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EU Countries Push for Carve-Out in OECD Global Minimum Tax

Jan. 22, 2020, 9:04 PM

Three European Union countries are asking for an exemption for some companies from the OECD-led effort to set a global minimum tax rate.

Estonia, the Czech Republic, and Poland are concerned about proposed rules that would require companies with a substantial business presence in a jurisdiction to pay at least a minimum effective tax rate, according to EU officials.

The call comes as the Organization for Economic Cooperation and Development is trying this year to get nearly 140 countries to agree to a plan to rewrite how the digital economy is taxed. The effort is driven by concerns that multinational companies—especially big tech—aren’t paying enough in taxes in the countries where they make their sales.

The OECD-led effort includes two parts: Pillar One would change some of the rules and agreements that determine when and where companies pay taxes; Pillar Two would create a new global minimum tax rate and anti-abuse rules.

“We are only able to agree to Pillar Two if there is a substance carve-out” in the rules, Dmitri Jegorov, the Estonian deputy secretary for taxation and customs, told Bloomberg Tax Wednesday.

That carve-out would mean “legitimate businesses with economic substance in a particular jurisdiction will be taxed according to the tax rules of that jurisdiction,” without Pillar Two requiring them to pay more tax in other jurisdictions, Jegorov said.

The Czech Republic is taking an even stronger position. The Prague government doesn’t accept the principal of a global minimum tax under any condition, “because we still consider setting the level of taxation as a substantial element of national sovereignty and of fair tax competition,” a Czech government official told Bloomberg Tax.

Pillar Two should only address harmful tax practices, and “it should not go beyond the key principles of the OECD/G-20 project,” the official added.

The European Union wants member countries to agree to a unified position on the parts of the plan it would support.

“There is strong support for Pillar One and profit re-allocation,’' European Commission Vice President Valdis Dombrovskis said Tuesday after a closed-door meeting of EU finance ministers. “But on the issue of Pillar Two and a global minimum corporate tax rate, things are more difficult.”

Poland is also pushing for a carve-out, an EU diplomat told Bloomberg Tax Tuesday. Polish officials didn’t respond to requests for comment.

EU countries are also concerned about a U.S. proposal that would allow companies to opt out of parts of Pillar One. Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, warned last week that the proposal “will not fly politically.”

“There were no EU countries that backed a safe harbor or optional approach,” the EU diplomat told Bloomberg Tax Tuesday. “Many expressed concerns that this would lead to chaos as countries would adopt multiple tax schemes.”

—With assistance from Isabel Gottlieb

To contact the reporter on this story: Joe Kirwin in Brussels at

To contact the editors responsible for this story: Meg Shreve at; David Jolly at

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