Commission announces tax transparency rules for multinationals

The publication of Panama Papers increased pressure on the EU to address corporate tax evasion.

The European Commission announced on Tuesday new rules aimed at fighting tax evasion by multinational companies operating in the EU.

Every company operating in Europe with global revenues exceeding €750 million a year must publish the amount of tax they pay in each EU country, as well as provide additional information on their activities. These rules will also apply to non-EU companies.

The Commission will require “stronger transparency requirements for companies’ activities in countries which do not observe international standards for good governance in the area of taxation,” meaning that companies operating in tax havens would need to “provide full, country-by-country, disclosure,” it said in a press release.

Companies operating in the EU will also need to provide aggregate figures disclosing total taxes paid outside the EU.

“The fight against tax avoidance is a key priority for the Commission,” Commission Vice-President Valdis Dombrovskis said. “Close cooperation between tax authorities must go hand in hand with public transparency. By adopting this proposal, Europe is demonstrating its leadership in the fight against tax avoidance.”

Jonathan Hill, the European commissioner for financial stability, financial services and capital markets union, added: “Our economies and societies depend on a tax system that’s fair, a principle that applies both to individuals and to business. Our proposal to increase transparency will help make companies more accountable. It will promote fairer competition between companies regardless of their size.”

The Commission had already planned in March to make country-by-country tax reporting public according to a leaked proposal published by POLITICO. But this month’s release of the “Panama Papers” by an international consortium of journalists shed a new light on tax arrangements by wealthy Europeans and increased pressure on the Commission to address tax evasion.

Companies active in the EU with a revenue of more than €750 million will need to publish seven pieces of information in every country in which they operate: 1) the nature of their activities; 2) the number of their employees; 3) their total net turnover; 4) the profit made before tax; 5) the amount of income tax due in each country; 6) the one actually paid; and 7) the accumulated earnings, which is the net profit of the company after distributions to the stakeholders.

As a legal basis for the proposal, the Commission chose to amend the 2013 Accounting Directive on corporate reporting in the EU. This means that new rules can be adopted with a qualified majority vote in the Council of the EU, while regulation regarding tax harmonization would have required a unanimous vote by all 28 member countries.

The conservative European People’s Party welcomed the Commission’s proposal, but stated that “country-by-country reporting alone does not fix the problem.”

“We want companies to pay taxes where the value is created,” said MEP Burkard Balz, the group’s spokesman on tax matters. “The new law will help to make visible whether this principle is enforced or not.” But he also warned against too much transparency requirements that could “jeopardize European companies’ competitiveness by asking them to disclose information that American and Chinese companies do not have to disclose.”

BusinessEurope, which represents firms and employers’ groups from 34 European countries, stated that “today’s proposals for public reporting of financial information by companies operating in the EU risk undermining the proper role of tax authorities in enforcing tax legislation, as well as creating uncertainty for business.”

“By making the EU a lone front runner in terms of public disclosure, [the proposal] risks undermining our attractiveness as a location for investment, particularly from overseas.”

Green Party MEP Sven Giegold said it was “good that the Commission responded to years of call by the European Parliament to do this,” but insisted that transparency requirements for companies operating in the EU “should be binding for all jurisdictions.”

Experience with blacklisting tax havens “is negative,” he said, “because some of the biggest countries in the world are tax havens.” He cited the US and the protection granted by countries like the U.K. to uncooperative jurisdictions as an example.

Transparency International EU also complained that the new proposal on corporate disclosure “[failed] to deliver meaningful information that would provide real transparency.”

“The Commission has squandered a golden opportunity to make companies more accountable,” said Elena Gaita, policy officer on corporate transparency at Transparency International EU. “It’s baffling why the Commission has proposed a cumbersome and contentious process to create a list of tax havens when there is already a simpler solution. Full public country-by-country reporting applying to the whole world would produce better results.”

When asked during a press conference on Tuesday why the Commission had chosen to make public country-by-country reporting mandatory in the EU only, Hill said that it had to do with the “genesis of the debate,” which originated when the public witnessed “large non-European multinationals appearing to be paying extremely small amounts of tax in countries where they’re generating quite a lot of profit.”

In response to this situation, the new approach will “capture all businesses and not just European ones,” he said.

Click Here: geelong cats guernsey 2019