The G7 corporate tax deal: Why the EU should curb its enthusiasm

The recent G7 deal will not bolster the European Commission’s broader efforts to fight aggressive tax practices. The Commission needs political realism and more modest aims to make headway.

International tax does not get more exciting. The European Commission has spent many years trying to tackle some EU member-states’ tolerance for aggressive tax practices: the Commission recently cited evidence that Europe loses between €35-70 billion in corporate tax avoidance each year and that 80 per cent of profits shifted in the EU are moved to EU-based tax havens, like Ireland, Luxembourg and the Netherlands. The Commission’s past attempts to address avoidance have been repeatedly thwarted by the need for unanimity among member-states on tax decisions. But times are changing. The G7, a group of large countries with developed economies, now supports a global minimum corporate tax rate; and some previously obstructionist EU member-states, like the Netherlands and Luxembourg, are rethinking their approach to corporate tax policy. The Commission plans to capitalise on this momentum and push forward an ambitious new corporate tax agenda. But EU officials underestimate the task ahead. More modest reforms will deliver better progress.

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