The biggest companies in Europe will be forced to disclose more clearly the taxes they pay and profits they make in individual countries in a bid to make it harder to conceal untaxed cash piles.
New plans from the European Commission would require multinationals with annual turnover exceeding € 750 million to publish the information each year on their websites. The rules would hit companies with EU headquarters as well as other corporations that have subsidiaries in Europe. About 6,000 companies in total would be affected, some 2,000 of which are EU-based.
Still, in a big disappointment to tax justice campaigners, the scope of the disclosure rules will be in practice limited to activities within Europe, leaving a lack of transparency about profit shifting to non-EU tax havens such as the Cayman Islands and Bermuda.
The introduction of country-by- country reporting rules has been a longstanding request of tax campaigners and members of the European Parliament, who argue it is the only effective means to shed light on the labyrinthine schemes used by some companies to reduce their tax bills.
The commission estimates that such “aggressive tax planning” costs national treasuries between € 50 billion and €70 billion per year.
It is also responding to public outrage over the disclosure in 2014 of a trove of Luxembourg tax documents, which showed that up to 340 multinational companies, ranging from Ikea to Pepsi, funnelled profits through the Grand Duchy to lower their tax bills in some instances to as little as 1 per cent.
Lord Hill, the commission member in charge of the plans, said his goal was “to encourage responsible behaviour through more transparency”.
Sharing data
While George Osborne, UK chancellor, earlier this year lent his support to the introduction of such rules, the idea has raised hackles in some other EU nations amid concerns about its impact on companies’ competitiveness. Wolfgang Schäuble, Germany’s finance minister, said earlier this month that sharing of country-by-country data between national tax authorities should not lead to information being made public.
Employers’ groups have also warned transparency requirements could put EU companies at a disadvantage to rivals based in other parts of the world.
Key parts of the proposals, however, fall far short of what tax-justice campaigners say would be needed to blow the cover off sophisticated avoidance strategies. In some respects, the proposals go less far than existing country-by-country reporting rules the EU introduced for banks in 2014.
Crucially, data on activities outside the EU would not have to be broken down on a country-by-country basis.
Tove Maria Ryding, tax justice co- ordinator at the European Network on Debt and Development, said a proposal that only required multinational corporations to report on what they do in the EU “would be meaningless”.
Copyright The Financial Times Limited 2016
