EU defends confining new tax rules to big multinationals

European Commissioner Jonathan Hill has defended the decision to confine new EU rules on tax reporting to companies with revenues exceeding €750 million, arguing that the move is in line with OECD rules.

His comments come as MEPs and tax justice campaigners criticised new proposals unveiled by the European Commission on Tuesday to tackle the practice of aggressive tax planning by multinationals.

Under the proposed legislation, companies with revenues in excess of €750 million will be obliged to publicly disclose financial information for each jurisdiction in which they do business in the EU.

This will include details on revenue, pre-tax profits and losses, the amount of tax due to the tax authorities in each country as well as how much tax has been paid, and the number of employees.

Tax havens

In addition, they will be forced to disclose information on a disaggregated basis on tax arrangements in certain non-EU jurisdictions that are regarded as tax havens by the bloc.

Announcing the proposals in Strasbourg, the British commissioner said the €750 million threshold chosen was “credible, rigorous . . . and consistent with an international agenda”, and would ensure than more than 90 per cent of revenues from multinational businesses and 6,500 companies would be covered by the scheme.

In a departure from OECD rules agreed last year, the information will be made publicly available, rather than provided to tax authorities. Companies will be obliged to publish the information on their websites for five consecutive years.

The European Parliament’s second-largest group, the Socialists and Democrats (S&D), said the proposals were “not good enough” and criticised the €750 million threshold, raising the prospect that the commission will face significant pressure from MEPs to amend the proposed legislation.

The proposal must be approved by the European Parliament and EU Council, which represents member states, before it becomes law.

Officials estimate that agreement between all the EU institutions on the proposal could take about a year, with the directive then entering into force in 2018.

Despite the commission including non-EU jurisdictions in the country-by-country proposals, anti-tax avoidance campaigners also criticised the proposed legislation on Tuesday. Describing the new rules as “woefully inadequate,” Christian Aid’s Sorley McCaughey, said the regulations may have the effect of encouraging companies to redirect their profits away from blacklisted jurisdictions and into tax havens that don’t appear on the EU list.

‘Hiding places’

It was a sentiment echoed by the European Network on Debt and Development (Eurodad). “Since the proposal doesn’t take effect before 2018, multinational corporations would have plenty of time to move their profits to new hiding places,”

Tove Maria Ryding

of Eurodad said.

In addition, some business groups raised concerns about the proposals.

“While we acknowledge the Commission’s attempt to balance interests in their proposal for public country-by-country reporting, we remain concerned that the proposal could have a potentially negative impact”, the American Chamber of Commerce in Brussels said, adding that “the case has not been made” that public reporting would increase the amount of useful information available to tax authorities.