Finance

EU seals pact on forcing multinationals to report profits and tax

EU negotiators have agreed rules to force large multinational companies to disclose publicly where they book profits and pay tax in the bloc as part of Europe’s drive to clamp down on corporate tax avoidance. 

After years of stalled talks, EU governments and members of the European parliament sealed a deal on so-called country-by-country tax reporting for large companies operating in the single market and non-EU jurisdictions named on Brussels’ tax haven blacklist. 

The step has been hailed as a breakthrough for tax transparency and comes as international policymakers are stepping up demands to revamp rules on corporate taxation. G7 countries are expected to conclude a political agreement later this week on raising the effective minimum corporate tax rate to 15 per cent.

“I’m sure that this deal on public country-by-country reporting is just the beginning for more tax justice and financial transparency in Europe,” said Evelyn Regner, a centre-left MEP who led negotiations for the European parliament. 

Under the EU’s country-by-country rules, a company with global revenues of at least €750m for two consecutive years must publicly disclose how much tax they pay in each of the bloc’s 27 member states as well as an additional 19 jurisdictions deemed by the EU to be “non-co-operative” tax authorities. Those include “blacklisted” jurisdictions such as Guam and the US Virgin Islands, as well as “grey list” tax havens including Panama, Fiji and Samoa. 

Large companies are already obliged to disclose their profits to national tax authorities inside the EU but the information has not been made publicly available. 


€50bn-€70bn


Estimated annual losses for EU governments from corporate tax avoidance 

Politicians and tax activists celebrated the agreement as a first step in measuring the scale of corporate tax avoidance inside the EU. Brussels estimates that EU governments lose an estimated €50bn-€70bn a year from corporate tax avoidance. 

The agreement concludes a longstanding battle over rules first proposed by Brussels in 2013 but stymied by resistance from EU governments. The rules for large multinationals will mirror EU disclosure requirements for banks that were agreed in the aftermath of the financial crisis. 

But the details of Tuesday’s deal have been met with criticism by tax justice activists and leftwing MEPs for limiting the scope of the disclosures to the EU and not beyond. 

“This agreement leaves out more than 80 per cent of the states in the world, including notorious tax havens like the Bahamas, Switzerland or the Cayman Islands, for which companies will not have to publish any information,” said Manon Aubry, MEP and co-leader of the European Left group in the European Parliament. 

Tove Ryding, from the European Network on Debt and Development, said the deal was a “missed opportunity” to force large companies to disclose all the countries where they have taxable activities.

“We need disaggregated data for every country where a multinational company is present, otherwise companies can hide their profits in jurisdictions where there are no transparency rules,” said Ryding.

Sven Giegold, a German Green MEP, said that while he would have preferred to have global disclosure rules, Tuesday’s agreement was still a “big step today towards full transparency”. He argued that more and more countries could adopt similar laws, ultimately providing a complete picture.

Under the final agreement, companies can avoid disclosing information deemed as “sensitive” for up to five years. Negotiators also decided to review the rules every four years after demands from member states.

Gabriel Zucman, an economist and head of a new EU-backed European Tax Observatory, which will monitor corporate tax avoidance, said the deal “was a major step towards more transparency in the EU and globally”.

“Public country-by-country information on profits booked by multinational companies and taxes paid by multinational companies is essential to monitor tax avoidance and to think about better tax policies,” said Zucman. 

The agreement is still subject to final vote by a majority of MEPs and EU governments expected after the summer. 

Additional reporting from Sam Fleming in Brussels

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