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European Union Calls for Big Companies to Disclose More Tax Data European Union Calls for Big Companies to Disclose More Tax Data
(about 5 hours later)
BRUSSELS — European Union authorities called on Tuesday for 6,000 of the world’s largest companies to reveal the tax they pay to each of the bloc’s 28 member countries and to disclose their tax arrangements in offshore havens. BRUSSELS — European Union officials on Tuesday waded into the fight against international tax dodging, calling for the world’s biggest companies to disclose more data about their tax arrangements with the bloc’s member governments and to share information about offshore havens where they shelter money.
The proposal, by the European Commission, the European Union’s executive body, was planned before the recent huge leak of documents from a Panamanian law firm, Mossack Fonseca. But if the European effort becomes law, it could help to address the types of tax shelters exposed in the Panama Papers. The proposed rules were in the planning before the recent leak of millions of documents from a Panamanian law firm, Mossack Fonseca. But European officials adjusted the plans in recent days to pay more attention to offshore holdings in light of the revelations in the Panama Papers.
The leaked Mossack Fonseca files exposed how some of the world’s richest or most powerful people may have used offshore bank accounts and shell companies to conceal their wealth or avoid taxes. The Mossack Fonseca files revealed how some of the world’s richest or most powerful people may have used offshore bank accounts and shell companies to conceal their wealth or avoid taxes. The European proposal is primarily aimed at stopping multinational companies from shifting their profits around Europe to lower their tax bills.
The European proposal, which officials tweaked in recent days to pay more attention to offshore holdings in light of the Panama Papers, is primarily aimed at stopping multinational companies from shifting their profits around Europe to lower their tax bills. The biggest impact could be on the way companies that have easily recognized brands, and that are concerned about their public images, manage their taxes in the European Union. Multinational companies including Amazon, Anheuser-Busch InBev, Apple, Google and Starbucks have been part of investigations by the European Commission, the bloc’s executive arm, into the way some of the 28 member countries set taxes, including Belgium, Ireland, Luxembourg and the Netherlands.
Multinational companies including Amazon, Anheuser-Busch InBev, Apple, Google and Starbucks have been part of investigations by the European Commission into the way countries set taxes. A long political fight may lie ahead for the proposals to become law. The proposed rules would very likely meet resistance from some business groups and possibly even European governments that use tax inducements to attract companies and jobs.
To become law, the proposal must receive the approval of the European Parliament and a majority of European Union governments. The rules would apply only to multinational companies with global revenues greater than 750 million euros a year, or about $855 million. And the authorities in popular tax havens like the British Virgin Islands, the Cayman Islands or the Channel Islands off Britain, might lobby to avoid being labeled “tax jurisdictions which do not respect international tax good governance standards” — as a European Union memo on the proposed rules stated, without naming any names. Deciding which jurisdictions end up on the European Union’s blacklist could prove diplomatically sensitive.
“Drafting these lists, and pulling up the right names for tax havens, is a very political process, that’s clear,” said Guntram B. Wolff, the director of Bruegel, a research organization in Brussels. “But the commission toughened up since the release of the Panama Papers, partly as the mood shifted and partly because of backing from France and Germany.”
Commission officials emphasized on Tuesday that no decisions had been made about which countries might be included on the blacklist. And they promised to hold open discussions with any country under scrutiny.
But in a news conference on Tuesday in Strasbourg, France, Jonathan Hill, the European commissioner for financial services, hinted at one country that could receive a close look. “If large multinationals active in Europe are paying tax in somewhere like Panama, to take one example,” Mr. Hill said, “they’d need to make that public.”
Ray Smith, a lawyer in London with Clyde & Company who advises large companies on their tax affairs, said the Panama Papers scandal had “added grist to the mill of E.U. politicians calling for urgent reform.”
But he also urged caution. “The concern is, as with any populist reforms, that any new rules made in haste may overlook the fact that low-tax jurisdictions often play an important and legitimate role,” Mr. Smith said.
The proposals might also be brandished by groups in favor of Britain’s leaving the European Union as evidence of “the strain of ever increasing E.U. regulation,” he said.
There also was immediate opposition to the proposals from one major lobbying group for European businesses, which said the initiative went too far by usurping the role of the national tax authorities and by forcing companies to reveal too much.
The proposals would make the European Union “a lone front-runner in terms of public disclosure” and they “risk undermining our attractiveness as a location for investment, particularly from overseas,” said Markus J. Breyer, the director general for BusinessEurope in Brussels.
To become law, the rules would require the approval of the European Parliament and a majority of European Union governments. The rules would apply only to multinational companies with global revenues greater than 750 million euros a year, or about $855 million. That would include an estimated 6,000 companies doing business in Europe.
Rather than establishing a central registry, the proposal would leave it to the bloc’s member states to enforce rules requiring companies to publish tax information on their corporate websites.Rather than establishing a central registry, the proposal would leave it to the bloc’s member states to enforce rules requiring companies to publish tax information on their corporate websites.
While companies with operations in some tax havens would need to give the same level of detail required for their European operations, critics said the proposed rules would still leave major gaps. The information, which would be broken down by country, would include the number of employees; net revenue, including money exchanged between third parties and between business units of a group; profit before tax; and income tax due and paid each year.
Even so, the commission said the information — including the amount of tax companies pay to each country and overseas — would be sufficient to shame companies that shift their profits mainly for tax purposes and would force them to consider changing their business practices. High levels of accumulated earnings, such as profits that are not distributed but are held in certain countries, could signal attempts to avoid taxes.
“This is a carefully thought through but ambitious proposal for more transparency on tax,” said Jonathan Hill, the European commissioner for financial services. The European Commission chose not to require that even more information be released publicly after business groups warned against putting companies with European operations at a competitive disadvantage compared to other parts of the world.
The initiative was “not, of course, focused principally on the response to the Panama Papers,” he added, but “there is an important connection between our continuing work on tax transparency and tax havens that we are building into the proposal.” But for some advocates of tax overhauls, the rules do not go far enough because companies would mostly be allowed to publish aggregated data about their payments outside the European Union.
“We still won’t know anything about the activities, tax payments and potential tax agreements by multinationals across most of the world,” said Elena Gaita, a policy officer in Brussels for Transparency International, which monitors corruption. “Another problem is that this environment is highly competitive,” she said, “so one country may not be a tax haven today but might become one tomorrow.”
But the commission said the information would be sufficient to shame the companies that shift their profits mainly for tax purposes and would force them to consider changing their business practices.
The overall transparency would “help the public see whether companies are acting in the best long-term interests of their shareholders from a reputational point of view,” Mr. Hill said at the news conference.
Mr. Hill is an ally of Prime Minister David Cameron of Britain, who has been embroiled in political uproar because of money he made through an offshore trust established by his father. That trust was identified in the Panama Papers. Mr. Cameron, who said neither he nor his father had done anything illegal, has released information from his tax returns for the last six years.Mr. Hill is an ally of Prime Minister David Cameron of Britain, who has been embroiled in political uproar because of money he made through an offshore trust established by his father. That trust was identified in the Panama Papers. Mr. Cameron, who said neither he nor his father had done anything illegal, has released information from his tax returns for the last six years.
The European Union accelerated its efforts to curb tax avoidance in the wake of the financial crisis, which forced many governments to adopt austerity budgets, reduce public services and raise nominal tax rates.The European Union accelerated its efforts to curb tax avoidance in the wake of the financial crisis, which forced many governments to adopt austerity budgets, reduce public services and raise nominal tax rates.
Critics contend that because tax engineering by big corporations allowed some multinationals to skirt the higher taxes, small businesses and individual citizens bore the brunt of the impact. Politicians and policy makers attuned to that criticism have called for banks and big corporations to pay more tax and to be less secretive about where their money goes. Critics contend that because tax engineering by big corporations allowed some multinationals to skirt taxes, small businesses and individual citizens bore the brunt of the impact. Politicians and policy makers sensitive to that criticism have called for banks and big corporations to pay more tax and to be less secretive about where their money goes.
Margrethe Vestager, the European Union’s competition commissioner, has already ordered the Netherlands to recover back taxes from Starbucks and has told Belgium to do the same in the case of Anheuser-Busch InBev and a number of other companies.Margrethe Vestager, the European Union’s competition commissioner, has already ordered the Netherlands to recover back taxes from Starbucks and has told Belgium to do the same in the case of Anheuser-Busch InBev and a number of other companies.
Ms. Vestager could still do the same in a pending case against Apple, which has a similar arrangement with Ireland, and in an inquiry into Amazon, which has a tax arrangement in Luxembourg.Ms. Vestager could still do the same in a pending case against Apple, which has a similar arrangement with Ireland, and in an inquiry into Amazon, which has a tax arrangement in Luxembourg.
Tuesday’s proposal aims to lift the veil of disclosure rules, which critics say make it too complicated or too expensive for the public to understand how much tax companies pay and where they pay it.
With the changes, companies would need to make the following information available on their websites, broken down by country: the number of employees; net revenue, including money exchanged between third parties and between business units of a group; profit before tax; and income tax due and paid each year.
High levels of accumulated earnings, such as profits that are not distributed but are held in certain countries, could be an indicator of attempts to avoid taxes.
The European Commission chose not to make even more information publicly available after business groups warned against putting companies with European operations at a competitive disadvantage to other parts of the world. But for some advocates of tax overhaul, the rules do not go far enough because companies would mostly be allowed to publish aggregated data about their payments outside the European Union.
“We still won’t know anything about the activities, tax payments and potential tax agreements by multinationals across most of the world,” said Elena Gaita, a policy officer in Brussels for Transparency International, which monitors corruption.
“Another problem is that this environment is highly competitive,” she said, “so one country may not be a tax haven today but might become one tomorrow.”
The commission said its proposal should be sufficient to allow ordinary citizens to judge whether the tax a company pays in the European Union corresponds to the amount of business it does there.