EU wants country reporting, and multinationals to publish profits

European Commission wants multinationals to say where they make profits and pay taxes

Starbucks: multinational tax-planner
Starbucks: multinational tax-planner

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

The proposals build on the EC’s work to tackle corporate tax avoidance in Europe, estimated to cost EU countries €50-70 billion a year in lost tax revenues.

Under Tuesday’s plans, companies operating in the EU whose annual revenue exceeds €750 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 the different tax jurisdictions, and key information on where they make their profits and where they pay their tax in the EU on a country-by-country basis.

The same rules would apply to non-European multinationals doing business in Europe. In addition, companies would have to publish an aggregate figure for total taxes paid outside the EU.

Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue said: “The fight against tax avoidance is a key priority of this Commission. Close cooperation between tax authorities must go hand in hand with public transparency. Today, we are making information on income taxes paid by multinational groups readily available to the public, without imposing new burdens for SMEs and with due respect for business secrets. By adopting this proposal, Europe is demonstrating its leadership in the fight against tax avoidance.”

The proposal will amend the Accounting Directive to ensure that large groups publish annually a report disclosing the profit and the tax accrued and paid in each Member State on a country-by-country basis. This information will remain available for five years.

Mandatory public country-by-country reporting will enable citizens to scrutinise the tax behaviour of multinationals. This will, in turn, encourage companies to pay tax where they make their profit.

The EU reworked its proposals in recent days to also require public and 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 Panamanian law firm Mossack Fonseca & Co.

Several large companies, including McDonald’s Corp. 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.

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