Brussels – A global deal on corporate tax looks set to bring to a climax a deep-seated European Union battle, pitting large members such as Germany, France and Italy against Ireland, Luxembourg and the Netherlands.
The smaller EU partners, which are at the center of a yearslong struggle over their favorable tax regimes, welcomed a Group of Seven deal on June 5 for a minimum corporate rate of at least 15%, but some critics predict trouble implementing it.
The European Commission, the EU's executive, has long struggled to get agreement within the bloc on a common approach to taxation — a freedom that has been jealously guarded by all its 27 members, both large and small.
"The traditional EU tax holdouts are trying to keep the framework as flexible as possible so that they can continue to do business more or less as usual," said Rebecca Christie of Brussels-based think tank Bruegel.
Paschal Donohoe, Ireland's finance minister and president of the Eurogroup comprised of his euro zone peers, gave a lukewarm welcome to the deal by the wealthy G7 countries, which now needs to be approved by a much wider group.
"Any agreement will have to meet the needs of small and large countries," he wrote on Twitter, pointing to the "139 countries" needed for a wider international accord.
Hans Vijlbrief, deputy finance minister of the Netherlands, wrote on Twitter that his country supported the G7 plans and had already taken steps to stop tax avoidance.
Although EU officials have privately criticized countries such as Ireland and Cyprus, tackling them in public is politically charged. The bloc's blacklist of "uncooperative" tax centers, due to its criteria, makes no mention of EU havens.
These have flourished by offering companies lower rates through so-called letter-box centers, where they can book profits without having a significant presence.
"European tax havens have no interest in giving in," said Sven Giegold, a Green party member of the European Parliament lobbying for fairer rules, describing the prospects for change.
Nevertheless, Luxembourg's Finance Minister Pierre Gramegna welcomed the G7 accord, adding that he would contribute to a wider discussion for a detailed international agreement.
While Ireland, Luxembourg and the Netherlands welcomed the long-fought for reform, the Cypriot response was more guarded.
"The small EU member states' should be acknowledged and taken into consideration," Cyprus's Finance Minister Constantinos Petrides said.
Even G7 member France may find it hard to completely adjust to the new international rules. "Big countries like France and Italy also have tax strategies they are determined to keep," Christie said.
The Tax Justice Network ranks the Netherlands, Luxembourg, Ireland and Cyprus among the most prominent global havens, but also includes France, Spain and Germany on its list.
Europe's divisions flared up in 2015 after documents dubbed the "LuxLeaks" showed how Luxembourg helped companies channel profits while paying little or no tax.
That prompted a clampdown by Margrethe Vestager, the EU's powerful antitrust chief, who employed rules that prevent illegal state support for companies and argued that such tax deals amounted to unfair subsidies.
Vestager has opened investigations into Finnish paper packaging company Huhtamaki for back taxes to Luxembourg and the Dutch tax treatment of InterIKEA and Nike. The Netherlands and Luxembourg have denied the arrangements breach EU rules.
But she has encountered setbacks, such as last year when the General Court threw out her order for iPhone-maker Apple to pay Є13 billion ($16 billion) in Irish back taxes, a ruling that is now being appealed. Vestager's order for Starbucks to pay millions in Dutch back taxes was also rejected.
Despite these defeats, judges have agreed with her approach.
"Fair taxation is a top priority for the EU," a spokesperson for the European Commission said: "We remain committed to ensuring that all businesses … pay their fair share of tax."
The Netherlands in particular has underscored willingness to change after criticism of its role as a conduit for multinationals to move profits from one subsidiary to another while paying no or low taxes.
It introduced a rule in January taxing royalties and interest payments sent by Dutch companies to jurisdictions where the corporate tax rate is less than 9%.
"The demand for fairness has grown," said Paul Tang, a Dutch member of the European Parliament. "And now it is combined with a need to finance investment."
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