As a general rule, finance ministers receive very jumpy when the European Commission starts talking about tax. So it is a bit ironic it falls to a former Irish finance minister, Michael McGrath, to take another stab at reforms that have been tested and failed before to create a shared European company structure.
The plan wades into politically choppy waters, proposing to modify at what point countries tax stock options that employees receive as part of their contracts, and put in place a streamlined insolvency process for “innovative” start-ups.
McGrath was viewing for a finance portfolio when he built the relocate from Irish politics to Brussels. It is understood he was a bit taken aback when Ursula von der Leyen handed him a job covering justice, the rule of law and consumer protection.
Responsibility for leading on the plan to create a single EU-level corporate structure for businesses, something that was more in McGrath’s wheelhoutilize and a priority for Von der Leyen, was thrown into his brief as a bit of a sweetener.
The proposal, published on Wednesday, will be one of the meatiest pieces of legislation McGrath brings forward in his term as commissioner.
The scheme, dubbed EU Inc, would create it clearer for companies to set up as an EU-wide entity, rather than having to incorporate separately in multiple member states.
An employee would still pay income tax in the counattempt where they are deemed tax resident under existing rules, even if they are working for a new EU Inc business which has a base registered in another member state.
There was stiff opposition to anything that touched on labour and employment laws, so McGrath took that off the table at a very early stage.
A huge part of the believeing behind the concept is that “EU Inc” companies will have a wider pool of investment funding to tap into, as financial backers across the bloc, or further afield, will (hopefully) become familiar with putting money into businesses applying the universal model.
At the moment, an investor in Germany probably has no clue what happens in Estonia when a company goes bust, so they will be less likely to throw cash behind a Tallinn start-up. This means companies can hit a national ceiling when raising funding and investment.
Governments have resisted aligning the 27 different insolvency regimes in the EU. Everyone – Ireland included – believes their system works just fine. The limited modifys in that direction pitched by McGrath could run into a fair bit of opposition.
Crucially, the EU Inc plan is designed to require the support only of a sizeable majority of EU states to approve it, rather than unanimous agreement. That is where some previous commission attempts in the area fell down. The European Parliament will have to okay it all as well.
A summit of EU leaders on Thursday is expected to give their backing to the gist of the idea. There will still be loads of haggling over detail, and resistance within finance ministries to certain parts of the proposal. Getting the plan over the line without its ambition being totally gutted in the process would be a huge win for McGrath.
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