The European Commission revealed on Tuesday a new recovery package for Europe’s small and medium-sized enterprises (SMEs), as well as revised EU corporate taxation rules.
ADVERTISEMENTThe SME package, a promise made in EU Commission President Ursula von der Leyen’s 2022 State of the Union speech, aims to cut red tape and boost competitiveness for European businesses.
The new rules on corporate taxation, another pledge made by the president in 2022, will simplify tax declarations for large multinationals operating across the EU.
SMEs represent 99% of European businesses, employ around 100 million people and generate more than half of Europe’s GDP. But unnecessary pressures including late payments, complex taxes and burdensome paperwork hamper their potential.
They have also been hit by high inflation and economic uncertainty resulting from Russia’s invasion of Ukraine.
More breathing space for small businesses
The measures aim to clamp down on late payments by reducing the maximum payment limit to 30 days and closing legal loopholes.
Businesses in Europe spend an estimated 74 days per year chasing late payments, costing them €275 billion. This has a knock-on effect on the wider economy, meaning one in four bankruptcies are caused by late payments.
EU rules mean businesses currently have up to 60 days to settle debts, but this deadline can be broken if parties agree to do so. Companies are entitled to interest on late payments.
“It’s a sad fact that only 30% of small businesses suffering from late payments take advantage of the compensation due to them for fear of repercussions,” said Andrew Cave, Secretary General of the European Small Business Alliance (ESBA).
“Getting stricter on the 30-day limit, removing legal gaps, automating payments, and ushering in a stricter enforcement regime will go a long way to putting the system back on the side of small business,” he added.
The new proposals would also allow SMEs operating across borders to interact with one tax administration only, despite having establishments in multiple EU countries. This would simplify reporting procedures and reduce the risk of double and over-taxation.
“The resulting savings and simplification will encourage more SMEs to expand across national borders, creating more jobs for Europeans,” the EU Commissioner for Economy Paolo Gentiloni, said.
ESBA’s Cave believes this is a “win-win” for both small businesses and the single market.
The Commission will also implement further reforms to support SMEs, including appointing an EU SME envoy to advocate for the interests of small businesses.
New EU corporate tax rules
The European Commission also revealed on Tuesday a new, simpler tax rulebook for large cross-border businesses in the EU.
The so-called ‘BEFIT’ rules will apply to corporate groups with an annual revenue of more than €750 million.
But the measures do not go as far as requiring companies to be taxed where their customers are, an idea previously floated by the bloc’s executive. Such rules would undermine the tax profits of EU countries with attractive fiscal regimes, such as Ireland or Luxembourg, which benefit economically from the presence of large multinationals.
But NGOs have denounced the proposals for their lack of ambition.
“This long-overdue reform fails to make big multinationals in Europe finally pay their fair share of tax. It gives them a free pass to continue booking taxes where they only have empty offices and siphon off their profits to EU tax havens,” Chiara Putaturo, Oxfam’s EU tax expert, said in response to the announcement.
ADVERTISEMENT“The only consolation is that all companies in the EU will have to report their profits in the same way and it forces big companies to comply,” she added.
Ursula von der Leyen previously committed to 'a single set of tax rules for doing business in Europe', a promise she fulfilled on the eve of the 2023 State of the Union speech.