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EU taxation of multinationals—bypassing the unanimity blockage

Tommaso Faccio and Francesco Saraceno 5th February 2021

The treaty requirement that EU legislation on taxation of multinationals enjoys member-state unanimity need not block progress towards harmonisation.

taxation of multinationals
Tommaso Faccio

The French car-service company Heetch recently displayed an advertising campaign on the streets of Paris (see photo), which proudly affirmed its presence in many French cities but not in Luxembourg—a clear allusion to the tax headquarters of some of its competitors. The fact that ‘paying taxes in France’ has become a commercial argument shows that the issue of corporate avoidance is rising up the public agenda in many countries.

Recent research by Gabriel Zucman shows that European Union tax havens—Luxembourg, Belgium, Cyprus, the Netherlands, Malta and Ireland—are responsible for around 90 per cent of all tax avoidance within the union. The proportion of corporate tax forgone amounts to 15, 22 and 26 per cent in Italy, France and Germany respectively.

taxation of multinationals
Francesco Saraceno

Yet the G20 process on taxing digital firms and introducing a global minimum tax to limit tax competition, led by the Organisation for Economic Co-operation and Development, failed to reach consensus in 2020, mostly because of determination by the United States to protect its digital giants. The European Commission has made clear that, were the G20 to fail to deliver a global solution by mid-2021, it will act. But the EU is stuck between a rock—the US position will likely not change with the new administration—and a hard place: its own tax havens.

Due to the unanimity requirement to legislate on corporate taxation enshrined in article 115 of the Treaty on the Functioning of the EU, ambitious reform plans have so far mostly been blocked by a handful of countries, which fear limiting tax competition could hit their economies. The commission has evoked the possibility of using article 116, whereby it can compel states to drop the unanimity condition when competition in the single market is distorted. But this would likely face legal challenges, at best obtain partial corporate-tax harmonisation and have a high cost in political capital.

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Country-by-country reporting

This does not however mean nothing can be done. Tax rules are not the only tool to enhance fiscal effort. After the ‘Panama papers’ tax scandal, the commission proposed mandatory, public, country-by-country reporting, which would require multinationals to publish detailed data on turnover, gross profits and taxes paid in each member state, and non-EU tax havens, in which they operate. This information is currently available to member states’ tax authorities, but it is not public. Forcing multinationals to make this information public would allow everyone—citizens, policy-makers, journalists and researchers—to see where corporations do business and how much tax they pay in each case.

There is little doubt that this would force multinationals to internalise part of the social cost of shifting profits to tax havens, forcing them to account for something more precious than turnover—reputation. The public outcry against child labour which has damaged global brands such as Nike, ultimately forcing them to change business practices, shows that transparency can be as effective as bans and regulations.

In 2019, under the Finnish EU presidency, the commission proposal for country-by-country reporting failed to reach the qualified majority required for approval. With Austria having since shifted its position, however, it would appear the numbers are there to vote through this transparency reform.

The current Portuguese presidency has confirmed, in its work programme, its ambition to reach an agreement on country-by-country reporting, and released a compromise text ahead of a Council of the EU meeting of national experts in late January. A vote to approve the measure could now take place before the end of the Portuguese presidency, at the Competitiveness Council’s meetings in February or May.

‘Coalition of the willing’

A successful vote would de facto formalise a ‘coalition of the willing’ within the EU, committed to fighting corporate tax abuse. It could decide to move ahead as a group through ‘soft’ (informal) enhanced co-operation, to agree a common, minimum, effective corporate-tax rate (a reasonable figure would be 25 per cent). Multinationals could evade even this minimum by shifting their headquarters to a different member state but political pressure and reputation, complemented by exit taxes, would make this risk limited.


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Were this coalition of the willing to reach a critical mass, EU tax havens might eventually find it convenient to join—to avoid being singled out, with further damage to their own reputations. One might even hope that this process could eventually lead to the adoption of a Common Consolidated Corporate Tax Base (another legislative proposal long blocked).

The Covid-19 crisis has shown that previously unthinkable measures, such as debt mutualisation and common borrowing, can become a reality. Fairer and more effective harmonisation of tax policies could join them.

See our series on Corporate Taxation in a Globalised Era

Tommaso Faccio and Francesco Saraceno

Tommaso Faccio is head of the secretariat of the Independent Commission for the Reform of International Corporate Taxation (ICRICT), a lecturer in accounting at Nottingham University Business School and a senior adviser to the Tax Justice Network. Francesco Saraceno is deputy department director at OFCE, the Research Centre in Economics at Sciences-Po in Paris, where he teaches European economics. He also teaches at LUISS Guido Carli in Rome.

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