EU directive will implement OECD tax deal ‘as is’

By Doug Connolly, MNE Tax

The European Commission “will try” to deliver in December a directive to implement the OECD tax deal within the EU and that directive “will implement the agreement as is,” according to October 12 comments by Benjamin Angel, Director of the European Commission Directorate-General for Taxation and Customs Union.

Speaking in an EU Tax Observatory webinar discussing the implementation within the EU of an effective minimum tax in line with last week’s OECD agreement, Angel was responding to other panelists who suggested that the EU directive should have built-in flexibility to adapt the terms – such as to adopt an increased minimum tax rate – a few years down the road.

“Do you prefer the perfect deal not adopted or the good deal adopted?” Angel asked the panelists rhetorically, noting the difficult negotiations that made possible the October 8 agreement between 136 countries. Not considering building flexibility into the EU directive to be politically feasible, he noted, “this agreement is as good as it can get.”

However, while the planned EU directive would generally adopt the OECD agreement as is, it must also be drafted in such a way to pass the scrutiny of the European Court of Justice. Accordingly, Angel said that the directive will not distinguish between domestic and cross-border situations. This is to minimize the risk that the Court of Justice would find the rules discriminatory in situations in which the top-up tax under the GloBE rules would be applied to a parent company’s cross-border subsidiary but not to a domestic one.

The panel was initially scheduled to discuss what the options would be for implementing the OECD minimum tax within the EU if member states did not unanimously endorse the OECD agreement. However, as of last week, there appears to be unanimous support for such a deal, as written, within the EU.

Accordingly, the “Plan A” implementation approach, i.e., via a directive, is the obvious and preferred choice, even though it would require unanimity. “I’m confident that we will get the unanimity we need,” Angel noted, “because we have done already the heavy lifting.”

Noting that the final negotiations leading up to the OECD October 8 agreement required compromises, especially on carve-outs and transition periods, and that there are critiques of the compromises, Angel suggested nonetheless that the minimum rate agreement is “more demanding than usually perceived.” He explained that this is because people think of it as a nominal rate when actually it is an effective rate. He added that the 15% minimum effective rate will be “biting” in about a third of EU member states.

Angel also explained that the European Commission has “no objection” to the Irish approach of retaining a secondary lower rate. Ireland announced in the past week that its approach to implementation of the minimum rate would involve two separate rates: the 15% agreed minimum effective rate for companies in scope of the agreement and its current 12.5% corporate tax rate for other companies. “This is their choice,” Angel commented.