EU moves to crack down on tax avoidance

Disclosure rules to be extended to corporations on country-by-country basis

European Commissioner for Internal Market and Services Michel Barnier: “We need more responsible companies.” Photograph: John Thys/AFP/Getty Images

European Commissioner for Internal Market and Services Michel Barnier: “We need more responsible companies.” Photograph: John Thys/AFP/Getty Images

Fri, May 24, 2013, 01:00

The European Commission intends to force companies to disclose revenues and profits on a country-by-country basis to crack down on tax avoidance.

In a speech yesterday, internal markets commissioner Michel Barnier said disclosure rules applying to banks and exploration and mining companies would be extended to other corporations. The move – which was unexpected – comes a day after tax avoidance was discussed by EU leaders at a summit in Brussels.

The new rules would be introduced “as quickly as possible” according to a spokeswoman for the commissioner, and could be introduced by opening up directives on non-financial reporting that are passing through the EU legislative process, rather than embarking on a new legislative process.

“We need more responsible companies,” commissioner Barnier said yesterday, in a speech that highlighted the role of financial reporting in corporate responsibility.

He said that any new disclosure rules would avoid placing additional administrative burdens on companies, noting that the reporting costs for larger companies “should be proportionate to the usefulness of the information, and a size and complexity of the companies involved”. Companies with less than 500 employees would not be subject to any new obligations, he said.

Toughen up
The signal by the EU that it intends to toughen up on reporting rules comes as pressure on Ireland subsided somewhat following this week’s revelations about Apple’s use of tax structures in Ireland. A European Commission spokeswoman said the commission had been “reassured” by Ireland that it did not negotiate any special tax rate with individual companies, having made informal contact with the Irish presidency of the EU Council.

Tax rates
While the setting of individual and corporate tax rates is the prerogative of individual sovereign states, any moves to introduce a harmful tax measure – including the granting of special tax advantages to individual companies– could be in breach of the European Union’s code of conduct on business. About 100 tax schemes have been eliminated under the code, which is designed to rule out “harmful tax competition” in member states.

“At this point the commission is assured that the Irish government did not have a bilateral tax arrangement with any corporation,” the commission spokeswoman said, adding that the commission did not regard any EU member state as a tax haven.

The government has strongly denied it negotiated a special tax rate with Apple, despite Apple’s claims to the contrary. Taoiseach Enda Kenny said on Wednesday he “disagreed” with claims by Apple chief executive Tim Cook that the company had negotiated a special 2 per cent corporate tax rate with the Irish Government. “I disagree with the comment made in the US senate yesterday. Ireland’s corporate tax rate is 12 .5 per cent. It has been for a very long period. Its effective rate is 11.8 per cent. That applies across the spectrum,” the Taoiseach said.

Ireland’s tax regime was not specifically raised during this week’s summit.