Paying for the pandemic: EU targets corporate taxes

24 September 2020

It is interesting to read today that the EU Commission draws a direct link between the EU's €750bn recovery fund and a desire that member states raise more taxes from large corporates by addressing "aggresive tax planning".

As in the UK, the high cost of measures to promote the post Covid-19 recovery is likely to fuel a debate at EU level about where to look for additional tax revenues.

Addressing corporate tax avoidance has occupied the EU for some time, with some successes in rolling out measures across all member states that may increase the effective rate of tax for corporate tax payers (in particular under the two anti tax avoidance directives).

The problem for member states that want to go further in harmonising corporate tax rules (to create a level playing field for company taxation across the EU) is that tax changes generally require unanimous approval from all EU member states.

The politics of this are fascinating. Corporate tax rates and rules are not fully standardised across the EU, and those member states who favour tax competition between states typically prevent any changes that require unanimous approval.

The suggestion in today's papers is that the EU Commission proposes to achieve further tax changes using a mechanism in the EU treaty (Article 116) which allows for the adoption of directives to correct distortions in the internal market, crucially without requiring unanimous approval from all EU states.

Expect to hear a lot more about the contribution that corporations make to public finances, both in the UK and across the EU, as the debate around paying for the pandemic intensifies.

Tax avoidance by multinationals has shot up the political agenda in the wake of the pandemic as governments around the world spend billions to kick-start their economies.