On 1 July 2021, 130 countries agreed at OECD level to introduce a global minimum tax rate of 15 %. How this is technically possible at EU level and why this minimum tax rate has to become reality as soon as possible, was the subject of a webinar hosted by AK EUROPA and ÖGB Europabüro, which took place the same day the day agreement was reached.
The Agreement at OECD level poses the question for the EU, how an effective minimum tax rate at EU level can be actually legally implemented. The principle of unanimity, which is enshrined in the EU regarding tax issues and the ECJ jurisdiction on fundamental freedoms are framework conditions, which will present challenges to the practical implementation. The AK has commissioned a Study, which outlines ways for an economically sensible and legally possible implementation.
In his opening words, Prof. Johannes Becker (Münster University) described the economic aspects of a minimum tax rate. Especially after the 2009 Global Financial Crisis, the severe austerity policy of many countries had been in sharp contrast to increasing reports on internationally operating corporations, which, due to profit shifting, hardly paid any taxes. Therefore, discussions at OECD level have been going on since 2013 as to how to tax multinational companies fairer. Prof. Becker made it clear that an effective minimum tax rate is needed to prevent these companies from transferring their profits to low-tax countries; it is also necessary to achieve a more just distribution of tax revenue and to reduce tax competition between countries.
Regarding legal aspects, Prof. Joachim Englisch (Münster University) explained that there were special obstacles in the way to implement this effective minimum tax in the EU. For example, the minimum tax might discriminate against businesses with cross-border activities and be contrary to the Freedom of Establishment. Hence, the danger exists that the minimum tax will de facto be levered out in the EU. As a possible solution, he proposes an “avoider pays principle”: not collecting the minimum tax from the parent company, but directly from the low-taxed subsidiary abroad, would eliminate discrimination as the subsidiary – in spite of the minimum tax - would pay less tax than the comparable domestic company.
Johan Langerock, political advisor of the Green Group in the European Parliament’s Economic Committee, pointed out that four EU Member States were not part of the current agreement reached by 130 countries, namely Ireland, Estonia, Hungary and Cyprus. In view of the principle of unanimity regarding tax issues in the EU, this will make concrete implementation negotiations more difficult. Possible ways out in case of a blockade would be an intensified cooperation by the Member States or the setting of national rates by willing Member States. It could also be a Commission strategy to wait for the next steps of the US Congress, which intends to implement measures against tax competition between US States in autumn 2021. This could result in a momentum in the EU as well. He regards the idea of linking the minimum tax rate to the planned digital tax, which the EU institutions announced within the scope of the negotiations on the Multiannual Framework 2021-2027 for the next years, as another option for the Commission.