EU Could Force Big Firms to Publish Tax-Haven Profits

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Valdis Dombrovskis, vice president of the European Commission in charge of euro and social dialogue, said Europe is demonstrating its leadership in the fight against tax avoidance. ENLARGE
Valdis Dombrovskis, vice president of the European Commission in charge of euro and social dialogue, said Europe is demonstrating its leadership in the fight against tax avoidance. Photo: Agence France-Presse/Getty Images

BRUSSELS—Large multinationals operating in the European Union will have to publish details of profits and tax bills generated in countries considered to be “tax havens,” the bloc’s executive arm said on Tuesday as it toughened up proposals for fighting tax avoidance following the “Panama Papers” leak.

The European Commission had already been working on plans to open up to the public reports by thousands of companies on profits reaped and taxes paid in individual EU countries—an unprecedented move for a major jurisdiction.

But the EU has reworked its proposals in recent days to require more exhaustive reporting of companies’ operations in tax havens after newspapers around the world uncovered thousands of offshore accounts—allegedly held by officials, executives and celebrities—via documents leaked from the Panamanian law firm Mossack Fonseca & Co.

“By adopting this proposal, Europe is demonstrating its leadership in the fight against tax avoidance,” said Valdis Dombrovskis, vice president of the European Commission in charge of euro and social dialogue.

Tuesday’s proposals show how the commission is accelerating efforts to snuff out large-scale corporate tax avoidance amid pressure from the public. A previous proposal that would require national tax authorities to share corporate reports on profits and taxes was approved by EU finance ministers only last month.

“The Panama Papers hasn’t changed our agenda, but it has strengthened our determination to make sure that taxes are paid where profit is generated,” Jonathan Hill, the EU’s financial chief, said at a news conference.

Under Tuesday’s plans, companies operating in the EU whose annual revenue exceeds €750 million ($856 million) would have to publish the reports, which would include details on business operations, such as the number of employees and nature of activities in different tax jurisdictions. That information would be made available on a company’s website for at least five years.

Related

  • EU to Propose Multinationals Disclose More Tax Details (April 8)
  • Leaked Panama Files Spark Reactions Globally (April 5)
  • EU Plans New Tax Rules for Companies (Jan. 27)
  • Business-Friendly Bureaucrat Helped Build Tax Haven in Luxembourg (Oct. 21, 2014)

The EU is still drawing up its list of non-EU countries that don’t meet international standards for good governance in taxation. For all other non-EU countries whose tax rules are deemed in line with the standards, companies would only have to publish an aggregate figure of profits in all those countries.

The EU has been cracking down on companies trying to dodge taxes following revelations in 2014 that many multinational companies struck sweetheart deals in countries such as Luxembourg that allowed them to pay little tax in the bloc. Corporate tax avoidance costs the bloc’s member states between €50 billion and €70 billion a year in lost tax revenues, according to the EU.

“Our proposal to increase transparency will help make companies more accountable,” said Mr. Hill.

Several large companies, including McDonald’s Corp. MCD -0.09 % and IKEA, have questioned plans to make the reports public, claiming that disclosing such commercially sensitive information would place them at a disadvantage compared with rivals operating elsewhere.

“We believe that these proposals, by making the EU a lone front-runner in terms of public disclosure, risk undermining our attractiveness as a location for investment, particularly from overseas,” said Markus Beyrer, head of BusinessEurope, an advocacy group that represents companies including Alphabet Inc. GOOGL -0.38 % ’s Google and Comcast Corp. CMCSA 0.34 % ’s NBCUniversal.

But transparency campaigners said that the additional proposals still don’t go far enough.

“The last minute addition of tax havens smacks of window dressing,” said Elena Gaita, a corporate transparency policy officer at Transparency International, the global anticorruption group.

“This proposal cannot be called public country-by-country reporting, if it does not include most of the world,” said Ms. Gaita.

Mr. Hill said the commission decided against requiring global country-by-country reporting because of concerns that companies in other jurisdictions could get their hands on important business data they could use to their competitive advantage. Some non-EU governments may also see information that could lead them to double-tax European businesses, he said.

The commission’s proposal will still have to be agreed by EU governments before becoming law, a process that could take months.

Natalia Drozdiak at natalia.drozdiak@wsj.com



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