On 18 May, the European Commission has published a new communication titled “Business Taxation for the 21st Century” to promote a robust, efficient and fair business tax system in the European Union. The Communication anticipates 3 initiatives aimed to create an equitable and stable business environment, which can boost sustainable growth in the EU and increase the open strategic autonomy:
Firstly, the Commission will publish in 2023 a new framework for business taxation in the EU in order to 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” (BEFIT) will provide a single corporate tax rulebook for the EU, providing for fairer allocation of taxing rights between Member States. The act aims to “ensure a fair sharing of taxable revenue between different jurisdictions, driven by genuine business activity, and not by aggressive tax planning strategies and excessive tax competition”. This proposal would overhaul the EU’s existing corporate tax structure, but it will not establish a common corporate tax rate as distributed profits would be taxed at national rates. However, the proposal will set out that overall profits would be distributed among EU Member States based on a formula that takes into account the place where companies sell their goods or services, hold their assets and keep their workforce.
Secondly, the Business Taxation Communication defines a tax agenda for the next 2 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 of the Fair and Simple Taxation Package, presented by the Commission last summer.
Thirdly, alongside the Communication on Business Taxation, the European Commission has also adopted a Recommendation on the domestic treatment of losses, which prompts Member States to allow loss carry-back for businesses to at least the previous fiscal year. This will benefit businesses, and especially SMEs, 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.
The Business Taxation Communication is part of a wider EU tax reform agenda for the coming years. It also takes account of the progress made in the OECD discussions on the global tax reform. Ecommerce Europe will attentively monitor the interplay between the European Commission’s work and the work within the OECD, which aims to deliver a global agreement this summer on digital taxation, although, at least according to the Commission, the EU can and should go further than the OECD’s effort.
In that perspective, Ecommerce Europe is worried that the work carried out at EU level on digital taxation may jeopardise the important efforts and steps forward made at OECD level, global efforts that Ecommerce Europe widely supports. In fact, Ecommerce Europe strongly believes that the EU should only consider a digital levy if the OECD process breaks down. More information on our position on the digital levy can be found in our position paper available here.