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23/07/2016

Juncker backs forcing multinational companies to publish their tax bills

Euro & Finance

Juncker backs forcing multinational companies to publish their tax bills

Commission President Juncker could repair his Luxleaks-tarnished image by forcing multinationals to publish their tax bills.

[European Parliament/Flickr]

EXCLUSIVE / European Commission President Jean-Claude Juncker supports forcing multinational companies like Google, Amazon, and Apple to publish the profits they make and the taxes they pay in each EU country they operate in.

Global companies exploit their network of subsidiaries and favourable tax regimes in some countries to shift profits around and minimise their tax bills. On Thursday (28 January), the Commission announced its Anti-Tax Avoidance Package, which included a proposal for member states to share tax-related information about subsidiary firms of global companies.

That data will remain secret and in the hands of national tax authorities, in line with the Base Erosion and Profit Shifting (BEPS) international standards agreed by the OECD last year.

EurActiv has learnt Juncker, and many of his team of Commissioners, are ready to go further than BEPS by making the information publicly available.“The idea has really gained momentum,” sources said.

Juncker’s support is conditional on ongoing Commission analysis finding that public country by country reporting will not harm Europe’s economy. A decision is expected in May, if not earlier.

Yesterday’s proposal is part of a tax directive. All EU tax legislation requires the unanimous support of all 28 member states to make it onto the lawbooks.

But the executive is targeting either the revised Shareholder’s Rights Directive or Accounting Directive to be the vehicle for greater transparency.

The Accounting Directive falls under the remit of British Commissioner Jonathan Hill’s financial services department and the Shareholders Rights under Justice Commissioner V?ra Jourová’s. Crucially, neither requires the unanimous support of member states, but can instead by passed by qualified majority. There was also little time to prepare the groundwork for public reporting before the package was due.

If ultimately successful, the public reporting requirement could repair some of the damage that the LuxLeaks tax scandal caused Juncker’s presidency. He was prime minister and finance minister when Luxembourg struck sweetheart tax deals with global corporations.

Public reporting will apply to both EU and non-EU multinationals such as the aformentioned Google, whose astonishing low tax bills have caused public fury across EU, most recently in the UK. The European Parliament and NGOs such as Action Aid, Christian Aid, and Oxfam have demanded public reporting.

The EU already has a public country by country reporting requirement for banks and mining companies in its fourth Capital Requirements Directive.

Step by step

Speaking yesterday, Tax Commissioner Pierre Moscovici said he was in favour of public country by country reporting but stressed the need for a “step by step” approach.

>>Read: EU’s anti-tax avoidance package likely to fail, say NGOs

He conceded there was huge public pressure to unmask the tax avoidance of multinationals, which drain revenue from the coffers of governments, driving up payments for citizens and smaller businesses.

http://www.euractiv.com/video/moscovici-commission-discuss-feasibility-country-country-tax-reporting-321427

Moscovici told reporters at the Brussels news conference that the Commission impact assessment had to show that publishing the data would not harm investment and growth.

The previous Barroso Commission hired auditors PwC in 2014 to see if publishing bank data on profits and tax would harm the economy.

PwC found that publishing turnover and taxes could actually help the economy, paving the way for the rule to become law.

Sources yesterday confirmed that the PwC impact assessment would feed into the Commission’s broader analysis.

Tove Ryding, tax justice coordinator at the European Network on debt and development (Eurodad) said: “The impact assessment for banks showed that there were no resulting negative effects, and there were even positive impacts for the economy. There is no reason why this should be any different for multinational corporations.”

>>Read: Publishing banks’ taxes and turnover will help the economy, says PwC

A consultation on public reporting for multinationals launched in September has already closed. The many responses in favour are believed to have influenced some within the executive.

Competition Commissioner Margrethe Vestager is also thought to be in favour of public country by country reporting.

Vestager, who is overseeing the state aid investigations into sweetheart tax deals between governments and multinationals, said that she supported country by country reporting and transparency, in an interview with EurActiv.

>>Read: Vestager: We should thank the Luxleaks whistleblowers

More bad news for Google

On Thursday morning, Vestager said in an interview with the BBC that the UK government’s controversial tax deal with Google could fall foul of European competition rules. Vestager said these so-called ‘sweetheart deals’ between member states and companies were unfair and could amount to illegal state aid.

Google’s €171 million back tax deal with British authorities was hailed by the UK government as a major success, but was dismissed as “derisory” by the opposition Labour Party, and criticised by other parties.

Asked about Google at the conference, Moscovici said he would decline to comment on individual tax agreements that are being investigated.

But, he added, “All companies must pay their fair share of taxes where they earn their profits.”

A Commission spokesman later confirmed that the executive had received a complaint from the Scottish National Party about the Google deal. The letter would be assessed and then a decision would be made on whether or not to investigate. The Labour Party has also sent a complaint. 

Background

The fight against tax evasion is one of the Juncker Commission's main priorities. News of the systematic, state-sanctioned tax evasion practices of many multinationals based in Luxembourg, known as the Luxleaks scandal, broke shortly after the new Commission was sworn in.

On 18 March, the executive presented a package of measures aimed at strengthening tax transparency, notably by introducing a system for the automatic exchange of information on tax rulings between member states. 

The so-called Tax Transparency Package will force the EU's 28 member states to share details of any tax deals agreed to with some of the world's biggest multinationals, in information sent automatically every three months. The plan aims to end the secrecy that allowed member states to often compete against each other to attract business and investment.

It does not however question the perfectly legal practice of offering companies tax rulings, the executive said, this being the strict responsibility of member states.

Activists criticised the fact that the tax ruling would remain out of the public eye, remaining privileged information for tax authorities.

>>Read: Brussels mulls clampdown on tax avoidance after Luxleaks

Timeline

May: Expected decision on public country-by-country reporting

Further Reading

European Commission