Business

European Union wants companies to disclose where they pay taxes

The European Union's executive wants thousands of multinationals to disclose in what member states they make money and pay taxes, an effort to close loopholes and crack down on the use of tax havens.
EU taxation commissioner Jonathan Hill, seen here in a Dec. 2015 photo, says he wants "to make sure that taxes are paid where profits are generated," as he unveiled a plan to have large corporations disclose how much and where they pay taxes. (Geert Vanden Wijngaert/Associated Press)

The European Union's executive wants thousands of multinationals to disclose in what member states they make money and pay taxes, an effort to close loopholes and crack down on the use of tax havens.

Reacting to public anger over tax avoidance by some of the globe's best-known companies and by recent revelations of offshore accounts for the rich and famous, EU Taxation Commissioner Jonathan Hill said he wanted "to make sure that taxes are paid where profits are generated."

He presented proposals Tuesday that would force companies that have over 750 million euros in global revenues and do business in the 28-country EU to publish how much income tax they pay in each member state and how much they pay on outside-EU business.

Hill said the rules would specifically target companies that do business in nations or territories that disregard good governance standards on taxation.

"So if large multinationals active in Europe are paying tax somewhere like Panama, to take one example, they would need to make that public," Hill said, taking a swipe at the Central American nation already at the heart of the latest tax avoidance scandal.

The Commission says it would affect some 6,000 companies overall, with socialist legislators estimating it would affect fewer than 2,000 EU companies.

The EU estimates it loses up to $80 billion in revenue every year because of tax avoidance, and ever since the global financial crisis forced budget cuts in many EU nations the outcry against tax avoidance by the rich has become louder.

"Using complicated tax arrangements, some multinationals can pay nearly a third less tax" than local companies operate only inside national borders, Hill said.

Over the past years, it has also become clear that companies operating in the EU could shop around among the bloc's member states for the most convenient tax arrangement. That has led to several huge companies paying almost no taxes on the profits they generate within a country.

Hill's proposal will now be taken up by the European parliament and the member states for discussion and possible adoption.

Under the proposal, the companies would have to publish on their websites on a country-by-country basis anything from the number of workers, to net turnover, pre-tax profit and the amount of tax annually paid.

Professor Crawford Spence of Warwick Business School said it was "a small, but important step towards ensuring that multinational companies pay their fair share of tax" and lauded the public part of the proposal.

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