Estonian Presidency to Present the Boldest Plan to Date against Tax Avoidance

The EU 28 financial ministers are set to discuss taxation of multinational digital platforms in Tallin on September 15-16, Reuters reports.

Companies such as Amazon and Google have designed tax plans that reduce their tax liability in countries they operate. The proposal put forward by the Estonian Presidency proposes to shift the tax burden from the country where the company is registered to the market in which the company operates.

The war between countries that benefit from corporate tax avoidance schemes and countries that see their tax base erode wages for years, to the benefit of big multinationals. Tax avoidance schemes such registering in Ireland economic activity that takes place elsewhere in the EU, or using “royalty payment schemes” in the Netherlands, have been at the epicenter of a major political war.

France has vowed to fight against the erosion of its tax base, most recently taking the battle against Google. However, Apple, McDonald’s, Uber, and many more companies have been caught in the controversy over the last two years.

The Estonian Presidency is now proposing a reform of international tax rules to change the concept of “permanent establishment” of digital multinationals, forcing companies to pay tax where they create value, even if their physical presence in the market is only “virtual.” The bold proposal goes beyond measures proposed by the OECD in 2015 but will be vehemently opposed by countries that have made tax avoidance – or tax “competition” – foundational to their economic model.

The political consensus among the EU 28 is not likely to emerge, but the argument put forward is that a more harmonized taxation regime could help support EU competitiveness.

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