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https://nltimes.nl/2021/06/06/netherlands-favor-g7-plan-eliminate-tax-havens

Vijlbrief also said he is working on implementing the agreement as soon as possible in the EU. The G7 countries all already have a corporate tax rate of 15 percent, yet in the EU some countries are below that level. In Ireland and Cyprus company tax rates are only 12.5 percent and in Hungary only nine percent.

What are some existing mechanisms within the EU that can help with that and does this mechanisms go against a country's sovereignty or not?

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  • The second question is not particularly relevant to the first. Whatever one's opinion on the impact that joining the EU has on a country's sovereignty, the countries in the EU have already accepted that impact. The question of whether voluntarily undertaking treaty obligations constitutes a cession of sovereignty is another matter entirely from the details of the European Union treaties.
    – phoog
    Jun 7 at 4:58
  • As a retired professionally-qualified accountant with many decades experience, the entire public discussion of this issue frustrates me. Corporation Tax is inherently a tax on the consumer, every bit as much as VAT. For both of them, the business concerned has the freedom to chose how much they pass on to the customer. But it is far more difficult to avoid VAT (levied on sales revenue), than it is on CT (based on taxable profit). So the sensible thing would be to abolish CT and recover the difference by increasing the VAT rate. But almost the entire commentariat misses the point on this issue.
    – WS2
    Jun 7 at 7:34
  • @WS2 CT only applies to profit-making businesses. The problem is that tech companies can export profits elsewhere very easily. A company that breaks even with a revenue of a few millions is struggling, but one that breaks even with a revenue of a few billions is probably part of a tax avoidance scheme.
    – Caleth
    Jun 7 at 8:15
  • Related question looking only at VAT: politics.stackexchange.com/questions/50900/… Jun 7 at 11:49
  • @Caleth Which is, of course, exactly my point. It is much more difficult to avoid a tax based on sales revenue - which is auditable within the country of operation. Another way of collecting tax from companies like Google etc would be to disallow internet adverting expenditure as a tax-deductible expense. It would apply downward pressure to their advertising rates, and an upward tax stream for the Revenue.
    – WS2
    Jun 7 at 12:51
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Peer pressure? :)

The EU is based on voluntary decision-making and very little of what it decides is enforceable. Suppose a group of five colleagues are to decide on what restaurant to go to for lunch. No one can force the other, but they all agree that it is nicer if they eat at the same restaurant. Perhaps this makes someone unhappy that they went for Thai food rather than Indian food, but hey, maybe tomorrow he gets to choose restaurant. The US also relies mostly on voluntary decision-making. Two adjacent states may decide to standardize on a set of speed-limits so that similar roads have the the same speed-limits in both states. It makes easier both for motorists in the two states and for the traffic police. Such processes are called legal harmonization.

You can see some of these ideas expressed in the EUs Harmful tax competition Code of Conduct:

Harmful tax competition: Code of Conduct

The Code of Conduct for business taxation was set out in the conclusions of the Council of Economics and Finance Ministers (ECOFIN) of 1 December 1997. The text of these conclusions

The Code is not a legally binding instrument but it clearly does have political force. By adopting this Code, the Member States have undertaken to

  • roll back existing tax measures that constitute harmful tax competition and
  • refrain from introducing any such measures in the future ("standstill").

... The Code of Conduct requires Member States to refrain from introducing any new harmful tax measures ("standstill") and amend any laws or practices that are deemed to be harmful in respect of the principles of the Code ("rollback").

Harmful tax competition

A Code of Conduct is, of course, not legally binding. But since all EU member states were involved in drafting the Code, they can be expected to at least pay some respect to the principles expressed therein.

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  • 1
    The EU is not as powerless as this answer makes it out to be. EU regulations have direct force of law, bypassing the national legislature. And the European Court of Justice is able to sanction member-countries which break EU law.
    – Philipp
    Jun 7 at 7:34
  • @Philipp can the EU make regulations on taxation given that it remains a national competency? And if so, that sounds like the start of a solid answer.
    – Jontia
    Jun 7 at 7:40
  • 1
    You need to make a distinction between rule making (where member states can resist the Commission) and enforcement (where the Commission has all the cards). A lot of what the EU decides is actually enforceable. The problem with tax law is that there hasn't been any consensus to decide anything.
    – Relaxed
    Jun 7 at 8:43
  • @Philipp I didn't claim the EU was powerless in general. But when it comes to taxation it is. The right to determine their own tax policies is jealously guarded by member states' national parliaments. Most of what the European Commission does is issuing recommendations which, as the name suggests, are non-binding in nature. Jun 7 at 14:50
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The main mechanism the EU Commission has to enforce binding rules is called the “infringement procedure”. It starts with a formal letter laying out why the Commission thinks a country doesn't apply EU law correctly and proceeding through several steps to a ruling by the EU Court of Justice (EUCJ). If the EUCJ agrees with the Commission and a member state doesn't alter its practices, the Commission can drag them in front the court again (it's called “manquement sur manquement” in the lingo of the court), which can then impose significant financial penalties.

Whether or not the Commission actively enforces a particular rule sometimes depends on political considerations but its powers are very extensive. There are usually 6 infringement packages a year, the last one in February 2021. If you peruse the press release, you will see the Commission is not shy about using this power and covers a lot of ground. It does however occasionally overreach and is not always successful in front of the Court. When it is, member states eventually comply, with very few exceptions.

The problem in this case is that those minimum tax rates are not EU rules at all. The threshold you are referring to was agreed by the G7. G7 decisions are inherently weaker, mere statement of intention rather than a firm commitment, let alone a binding rule. EU institutions are not in the business of enforcing non-EU rules.

On the other hand, if something is not part of EU law, there is little the EU can do to “force” its member states to do anything. Elaborating new rules like that requires a broad consensus in all three main EU institutions including the EU Council, which represents member states. Depending on the exact subject matter, a single member state has a lot of means to block decisions. If several of them have an interest in a lack of harmonization, they can stall forever.

In fact, outside of VAT, there is still very little EU harmonization of tax law. The differences between EU countries are still very big and there are many member states benefiting from all the quirks in tax law that absolutely do not want to let the EU regulate it, as any EU rule would have real teeth. This is so sensitive that the treaties themselves restrict what the EU can do regarding taxes, while ensuring that any rule must be agreed unanimously. That's also the reason why most of the recent push for more international rules in this area has come from the OECD, the G7, or even unilaterally from individual countries and not from the EU.

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