The Legal (Im)possibilities of the EU Implementing the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting

Abstract

To reform international taxation requires united and uniform global agreement. The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project’s Inclusive Framework statement arrived on 1 July 2021 to much political fanfare for supposedly promising just that. Whilst heralded as the achievement of an agreement on issues which have previously caused difficulty in reaching international consensus, such as the global minimum corporate tax rate of ‘at least 15%’, not all member jurisdictions were in agreement. The identity of the then so called ‘holdout’ countries is therefore important. This is because Ireland, Hungary and Estonia are all Member States of the European Union. The ‘holdout’ countries became the ‘carveout’ countries, as Estonia, Hungary and Ireland only agreed to the 8 October 2021 updated political agreement at the last minute, after they had secured concessions enabling them to sign up. Whether it is legally possible for the EU to implement any agreement is crucial due to its own stated agenda. It wants to be an international regulator. This would clearly not be achievable if the EU found it legally impossible to implement the Inclusive Framework because of some of its Member States. When it comes to the legal (im)possibilities of legislating for global tax reform, rather than trying to get around its limited competence, which then necessitates the unanimity criteria amongst other difficulties in using the legal bases in the Treaty, the EU should utilize the treaty provisions already available in the form of the enhanced cooperation mechanism. This does not eradicate the question of EU competence or the fact that if the EU wants to act at all it has to deal with Member State sovereignty head on. However, it is a better option than using the awkward provisions of Article 116 Treaty on the functioning of the EU (TFEU) and a necessary opportunity to address the problems caused by the unanimity criteria contained in Articles 113 and 115 TFEU by directly providing for the non-participating, or ‘holdout’, now ‘carve-out’, Member States, to be accommodated, at least in principle. Base Erosion Profit Shifting (BEPS), OECD/G20 Inclusive Framework, EU tax, tax avoidance, Enhanced Cooperation