Recent years have seen huge advancement in digitisation, which has had considerable impact on the way we relate and do business, and has been accelerated by the pandemic. These advancements are now warranting a response from governments, especially with regard to corporate taxation. Actions such as the tax reform plan proposed by President Joe Biden and the commitment expressed by the OECD clearly demonstrate this.
The European Commission (EC) has just issued a communication expressing its intention and action plan, entitled “Business Taxation for the 21st Century”; a document that points to Community priorities, to provide “a sound, efficient and fair fiscal framework that meets the needs of public funding”, the “ecological and digital transition”, and allows generation of “employment and investment based on fair and sustainable growth”.
The first point expressed by the EC is establishing an agenda common to all member countries, based on a “balanced combination of tax revenues, and a fiscal system guided by the principles of equity, efficiency and simplicity”, mentioning two axes: sustainable growth and effective fiscality.
The sustainable growth objective is directly linked to other strategic EU priorities such as the European Green Deal and its reforms relating to the Energy Taxation Directive. Other elements mentioned in the communication are taxation in line with digital objectives, and a framework that allows cross-border investment by removing tax barriers.
The communication clearly states that tax systems should remove barriers to the single market to ensure effective taxation, and they must be modernised to better reflect current and future economic and social developments. The text indicates the lines on which this reform will be based: reducing dependence on consumption taxes (such as VAT) or related to labour costs, encouraging environmental or health taxes (alcohol or tobacco), establishing fair and effective taxation on capital income, recurrent taxes on immovable property, and reform of the international corporate tax framework.
As to concrete measures, the communication sets out action plans for both the short and long term. These will include the Community application of OECD guidelines, as the body is currently working on the relocation of tax duties and the establishment of minimum taxation of multinationals. But this communication also expresses the EU’s desire and intention to go further – establishing measures to ensure greater transparency (especially on the duties of large corporations) and the fight against the use of ‘screen companies’, and outlines measures to support the competitiveness of businesses, especially for SMEs.
In addition, this document introduces a proposal for a new framework, entitled Business in Europe: Framework for Income Taxation (BEFIT). BEFIT will be a single corporate tax regulation for the EU, based on the fundamental characteristics of a common tax base and the distribution of profits among Member States.
This communication, which shows the European Union’s fiscal steps, makes clear the Community’s thinking for business taxation: greater harmony, moving towards a common market, responding to the challenges of digitisation, and other pressing aspects such as climate change. The communication refers to further updates after reflection linked to the symposium ‘EU tax mix on the road to 2050’, scheduled for 2022.
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