Gentiloni said in a letter Friday that discussions on a minimum level of corporate taxation are ongoing under the leadership of the Organization for Economic Cooperation and Development, but that the EU is prepared to act on its own if no deal is achieved by the end of the year.
"The international business tax system is in need of significant reform, and the coronavirus crisis has increased the urgency, " Gentiloni said in response to a letter from Eleonora Evi, an Italian member of the European Parliament. Evi had asked Gentiloni, a former Italian prime minister, about the EU's efforts to stop "tax dumping," or aggressive tax competition among EU countries — a practice she said was "depriving some EU countries of significant resources in the form of tax receipts."
She also asked how the European Commission, the EU's executive body, would ensure minimum taxation in the EU on the profits of multinational companies to make sure that those companies "pay tax in the country where those profits are generated."
Gentiloni said the OECD discussions on a minimum tax were aiming "to put a floor on tax competition and to close remaining loopholes."
The goal remains for an international agreement by the end of 2020, which the commission would implement as EU law. But if no agreement is reached by that time, the commission "is committed to taking EU action," Gentiloni said.
Evi, who is affiliated with Italy's anti-establishment Five Star party, told Law360 in a statement that the EU needs a "harmonized tax framework" with a minimum effective taxation "to stop the paradox that multinational companies end up [paying] fewer taxes than [small and midsized enterprises] and to ensure that those companies pay tax in the very country where those profits are generated."
She said that it was important that "unfair tax practices" stop weakening her country. "We expect a real change by this European Commission. It has to be now or never."
Minimum taxation is the second "pillar" of a two-pillar strategy for revamping the global corporate tax system. The first pillar involves a reallocation of taxing rights to countries where large companies earn revenue but lack a taxable physical presence.
Finding an international agreement seems easier on the second pillar than on the first pillar, since the United States said in June that it wanted to pause negotiations on the first pillar as countries fight the coronavirus. Even prior to the coronavirus crisis, the U.S. had frustrated efforts to find a deal on the first pillar when it said at the end of 2019 that it wanted any deal on reallocation of taxing rights to be optional. The U.S. is more supportive of the second pillar.
The letter made no mention of the first pillar. A commission spokesperson, who by convention spoke anonymously, said the first pillar wasn't mentioned because the commissioner wasn't asked about it in Evi's letter and the commission continued "to be of the view that an agreement on both pillars is necessary for a proper reform of the international corporate tax framework."
In his letter, Gentiloni also said the Code of Conduct on business taxation "plays an important role in regulating unfair tax competition." Last month, the commission issued proposals to modernize the code and make the work of the group that enforces it, the Code of Conduct Group, more transparent.
In its document, which was published July 15, the commission said the code could be used as a way for the EU to enforce a minimum corporate tax rate. The commission also called for the code to have a wider scope and to look at more than just specific tax measures and regimes, which it currently assesses. The code, however, rests under the jurisdiction of the EU's council of member states, so the commission has limited power to change it.
--Editing by Vincent Sherry.
Update: This story has been updated with a comment from Evi.
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