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The long road to implementing last year’s global deal on corporate taxation is only beginning, but the French approach to advancing at least the 15 per cent minimum tax rate is hitting resistance in several member states. With EU finance ministers discussing the plans today, we’ll unpack the issues and why Paris seeks maximum celerity on this ahead of April’s presidential elections.
Meanwhile in Strasbourg, the European parliament, which is voting on a new president today, paid tribute last night to David Sassoli, attended by several EU leaders, including France’s Emmanuel Macron and Italy’s Mario Draghi. European Commission president Ursula von der Leyen, who was headed to Strasbourg by car yesterday, made a U-turn after finding out that her driver had tested positive for Covid-19.
In Spain, prime minister Pedro Sánchez received the new German chancellor and fellow centre-left family member Olaf Scholz. But political affinities aside, Madrid still has to wait for Berlin to allow changes to EU’s fiscal rules that would exempt green investments from deficit and debt calculations.
And with the French presidency having started with a strong rhetoric on trade, we’re exploring what “reciprocity” means in the context of farming after yesterday’s first agriculture council of the year.
Taxing Timing
Last year’s OECD deal agreeing a framework for corporate taxation was never meant to be the end of the battle, write Sam Fleming in Brussels and James Shotter in Warsaw.
The next stage is implementation into national laws, and the process promises to be politically fraught in both Europe and the US.
As a reminder, the global deal signed in October contains two “pillars” — one forcing the major multinationals to declare profits and pay more in the countries where they do business, and the second requiring a 15 per cent global minimum effective corporate tax rate.
The European Commission late last year put forward a draft directive implementing Pillar 2, which will need approval of governments and the European parliament. Proposals bringing into force Pillar 1 will, on the other hand, only come after a multilateral convention containing the details of the arrangement, expected by the OECD this summer.
It falls to France, which holds the EU’s rotating presidency, to drive the process forward. Paris is eager to show as rapid progress as possible on the minimum tax as Emmanuel Macron prepares his expected bid to seek re-election in April.
Finance ministers will hold a discussion today during the Ecofin in Brussels over where things stand, and not all capitals like what they see. Some member states — among them Hungary, Poland and Estonia — want to firmly link implementation of the two pillars together, rather than allowing one to run ahead of the other.
Their reasons vary, but one motivation is sustaining pressure on the US to drive through both parts of the agreement and not just half of it.
Estonia was in any case cautious about the international tax deal given the particularities of its tax system. Hungarian prime minister Viktor Orban meanwhile has elections looming this spring, sharpening his appetite for fights with Brussels.
The French presidency and the commission both oppose the idea of making implementation of one part of the package legally contingent on the other. “We intend to advance on both pillars as quickly as possible,” said one EU official, who warned that holding progress up for Pillar 1 would endanger plans for implementation by 2023. “We should avoid negative spillovers by allowing a delay in agreeing one pillar to affect progress on the other.”
While some EU diplomats profess optimism about the parallel process in the US, the outlook there is increasingly dicey. The minimum tax was attached to the Build Back Better legislative package that was torpedoed late last year. And the Pillar 1 element faces a rocky road as the midterm elections loom later in 2022.
Chart du jour: Covid pass effect
European countries that introduced Covid passes increased uptake for vaccines and improved public health and economic performance, potentially helping to avert lockdowns, according to a study by Bruegel. (More here)
Olaf and Pedro
Will Germany’s new Social Democratic-led government allow the EU’s fiscal rules to become a bit more forgiving? That’s the hope that Sánchez expressed when Scholz came calling yesterday. But the German chancellor made clear his esteem for the Stability and Growth Pact that southern Europe is far less fond of, writes Daniel Dombey in Madrid.
Meanwhile in Brussels, Germany’s new finance minister, Christian Lindner who hails from the frugal-minded Free Democratic party, told fellow eurozone ministers that returning to the bloc’s fiscal rules would help control inflation. Germany is open to suggestions on how to improve the framework, but a “real debate” on reforming the rules will only start in June, he said.
In Madrid, Scholz struck an evasive tone, lauding the stability pact as a “framework” for European co-operation and avoiding committing to any loosening of the bloc’s deficit and debt rules. With a debt-to-GDP ratio of 120 per cent, Spain is particularly keen to revise the stability pact, which France and Italy have already demanded be revised to favour debt raised for “necessary investments”.
Standing next to Scholz, Sánchez said the rules were “too complex and hard to meet in the context of the pandemic”, arguing they needed to be reformed to facilitate investments in the energy transition and digitalisation.
Sánchez declared the two leaders were “in tune” and shared ambitions about strengthening the EU, “moving forward social Europe and defending our Social Democratic values and principles”. Ties between the German SPD and Spanish Socialists go back decades — notably to Spain’s transition to democracy, when the German party gave its Spanish counterpart a helping hand.
The meeting appeared highly amiable, with Scholz waxing lyrical about Europe walking forward hand in hand, and Sánchez decrying any attempt to divide the EU into rival camps. And neither evinced much sympathy for Novak Djokovic, the unvaccinated tennis player just deported from Australia. “The rules have to be followed,” said Sánchez, striking a slightly different note from his disquisition on the stability pact.
Reciprocity for farmers
Liberté, égalité, fraternité, réciprocité! The French presidency of the EU loves a slogan. And French agriculture minister Julien Denormandie was anxious to ram home his message yesterday after chairing his first council of agriculture ministers this year, writes Andy Bounds in Brussels.
Denormandie uttered the phrase at least a dozen times in a post-meeting press conference as he made clear Paris’s priorities for the next six months.
The council defined reciprocity as ensuring “that agri-food products imported into Europe abide by the EU’s environmental and health standards, particularly in the sustainable use of phytopharmaceutical products”.
Farmers complain about the costs of complying with EU agricultural standards while the bloc accepts imports from countries with less stringent rules. The theme is not new but Denormandie said debate had shifted in France’s favour recently. (The UK was a big opponent).
“Reciprocity was a camp — you would be pitting yourself against others who would defend a more liberal approach. That is no longer the case,” he told reporters after the meeting. No minister objected to the idea, he said.
Paris wants to use “mirror clauses”, which would allow bans on products produced with lower standards, arguing they would be WTO compliant.
However, some member states and commission officials disagree and fear a slew of legal cases. The ministers were also briefed about a 27 per cent annual rise in global food prices in the year ended November 2021. Banning cheap imports might yet prove a hard sell to cash-strapped voters.
What to watch today
EU finance ministers meet in Brussels to discuss a draft minimum corporate taxation law
The European parliament votes for its new president
Notable, Quotable
Back to Normandy: German foreign minister Annalena Baerbock is pushing to revive the France-Germany-Russia-Ukraine (“Normandy”) dialogue format to de-escalate tensions over Ukraine.
Zemmour fined: French presidential candidate Éric Zemmour was convicted of hate speech by a Paris court and ordered to pay a fine of €10,000 for “inciting racial hatred”. He would face 100 days in prison if he did not pay, the court ordered.
Suisse Covid-gate: Credit Suisse chair António Horta-Osório was ousted on Sunday after an internal investigation into his serial Covid-19 quarantine breaches and “excessive” use of the bank’s corporate jet.
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Source: Economy - ft.com
