EU reaches deal to force multinationals to report profits by country

Ireland had opposed move hailed by proponents as big step forward in transparency

The required majority of EU member states backed the measure in February, ending a deadlock over the issue that had stalled its progress since 2016. Photograph: iStock

The required majority of EU member states backed the measure in February, ending a deadlock over the issue that had stalled its progress since 2016. Photograph: iStock

 

The European Union reached a final deal on Thursday to introduce a new regulation that will force large multinational companies to declare their activities per country, a measure opposed by Ireland but one hailed by proponents as a major step forward in tax transparency.

The country-by-country reporting law will mean EU-headquartered companies or subsidiaries with a turnover of more than €750 million must publicly report their number of employees, net turnover, profits, corporate tax paid and nature of activities per EU member state.

Companies will also have to disclose these details for any country listed by the EU as a non-co-operative tax jurisdiction, though figures for the rest of the world can be presented in aggregate.

“It shows time is over, time is over for tax fraud and tax avoidance we can simply not afford it any longer,” said Sven Giegold, a Germany MEP and long-time tax campaigner in the hours before the deal was reached. “We need the money for investment, we need the money for rebalancing the budgets, we cannot afford it any longer.”

The Irish Government had objected to the legal basis under which the regulation was brought in, which classified it as a competition issue rather than a tax law. This allowed it to be passed by a qualified majority of EU member states rather than requiring unanimity, and meant Ireland could be overruled.

The required majority of member states backed the measure in February, ending a deadlock over the issue that had stalled its progress since 2016, and a deal to finalise the law with the European Parliament and European Commission was reached on Tuesday.

Profit-shifting

Proponents see the law as a key step in preventing profit-shifting within the EU, in which companies use subsidiaries that charge each other for services to move profits to more favourable tax jurisdictions.

Tax campaigners have objected that allowing data to be presented in aggregate for much of the world was a loophole that would reduce the efficacy of the law, but supporters of the measure say that 80 per cent of profit-shifting in the EU takes place between member states.

The deal comes amid rising international momentum to tackle aggressive tax planning by multinationals. The United States administration of president Joe Biden has backed efforts to reach an international deal on digital taxation and has called for a minimum corporation tax rate of 21 per cent, far above Ireland’s 12.5 per cent rate.

As negotiations to reach the deal on country-by-country reporting were ongoing, European commissioner for economy Paolo Gentiloni told journalists: “The fight against tax evasions, tax avoidance and aggressive tax planning is a priority for the commission and for me.”

He made the remarks at the launch of a new EU-funded research body, the European Tax Observatory, which is charged with studying taxation and suggesting policies better tackle tax evasion, tax avoidance and aggressive tax planning, according to the European Commission.

The centre will be headed by French economist Prof Gabriel Zucman, known for his writings on tax havens, and will be based at the Paris School of Economics.

When asked about minimum taxation rates as the research centre was unveiled, Prof Zucman said a base level of 12.5 per cent or 15 per cent would be “way too low”.

“It’s not enough to restore the balance, for the main winners of globalisation to pay more in tax, which at the end of the day is the only way for globalisation to be sustainable,” he said.