EU lawmakers pass new rules to tackle multinationals’ tax avoidance
The European Parliament on Tuesday passed a directive requiring big multinationals to report tax and financial data separately in all countries where they operate, a measure aimed at tackling tax avoidance and profit shifting to countries with lower taxes.
The new rules are part of a wider overhaul of tax regulation spurred by the so-called Panama Papers and other revelations of widespread tax avoidance by companies and wealthy individuals.
They do, however, still need approval from the EU member states in coming months, and would then have to be enacted into national law in each country within a year.
EU countries lose between 50 and 70 billion euros in revenues every year because of tax avoidance, the vice president of the European Commission, Valdis Dombrovskis, told lawmakers.
The new measure would require firms with activities in the EU and an annual turnover of at least 750 million euros ($850 million) to disclose data such as profits, revenues, taxes paid and number of employees for each country where they operate.
Currently, multinationals disclose their operations in one consolidated report.
Tax-dodging schemes often hinge on the transfer of taxable profits from the higher-tax states where they are made to countries with lower taxation or none at all.
Tax-saving schemes used by Apple, Amazon, Google, Starbucks and other companies have raised public pressure for EU-wide rules to close these loopholes.
The original legislative proposal made by the European Commission required country-by-country disclosures only for operations in EU states and in tax havens, although there is no common EU list of such jurisdictions.
The European Parliament changed the proposed rules to extend the reporting requirement to all countries where firms operate.
To protect Europe’s competitiveness, the conservative and liberal groups in the EU legislature successfully pushed for companies to be allowed to apply for limited-period exemptions from disclosing information that is commercially sensitive.
But the bill does not specify what would be considered sensitive. The anti-corruption group Transparency International called the exemption a “massive loophole” that could undermine the new legislation, and another campaign group, Oxfam, said lawmakers were “bowing to big business”.
German conservative legislator Markus Ferber said the clause was necessary to prevent companies “handing away business secrets to the competition on a silver platter”.