In 2021, Olaf Scholz, then still Federal Minister of Finance, had called the tax reform, which provides for minimum taxes for globally active companies, a “great historical moment” in the fight against tax dumping. In addition to noble goals such as international tax justice, the German government also had more mundane reasons for its action and anticipation, first and foremost, the enormous revenue potential for the public purse. But implementing the minimum taxation rules in 2024 will not be that easy, as Falk Steiner reports.
One of the most popular promises companies make is how extraordinarily sustainable their product is. But according to the EU Commission, half of these claims are incorrect or misleading. In order to guarantee consumers reliable information in the future, the EU Commission wants to regulate claims about the environmental friendliness of products. Leonie Düngefeld knows the reactions to the green claims directive.
The Czechs will elect their new president today and tomorrow. According to polls, former NATO general Petr Pavel has a good chance of prevailing in the runoff against former Prime Minister Andrej Babiš. Claire Stam reports on how the election’s outcome may influence the direction of Prague’s European policy.
The goal of minimum taxation is still the easiest to explain: Profits of large corporations in one country should no longer be shifted to low-tax countries. Instead, companies should pay their more or less fair share in financing the local community. In return, taxes should be paid where the profits are generated.
The so-called two-pillar model, developed by the OECD, has been accepted by a total of over 130 countries around the world, including the EU and the USA as the most important players. Part of the decisive EU-US deal: All digital taxes must be eliminated – an area in which profit shifting has been particularly easy up to now. Instead, Apple, Google, Microsoft and others will now be asked to pay the minimum tax.
This is to be ensured, among other things, by uniform assessment bases, the so-called Income Inclusion Rule (IIR). If too little tax is paid in a country, i.e., less than 15 percent effective tax rate, the companies’ home countries are to collect the difference to the minimum tax. This rule is called the Undertaxed Profit Rule (UTPR). If, for example, a branch of a company has been subject to lower taxation in Hungary, the German tax authorities will be allowed to collect the difference in the future – and many tax avoidance models will become unattractive for large companies. So far, this suggests enormous revenue potential for the treasury.
The Munich-based Ifo Institute had calculated on behalf of the Federal Ministry of Finance that an additional €6.2 billion could flow into the federal coffers in 2021, rising to 6.9 billion after ten years. The BMF reckons with “400 to 500 domestically controlled groups of companies in Germany to which the regulations to be introduced in Germany would in principle apply”.
By way of comparison, the United Kingdom is provisionally planning for around €2.6 billion (£2.3 billion) in additional tax revenue – for 2027. Experts are currently unsure whether these estimates are realistic.
However, if low-tax countries behave as intended and raise their own minimum tax rate to 15 percent of the calculation, this basis will largely disappear, with repercussions for the federal coffers. The Ifo 2021 has calculated that €6.2 billion would then become €1.7 to €1.8 billion if low-tax countries were to adapt and profit shifting were to decrease in the future. Experts at various institutions involved in the project say it is not yet possible to predict whether this will happen.
Another main reason is the so-called QDMTT, the “qualified domestic minimum tax”. The QDMTT was optionally included in the resolutions, states can make use of it. Their main goal is to leave tax rates basically at the previous level but to skim off the differences before others do. Domestic rules would be adjusted so as not to fall below the 15 percent mark in line with agreed rules.
The discussion in the Netherlands shows that this is a double-edged sword. In order to increase pressure on other EU countries such as Germany, especially Hungary and Poland, the Netherlands submitted an initial draft for public consultation in its own country in November. The pressure bore fruit, and the EU agreement was reached in mid-December. This has put the brakes back on national implementations for the time being. However, the example of the Netherlands has already shown that a QDMTT will not only find friends. According to a statement by the Dutch section of the Tax Justice Network, it is contrary to the system. “If the Netherlands also wants to introduce such a tax, it will be a bad example for other countries as well.”
Nevertheless, the Federal Ministry of Finance is confident. “Regardless of the impact on forecast additional tax revenues, however, the expected adjustment reactions show that Pillar 2 can reduce the pressure on high-tax countries as well as their susceptibility to tax-optimized arrangements,” a spokesman explained when asked. However, the Munich-based Ifo Institute has been commissioned to conduct another short study, which will be available in a few weeks and will contain new calculations.
Whether Germany also needs a QDMTT? It is being examined “whether a national minimum taxation should become part of the discussion draft to be published in Q1 2023,” the BMF explains.
In the USA, the introduction of minimum taxation is already a step further: The Inflation Reduction Act also introduced a kind of minimum tax. However, one that systematically deviates from the OECD agreements and has major loopholes. Further potential for conflict for the EU’s transatlantic relationship, in addition to all the other disputes surrounding the Inflation Reduction Act (IRA). And so Olaf Scholz, now as chancellor, may have to work out a solution with Joe Biden once again in the best of friendships in order to give his former flagship project the full, desired push.
In order to combat greenwashing and guarantee consumers reliable information, the EU Commission wants to regulate claims about the environmental friendliness of products and services in its green claims directive. According to the leaked draft, the information and environmental labels must be based on a scientifically sound methodology, such as the environmental footprint.
Originally, the Commission wanted to present the proposal for the directive in November as part of the second circular economy package but then postponed it. According to its current agenda, the deadline for the “consumer package” is March 22, which, in addition to the green claims draft, is also to include the draft on the right to repair, which has been postponed several times.
The Commission refers to studies according to which claims about the sustainability of products (on the product itself and in advertising) are false or misleading in about half of the cases. For a significant proportion of products, it is unclear whether the claim refers to the entire product or only to one component, to the company or individual products. The phase of the product life cycle concerned was also not apparent in most cases.
This is compounded by the increasing number of product labels in the EU, whose standards and methodologies vary significantly in terms of their transparency, scope, verification and review, making them unreliable.
All environmental claims provided in business-to-consumer communications – unless already covered by other EU legislation – are to be affected by the directive. The current version of the draft includes the following measures, among others:
It is positive that not only labels but all environmental claims are to be covered, says Dimitri Vergne of the European Consumers’ Organisation BEUC. “It is encouraging that the Commission intends to significantly strengthen the role of market surveillance authorities in combating greenwashing.” Authorities would have to impose fines on companies that mislead consumers with dubious claims. To ensure that the fines actually deter companies from breaking the law, it is important that member states set sufficiently high penalties, Vergne says. “We hope this will be included in the final proposal.”
The proposal also calls the use of CO2 offsets to support environmental claims problematic and misleading for consumers. Vergne also agrees. “Regrettably, however, the proposal does not go so far as to ban such claims, which we believe would be the only effective way to protect consumers from this type of blatant greenwashing.”
Vergne hopes to see two more aspects in the final version of the Commission’s proposal: an obligation to publish evidence of an environmental claim and a mandate for market surveillance authorities to carry out regular checks. “These aspects are crucial to clean up the market once and for all from misleading green claims and labels.”
“Mandatory use of the Product Environmental Footprint (PEF) and similar methods to specify green claims will improve the quality of environmental information,” says Margaux Le Gallou of the Environmental Coalition of Standards (ECOS). “We hope that the recognition that some impacts are not yet covered in the PEF and should not be ignored – such as microplastic releases or biodiversity – will be preserved in the final proposal.” It is better to make no claims than to make claims based on inadequate methodologies if they give an advantage to the company in question, Le Gallou said.
From the point of view of the industry and employers’ association BusinessEurope, greenwashing harms the functioning of the internal market, but it has been largely regulated for a long time. “The EU must avoid the risk of overlaps and contradictions with existing initiatives,” says Pedro Oliveira, director of legal affairs. “European business expects the EU to carefully consider and justify any additional rules in this already regulated area in the spirit of ‘better regulation’.”
The Commission intends to proceed step by step: The green claims proposal, together with the directive on empowering consumers to act in an environmentally responsible way, is to be the first framework for the fight against greenwashing. The latter was presented in March 2022 and is currently being discussed at committee level in Parliament. Based on the experience gained in the implementation of both directives, the Commission will then consider whether further action is needed.
Perhaps the most traditional Czech dish you can ask for in a restaurant is vepřo knedlo zelo – essentially roast pork with dumplings and a side of pickled cabbage. A meal made to survive the cold winter and the new Czech political situation.
The Czech Republic’s parliamentary system grants limited powers to the presidency, while the government holds most of the executive power. “In this sense, the Czech political system is closer to the German model than to the French,” explains a Czech diplomat. In contrast, he is the commander-in-chief of the military – like the president of the French Republic – and has the power to appoint judges. He also has a say in cabinet formation, selects central bankers and appoints judges. “So if the president wants to exert his influence, he has the means to do so,” he summarizes.
In the first round of voting on Jan. 13-14, Petr Pavel, who once served as NATO’s highest-ranking military officer, was ahead by a razor-thin margin (35.4 percent) of former Prime Minister Andrej Babiš, a chemical, agricultural and media magnate and leader of the strongest opposition party (35 percent).
The winner of the Jan. 27-28 election will be the fourth head of state in the central European country of more than 10 million people since the fall of communism. He will succeed President Miloš Zeman, whose support for Vladimir Putin – until the invasion of Ukraine – has antagonized European Union allies and political rivals at home.
“In this respect, the new president will actually mark the end of an era. And a European direction in any case stronger than under Zeman,” notes the diplomat. However, they point out another similarity between the two candidates that has largely flown under the radar: their membership in the Communist Party during the Cold War. “Both candidates were members of the Communist Party. So you can’t paint a black-and-white picture of the two candidates, where one is pro-European and the other is pro-economy, for example,” they continue.
This Soviet-era legacy explains the high abstention rate of voters (31 percent) for whom it is simply impossible to vote for former Communists. They mention, for example, the generations of Czechs who witnessed the Prague Spring and the repression that followed. A repression that ultimately extended to the lifting of the Iron Curtain.
So will these elections just serve up a one-size-fits-all mash with no flavor or aroma? “No, there are definitely differences between the two candidates,” the diplomat continued.
Pavel, who is running as an independent, has promised a less confrontational stance than Zeman. He has won the support of a number of presidential candidates who together received more than 20 percent of the vote in the first round. Pavel, a former chairman of NATO’s military committee, has also pledged to support LGBTQ rights such as same-sex marriage. “When he was with NATO, Pavel lived and worked in Brussels. So he knows the European and international scene well,” comments the diplomat. That’s why he’s the favorite of the Brussels bubble, who believe a Pavel victory will help EU-wide negotiations run more smoothly.
Babiš, who clashed with the EU as prime minister over migration policy and conflicts of interest regarding his businesses, is seeking a return to high office after his defeat in the 2021 parliamentary elections. He wants to counterbalance Prime Minister Petr Fiala’s center-right coalition, which he accuses of not doing enough to help people and businesses cope with the worst cost-of-living crisis in decades.
“Babiš does love to brag that he has the phone number of every head of state in the EU, but in doing so, he definitely covets diplomatic faux pas,” the diplomat said. For example, mentioning a phone call with “him”, the prime minister of Estonia, when the prime minister in this case is a woman, Kaja Kallas.
Above all, Babiš likes to talk about his relationship with Emmanuel Macron. On Jan. 10, three days before the first round of the presidential election, the Czech politician met with the French president in Paris for talks. Although the Elysée Palace tried to make it clear that the meeting was not a campaign support for the leader of the largest Czech opposition party, the latter rushed to document it with a photo on his Twitter account.
In 2021, Olaf Scholz, then still Federal Minister of Finance, had called the tax reform, which provides for minimum taxes for globally active companies, a “great historical moment” in the fight against tax dumping. In addition to noble goals such as international tax justice, the German government also had more mundane reasons for its action and anticipation, first and foremost, the enormous revenue potential for the public purse. But implementing the minimum taxation rules in 2024 will not be that easy, as Falk Steiner reports.
One of the most popular promises companies make is how extraordinarily sustainable their product is. But according to the EU Commission, half of these claims are incorrect or misleading. In order to guarantee consumers reliable information in the future, the EU Commission wants to regulate claims about the environmental friendliness of products. Leonie Düngefeld knows the reactions to the green claims directive.
The Czechs will elect their new president today and tomorrow. According to polls, former NATO general Petr Pavel has a good chance of prevailing in the runoff against former Prime Minister Andrej Babiš. Claire Stam reports on how the election’s outcome may influence the direction of Prague’s European policy.
The goal of minimum taxation is still the easiest to explain: Profits of large corporations in one country should no longer be shifted to low-tax countries. Instead, companies should pay their more or less fair share in financing the local community. In return, taxes should be paid where the profits are generated.
The so-called two-pillar model, developed by the OECD, has been accepted by a total of over 130 countries around the world, including the EU and the USA as the most important players. Part of the decisive EU-US deal: All digital taxes must be eliminated – an area in which profit shifting has been particularly easy up to now. Instead, Apple, Google, Microsoft and others will now be asked to pay the minimum tax.
This is to be ensured, among other things, by uniform assessment bases, the so-called Income Inclusion Rule (IIR). If too little tax is paid in a country, i.e., less than 15 percent effective tax rate, the companies’ home countries are to collect the difference to the minimum tax. This rule is called the Undertaxed Profit Rule (UTPR). If, for example, a branch of a company has been subject to lower taxation in Hungary, the German tax authorities will be allowed to collect the difference in the future – and many tax avoidance models will become unattractive for large companies. So far, this suggests enormous revenue potential for the treasury.
The Munich-based Ifo Institute had calculated on behalf of the Federal Ministry of Finance that an additional €6.2 billion could flow into the federal coffers in 2021, rising to 6.9 billion after ten years. The BMF reckons with “400 to 500 domestically controlled groups of companies in Germany to which the regulations to be introduced in Germany would in principle apply”.
By way of comparison, the United Kingdom is provisionally planning for around €2.6 billion (£2.3 billion) in additional tax revenue – for 2027. Experts are currently unsure whether these estimates are realistic.
However, if low-tax countries behave as intended and raise their own minimum tax rate to 15 percent of the calculation, this basis will largely disappear, with repercussions for the federal coffers. The Ifo 2021 has calculated that €6.2 billion would then become €1.7 to €1.8 billion if low-tax countries were to adapt and profit shifting were to decrease in the future. Experts at various institutions involved in the project say it is not yet possible to predict whether this will happen.
Another main reason is the so-called QDMTT, the “qualified domestic minimum tax”. The QDMTT was optionally included in the resolutions, states can make use of it. Their main goal is to leave tax rates basically at the previous level but to skim off the differences before others do. Domestic rules would be adjusted so as not to fall below the 15 percent mark in line with agreed rules.
The discussion in the Netherlands shows that this is a double-edged sword. In order to increase pressure on other EU countries such as Germany, especially Hungary and Poland, the Netherlands submitted an initial draft for public consultation in its own country in November. The pressure bore fruit, and the EU agreement was reached in mid-December. This has put the brakes back on national implementations for the time being. However, the example of the Netherlands has already shown that a QDMTT will not only find friends. According to a statement by the Dutch section of the Tax Justice Network, it is contrary to the system. “If the Netherlands also wants to introduce such a tax, it will be a bad example for other countries as well.”
Nevertheless, the Federal Ministry of Finance is confident. “Regardless of the impact on forecast additional tax revenues, however, the expected adjustment reactions show that Pillar 2 can reduce the pressure on high-tax countries as well as their susceptibility to tax-optimized arrangements,” a spokesman explained when asked. However, the Munich-based Ifo Institute has been commissioned to conduct another short study, which will be available in a few weeks and will contain new calculations.
Whether Germany also needs a QDMTT? It is being examined “whether a national minimum taxation should become part of the discussion draft to be published in Q1 2023,” the BMF explains.
In the USA, the introduction of minimum taxation is already a step further: The Inflation Reduction Act also introduced a kind of minimum tax. However, one that systematically deviates from the OECD agreements and has major loopholes. Further potential for conflict for the EU’s transatlantic relationship, in addition to all the other disputes surrounding the Inflation Reduction Act (IRA). And so Olaf Scholz, now as chancellor, may have to work out a solution with Joe Biden once again in the best of friendships in order to give his former flagship project the full, desired push.
In order to combat greenwashing and guarantee consumers reliable information, the EU Commission wants to regulate claims about the environmental friendliness of products and services in its green claims directive. According to the leaked draft, the information and environmental labels must be based on a scientifically sound methodology, such as the environmental footprint.
Originally, the Commission wanted to present the proposal for the directive in November as part of the second circular economy package but then postponed it. According to its current agenda, the deadline for the “consumer package” is March 22, which, in addition to the green claims draft, is also to include the draft on the right to repair, which has been postponed several times.
The Commission refers to studies according to which claims about the sustainability of products (on the product itself and in advertising) are false or misleading in about half of the cases. For a significant proportion of products, it is unclear whether the claim refers to the entire product or only to one component, to the company or individual products. The phase of the product life cycle concerned was also not apparent in most cases.
This is compounded by the increasing number of product labels in the EU, whose standards and methodologies vary significantly in terms of their transparency, scope, verification and review, making them unreliable.
All environmental claims provided in business-to-consumer communications – unless already covered by other EU legislation – are to be affected by the directive. The current version of the draft includes the following measures, among others:
It is positive that not only labels but all environmental claims are to be covered, says Dimitri Vergne of the European Consumers’ Organisation BEUC. “It is encouraging that the Commission intends to significantly strengthen the role of market surveillance authorities in combating greenwashing.” Authorities would have to impose fines on companies that mislead consumers with dubious claims. To ensure that the fines actually deter companies from breaking the law, it is important that member states set sufficiently high penalties, Vergne says. “We hope this will be included in the final proposal.”
The proposal also calls the use of CO2 offsets to support environmental claims problematic and misleading for consumers. Vergne also agrees. “Regrettably, however, the proposal does not go so far as to ban such claims, which we believe would be the only effective way to protect consumers from this type of blatant greenwashing.”
Vergne hopes to see two more aspects in the final version of the Commission’s proposal: an obligation to publish evidence of an environmental claim and a mandate for market surveillance authorities to carry out regular checks. “These aspects are crucial to clean up the market once and for all from misleading green claims and labels.”
“Mandatory use of the Product Environmental Footprint (PEF) and similar methods to specify green claims will improve the quality of environmental information,” says Margaux Le Gallou of the Environmental Coalition of Standards (ECOS). “We hope that the recognition that some impacts are not yet covered in the PEF and should not be ignored – such as microplastic releases or biodiversity – will be preserved in the final proposal.” It is better to make no claims than to make claims based on inadequate methodologies if they give an advantage to the company in question, Le Gallou said.
From the point of view of the industry and employers’ association BusinessEurope, greenwashing harms the functioning of the internal market, but it has been largely regulated for a long time. “The EU must avoid the risk of overlaps and contradictions with existing initiatives,” says Pedro Oliveira, director of legal affairs. “European business expects the EU to carefully consider and justify any additional rules in this already regulated area in the spirit of ‘better regulation’.”
The Commission intends to proceed step by step: The green claims proposal, together with the directive on empowering consumers to act in an environmentally responsible way, is to be the first framework for the fight against greenwashing. The latter was presented in March 2022 and is currently being discussed at committee level in Parliament. Based on the experience gained in the implementation of both directives, the Commission will then consider whether further action is needed.
Perhaps the most traditional Czech dish you can ask for in a restaurant is vepřo knedlo zelo – essentially roast pork with dumplings and a side of pickled cabbage. A meal made to survive the cold winter and the new Czech political situation.
The Czech Republic’s parliamentary system grants limited powers to the presidency, while the government holds most of the executive power. “In this sense, the Czech political system is closer to the German model than to the French,” explains a Czech diplomat. In contrast, he is the commander-in-chief of the military – like the president of the French Republic – and has the power to appoint judges. He also has a say in cabinet formation, selects central bankers and appoints judges. “So if the president wants to exert his influence, he has the means to do so,” he summarizes.
In the first round of voting on Jan. 13-14, Petr Pavel, who once served as NATO’s highest-ranking military officer, was ahead by a razor-thin margin (35.4 percent) of former Prime Minister Andrej Babiš, a chemical, agricultural and media magnate and leader of the strongest opposition party (35 percent).
The winner of the Jan. 27-28 election will be the fourth head of state in the central European country of more than 10 million people since the fall of communism. He will succeed President Miloš Zeman, whose support for Vladimir Putin – until the invasion of Ukraine – has antagonized European Union allies and political rivals at home.
“In this respect, the new president will actually mark the end of an era. And a European direction in any case stronger than under Zeman,” notes the diplomat. However, they point out another similarity between the two candidates that has largely flown under the radar: their membership in the Communist Party during the Cold War. “Both candidates were members of the Communist Party. So you can’t paint a black-and-white picture of the two candidates, where one is pro-European and the other is pro-economy, for example,” they continue.
This Soviet-era legacy explains the high abstention rate of voters (31 percent) for whom it is simply impossible to vote for former Communists. They mention, for example, the generations of Czechs who witnessed the Prague Spring and the repression that followed. A repression that ultimately extended to the lifting of the Iron Curtain.
So will these elections just serve up a one-size-fits-all mash with no flavor or aroma? “No, there are definitely differences between the two candidates,” the diplomat continued.
Pavel, who is running as an independent, has promised a less confrontational stance than Zeman. He has won the support of a number of presidential candidates who together received more than 20 percent of the vote in the first round. Pavel, a former chairman of NATO’s military committee, has also pledged to support LGBTQ rights such as same-sex marriage. “When he was with NATO, Pavel lived and worked in Brussels. So he knows the European and international scene well,” comments the diplomat. That’s why he’s the favorite of the Brussels bubble, who believe a Pavel victory will help EU-wide negotiations run more smoothly.
Babiš, who clashed with the EU as prime minister over migration policy and conflicts of interest regarding his businesses, is seeking a return to high office after his defeat in the 2021 parliamentary elections. He wants to counterbalance Prime Minister Petr Fiala’s center-right coalition, which he accuses of not doing enough to help people and businesses cope with the worst cost-of-living crisis in decades.
“Babiš does love to brag that he has the phone number of every head of state in the EU, but in doing so, he definitely covets diplomatic faux pas,” the diplomat said. For example, mentioning a phone call with “him”, the prime minister of Estonia, when the prime minister in this case is a woman, Kaja Kallas.
Above all, Babiš likes to talk about his relationship with Emmanuel Macron. On Jan. 10, three days before the first round of the presidential election, the Czech politician met with the French president in Paris for talks. Although the Elysée Palace tried to make it clear that the meeting was not a campaign support for the leader of the largest Czech opposition party, the latter rushed to document it with a photo on his Twitter account.
