EU Diplomats: Mnuchin Commits to ‘Allay’ EU Concerns on Tax Reform

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By Joe Kirwin

The U.S. will try to ease European Union concerns that some measures in the new U.S. tax law don’t conform to World Trade Organization rules and are counter to the OECD’s actions to combat base erosion and profit shifting.

According to one of several EU diplomats, who spoke to Bloomberg Tax on the condition of anonymity Jan. 23, U.S. Treasury Secretary Steven Mnuchin sent a letter to five EU finance ministers that aims “to address and allay the various [EU] concerns and pledges to work closely with the EU within the BEPS framework to ensure consistency.”

The Mnuchin letter arrived in advance of a Jan. 23 meeting of EU finance ministers where French Finance Minister Bruno Le Maire warned against a corporate tax “race to the bottom” because it could lead to a “tax war” that would undermine EU member state finances.

“Tax rates can be low,” Le Maire said. “We have cut corporates’ tax rate in France. But we have to strike a balance not just in Europe but throughout the world. A tax war can be dangerous for everybody.”

The French finance minister has been at the forefront of raising concerns that the U.S. tax act ( Pub. L. No. 115-97) contains measures that amount to illegal export subsidies that violate World Trade Organization rules, and contains discriminatory anti-tax avoidance rules.

Mnuchin’s letter is a response to a joint letter sent from five EU finance ministers in December, in which they set out the bloc’s concerns and warned against the new U.S. tax reform proposal.

When their concerns weren’t addressed by the U.S. Congress, the European Commission subsequently warned, after the U.S. law was signed Dec. 22, that “all options are on the table,” including a possible complaint at the WTO.

Common Tax Base

Le Maire also said the EU should progress on its own corporate tax reforms by approving pending legislation for a common corporate tax base and a subsequent consolidation component of the proposal.

The European Commission proposed a two-step EU corporate tax reform in October 2016, but little progress on the legislation has been made. Bulgaria, which holds the rotating EU presidency until the end of June, considers the corporate tax reform proposals to be essential.

“Achieving progress on the common corporate tax base will be a priority for us,” Bulgarian Finance Minister Vladislav Goranov—who chairs the EU’s Council of Economic and Financial Affairs—told EU finance ministers Jan. 23.

Le Maire raised his concerns about EU member states lowering their corporate tax rates during a debate on the future of the EU Economic and Monetary Union.

“Instead of tax dumping, we should work towards consolidation,” Le Maire said in reference to the pending EU corporate tax reform proposal officially known as the Common Consolidated Corporate Tax Base.

To contact the reporter on this story contact Joe Kirwin in Brussels at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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