EU to clamp down on aggressive tax planning by multinationals

European Commission to unveil new reporting rules following Panama Papers revelations

European Commissioner in charge of economic and financial affairs Pierre Moscovici. Photograph: Olivier Hoslet/EPA

European Commissioner in charge of economic and financial affairs Pierre Moscovici. Photograph: Olivier Hoslet/EPA

 

Major changes to the way multinationals report their activities in the European Union are to be proposed on Tuesday when the European Commission unveils new country-by-country reporting rules.

EU financial services commissioner Jonathan Hill is to announce the proposals in Strasbourg in the latest clampdown by Brussels on aggressive tax planning.

Under a draft document seen by The Irish Times, companies will be obliged to provide certain tax-related information each year for each jurisdiction in which they do business, including information on revenue, pre-tax profits or losses, the amount of tax due to the tax authorities in each country together with how much tax has been paid, and the number of employees.

Lord Hill said it would be a “carefully thought through” but ambitious proposal to promote greater tax transparency.

Sign-off

Companies with EU operations and revenues of more than €750 million will fall under the remit of the scheme, though further changes are likely before the final document is signed off tomorrow by the EU’s 28 commissioners.

While the initial proposal had envisaged confining the disclosure to the EU-wide activities of companies, the commission is also considering applying the rules to activities in certain non-EU tax havens in the wake of the Panama Papers’ revelations.

Such a move may prove difficult legally and politically, however.

The initial proposal originally conceived allowing companies to aggregate information related to non-EU activities into one lump sum.

Under the proposed legislation, companies will have to make the requisite information publicly available, rather than simply providing it to tax authorities.

The commission envisages that the information will be available on each country’s website for at least five consecutive years.

Unlike most EU tax legislation, the new country-by-country directive will technically be an accounting regulation, so is not subject to the unanimity rule that usually governs EU tax legislation and which effectively gives member states the possibility of vetoing a tax proposal.

The new directive will need approval from both the European Parliament and European Council which represents member states.

The proposal is likely to face strong resistance from some member states, which oppose full disclosure of multinationals’ activities, in the council, MEPs are likely to call for the legislation to go even further than envisioned by the commission.

Thresholds

In particular, tax justice campaigners and prominent MEPs have called for the threshold of €750 million in revenues to be lowered, amid concerns that only 10 per cent of large companies operating the EU will be covered by the rules.

The move to introduce country-by-country reporting for multinationals follows the introduction of similar European legislation for banks and extraction companies in 2013.

Though the planned publication of the proposal pre-dated the Panama Papers controversy which last week revealed a global system of tax avoidance by some of the world’s wealthiest individuals, the revelations have galvanised the EU in its fight against tax avoidance.

Asked about the Panama Papers last week the EU economics commissioner Pierre Moscovici replied: “It’s quite simply an absolute scandal.”

According to the draft document, it is estimated that countries in the EU lose between €50 and €70 billion each year to tax avoidance by firms.