European Commission publishes "Business Taxation for the 21st Century"

On 18 May 2021, the European Commission presented its highly anticipated vision for Business Taxation for the 21st Century, setting out an ambitious tax agenda for the next two years which includes proposals to:

• Introduce a digital levy which would co-exist with Pillar 1 (mid-2021).
• Require annual publication by certain large companies of their effective corporate tax rates (2022).
• Tackle the use of companies with limited substance (by the end of 2021).
• Introduce a revamped Common Consolidated Corporate Tax Base (CCCTB), rebranded as Business in Europe Framework for Income Taxation (BEFIT), which would seek to introduce common rules for corporate tax base calculations and also a form of apportionment of that base between Member States (2023).

Of greatest relevance to some Channel Island businesses though is the confirmation that global agreements on Pillar 1 and 2 (commonly known as “BEPS 2.0”), which they expect to be achieved by “mid-2021”, will be implemented through two EU Directives.

In particular, the Commission goes on to note that Pillar 2 participation may become a criteria used for assessing third countries in the EU listing process identifying non-cooperative jurisdictions for tax purposes.

The governments of both Guernsey and Jersey have been in dialogue with the EU Commission on international tax matters for a number of years and are also active participant members of the OECD’s Inclusive Framework, the driving force behind the Pillar 1 and Pillar 2 proposals, so the latest developments will have been anticipated. At the time of writing, no formal commitments have been made by either government on BEPS 2.0 and we may not expect anything detailed until the final rules are clearer and they have had the opportunity to consider the appropriate course of action.

The Pillar 2 rules are extremely complex but, in short, seek to ensure that certain multinational entities are subject to a minimum effective tax rate, irrespective of the jurisdictions in which they operate. A threshold test is likely to apply to the definition of affected multinational entities, aligned with the country-by-country reporting consolidated gross income threshold of EUR 750m and exemptions were envisaged in an earlier draft in relation to inter alia certain investment funds, pension funds and government entities.

Clients should continue to monitor the development of Pillar 2 at the OECD level and also its implementation by the EU.

If you would like to discuss the initiative in more detail or how it may impact your business, please don’t hesitate to get in touch with any of the individuals listed below or your usual PwC contact.