New European Union rules to force multinational companies to publish their tax bills were criticised on Tuesday (12 April) by campaigners for being too weak to stop tax-dodging corporations hiding their profits.
While the European Commission said the new laws proved the EU was leading the world in the fight against tax avoidance, critics warned that a new tax haven blacklist was doomed to fail.
Instead, companies would simply move cash to countries that were too influential to go on the list, they said, such as the US and Switzerland.
The recent Panama Papers and LuxLeaks scandals have exposed how big multinationals move cash around shell companies in different countries to pay as little tax as possible.
The European Commission unveiled in Strasbourg today new laws to force companies operating in the EU that earn over €750 million euros worldwide to publish what they earn and how much tax they pay in each of the bloc’s 28 countries.
UK Commissioner Jonathan Hill said, “Today, by using complicated tax arrangements, some multinationals can pay nearly a third less tax than companies that only operate in one country.”
The EU loses €50 billion to €70 billion in tax revenue every year, due to corporate income tax avoidance, the European Commission said. 88% of people in the EU support stronger rules on tax.
The Commission added that the country by country reporting would apply to about 6,000 companies, or 90 corporations above that size, and that the data would be posted on company websites.
Data will include nature of activities, number of employees, total turnover, and profit before tax, tax owed in a country, tax paid and earnings.
But, unless the earnings are declared in a blacklisted tax haven, the data reported outside the EU will not be published. It will instead be anonymous.
Tove Maria Ryding, tax campaigner at the European Network on Debt and Development, said, “As long as the proposal doesn’t cover all countries, multinational corporations will still have plenty of opportunities to hide their profits.”
— European Commission (@EU_Commission) April 12, 2016
Tax haven blacklist
The Commission is drafting the tax haven black list, which should be ready in the next six months.
But that black list was doomed to fail, Ryding, who works with NGOs such as Oxfam and Christian Aid, said.
“In the past the EU’s list of tax havens has been extremely political with countries like the US and Switzerland, which are documented as having been used as tax havens, mysteriously left off the list,” she said.
“The last list caused such a scandal that the EU had to remove it from its website less than six months after it was published.”
Multinational companies would simply move their profits to bigger tax havens such as the US, that were too powerful to be put on the list, she said in comments echoed by other NGOs (see positions).
The rules build on the Base Erosion and Profit Shifting (BEPS) guidelines drafted the Organisation for Economic Cooperation and Development.
The BEPS guidelines, which OECD countries are aiming to adopt to create a global level playing field, do not insist on data being public. Instead they must be shared with tax authorities.
Valdis Dombrobskis, Vice-President for the Euro and Social Dialogue, said the fight against tax avoidance was a key priority of the Commission.
He said, “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 move could lead to conflict with the US, which was reported to be concerned that tax investigations after Luxleaks were unfairly targeting successful American multinationals.
The rules will take effect in 2018, but must first be agreed by the European Parliament and EU national leaders.
The EU already has rules that mean banks and mining companies must publish their profits and taxes in every country they work in, even if they are outside the EU.