Proposal sought for a directive safeguarding workers from radiation risks, as per the Commission's mandate.
In a significant development, the G7 countries, excluding the United States, have reached a compromise on the implementation of a global minimum tax (GMT) for large corporations. This policy, part of a broader global reform of corporate taxes, aims to ensure that multinational enterprises (MNEs) pay a minimum effective corporate tax rate of 15% in each jurisdiction where they operate [1].
The meeting with the Bavarian cabinet on the Zugspitze saw German Finance Minister Lars Klingbeil welcoming the compromise, contrasting the stance of CDU leader Friedrich Merz, who believes the GMT should be suspended in Europe [2]. However, the U.S. withdrawal from the GMT negotiations and the securing of exemptions for American MNEs could have far-reaching implications for the European economy.
European MNEs have been significant profit shifters, with German firms alone moving €19 billion to low-tax jurisdictions in 2022 [3]. The GMT directly targets this behavior, with revenue gains from taxing previously shifted profits significantly dominating compliance costs for the large groups covered by the GMT [3]. This suggests a net positive fiscal impact for European economies, at least for the largest corporations initially in scope.
However, the asymmetry created by the U.S. withdrawal and carve-outs for American MNEs could disadvantage European firms in global markets. Non-U.S. corporations, especially in Europe, face the full compliance burden and potential competitive disadvantage, while U.S. MNEs may continue to benefit from lower effective tax rates [3]. This could pressure European firms to maintain or enhance existing profit-shifting strategies, potentially affecting investment, employment, and economic growth.
The recent G7 compromise somewhat stabilizes the international tax environment by preventing retaliatory U.S. measures and ensuring that U.S. authorities will support strict implementation of GMT rules in other countries [4]. This may provide some certainty for European firms and governments, supporting continued investment. However, a "side-by-side" system, where U.S. firms are treated differently, creates a fragmented global tax regime, complicating compliance for European MNEs with U.S. operations and reducing the overall effectiveness of GMT in curbing profit shifting globally.
European governments have already factored GMT revenue into fiscal planning, especially for closing loopholes and reinvesting in public goods. If U.S. withdrawal leads to a net decrease in GMT effectiveness, European countries may face pressure to make up the difference through other tax measures or spending cuts, potentially affecting economic stability and public services.
In conclusion, the U.S. withdrawal from the GMT undermines the policy's global coherence and risks creating a two-tier system that disadvantages European MNEs. While Europe will still realize fiscal benefits from taxing shifted profits of its largest firms, the absence of a truly level playing field could erode the competitiveness of European corporations and complicate efforts to combat international tax avoidance. European governments must now navigate a more complex international tax landscape, balancing domestic revenue needs with the realities of global corporate power dynamics [1][2][3].
The compromise on the global minimum tax (GMT) reached by G7 countries, excluding the United States, has significant implications for European business, finance, and politics. Despite a net positive fiscal impact for European economies due to the GMT, the asymmetry created by the U.S. withdrawal and carve-outs for American multinational enterprises (MNEs) could disadvantage European firms in global markets, potentially affecting investment, employment, and economic growth.
In the midst of this complex international tax landscape, European governments must strike a balance between domestic revenue needs and the realities of global corporate power dynamics, aiming to maintain a competitive edge for European MNEs in the global business sector.
