greater public transparency by proposing that certain large companies operating in the EU publish their effective tax rates.
    • Address the abusive use of shell companies through new anti-tax avoidance measures
    • Support economic recovery by addressing the debt-equity bias in the current corporate taxation that treats debt financing of companies more favourably than equity financing and to encourage companies to finance their activities through equity rather than turning to debt

The EC today also adopted a recommendation on the domestic treatment of losses, specifically for EU Member States to allow loss carry-back for businesses to at least the previous fiscal year—thereby allowing businesses that were profitable in the years before the pandemic to offset their 2020 and 2021 losses against the taxes they paid before 2020.

The EC also released a set of “questions and answers” (Q&As) about the proposed business tax agenda.

Read a May 2021 report prepared by KPMG’s EU Tax Centre

 

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