Brussels proposes 15% minimum rate for large companies and limiting shell companies in the EU

The European Commission has proposed a directive to ensure a minimum effective rate of 15% for large companies, as well as measures to eliminate shell companies, in a move that aims to put the European bloc at the forefront of global tax reform.

The Brussels initiative reflects the European Union’s commitment to the reform agreed within the Organisation for Economic Cooperation and Development (OECD), which includes a global minimum corporate tax rate of 15%. The aim is to have a transparent, fair and stable tax framework.

In this sense, the proposed directive will affect large companies, both national and multinational, and from the financial sector, with revenues of more than 750 million and with an affiliate or subsidiary company in an EU member state.

On the specific operation, a tax top-up will apply in the event that the minimum rate is not applied by the Member State in which the company is established. Provisions are in place to ensure that national authorities apply this tax “top-up”.

The rule aims to make the tax payment effective also in cases where companies’ subsidiaries are located in a tax haven outside the Union, where equivalent rules do not apply.

The Brussels plan, which now has to be adopted by the EU-27, provides for an exemption for companies from paying top-up tax on an amount of income that is at least 5% of the value of the company’s fixed assets and 5% of payroll expenses.

Fight against tax evasion

The second proposal put forward by Brussels puts the spotlight on shell companies and seeks to limit their role, thus combating tax avoidance through these companies.

The idea is to ensure that EU entities with little or no economic activity cannot benefit from any tax advantages and do not impose a financial burden on taxpayers by limiting shell companies as much as possible.

This will be done by increasing transparency. The idea is to allow national authorities to identify shell companies, through a set of clear criteria and, key to the measure, will be that one Member State will be able to ask another for explanations about entities that are suspected of being used to evade tax.