“It is now or never for a discussion on EU level about a minimum tax rate”

EU-implementation of the OESO agreement

In December 2021, led by the Organisation for Economic Co-operation and Development (OECD), model legislation was published after the global agreement was reached in October 2021 on a global review of the taxation of multinationals. In October 2021, Maarten de Wilde considered this a breakthrough in international tax law. For a successful rollout in the EU of these new agreements, implementation in EU legislation is necessary. The OECD model has two pillars: the redistribution of taxing rights through new profit allocation rules and a new global minimum tax rate. In December, the European Commission published a draft directive to implement a new global minimum tax rate, almost identical to the OESO model legislation.

Is a minimum tax rate a good idea?

Pillar two aims to combat tax evasion by multinationals and aims to limit global tax competition. Especially this second goal is up for debate, according to De Wilde: “until recently, we found that countries should decide for themselves what the tax burden of corporate tax on their domestic profits is. Of course, we wanted to tackle tax evasion and unfair competition, but how realistic investments were handled was up to the countries themselves. That starting point has changed. At a certain moment, we have started to think that competing with other countries for the sake of investments through profit tax should be changed. The pillar two proposal is the result of this.” By introducing a minimum tax fare for corporate tax, countries are no longer autonomous in using profit tax to compete with other countries. “Whether that is preferable is a political matter, but the fact that the pillar two plan of the OECD has been accepted without any objections in Europe is remarkable to me”, explains the Professor of International Tax Law at the Erasmus University Rotterdam.

Now or never

As long as there is no legally binding agreement, (EU) states are not bound to comply with the proposal. Since a legal agreement is near, the discussion in several countries intensifies on pillar two. A debate on EU Level has not happened yet, however. According to De Wilde, this must change quickly: “It is now or never for member states to start the discussion on whether Europe should want a minimum profit alignment, and if so, whether the technically complex pillar two system is the appropriate measure for this.”