Tax avoidance by multinational corporations will be forced into the open under proposals to be unveiled by European regulators on Tuesday following the Panama Papers revelations, reports The Guardian.
The European commission will put forward legislation requiring large multinationals operating in Europe to disclose where they make profits and where they pay tax on a country by country basis.
Companies trading in Europe, including large subsidiaries of non-European businesses, would also have to publish how much tax they pay outside the EU with specific information about tax paid in problematic jurisdictions.
The commission was already working on measures to force international companies to disclose earnings and tax bills in the 28 countries of the EU. Following the leak of 11.5m files exposing the tax secrets of the global elite, officials have toughened up their plans to include subsidiaries in tax havens.
An EU source told the Guardian on Friday that officials were working round the clock to include measures that would capture tax havens in the proposals, due at 2pm UK time. The rules would apply to big US companies, such as Google, Amazon and Apple, that have courted controversy with complex arrangements for avoiding tax across multiple jurisdictions.
The Panama Papers, published by the Guardian and other news organisations around the world, have so far shone more light on individuals than on companies. But European officials think the public outcry has given fresh impetus to attempts to crack down on tax avoidance of all kinds.
European commissioners acknowledged the effect of the Panama Papers on their thinking by highlighting the unfairness of big companies using their financial muscle to reduce their tax bills.
Jonathan Hill and Valdis Dombrovskis, writing in Tuesday’s Irish Times said: “In the fall-out from the Panama Papers, one of the issues that has rocketed up the agenda is the question of tax transparency. Today, the European Commission is bringing forward proposals to increase tax transparency for multinationals operating in Europe, to shine a light into the complex and sometimes murky world of international tax.”
Hill, commisioner for financial stability, and Dombrovskis, commissioner for the euro and social dialogue, said multinationals have an unfair advantage over smaller companies because they are able to pay for advice to minimise their tax bills. Greater disclosure of big companies’ tactics will help the commission consider whether loopholes should be closed and encourage companies to think about their reputations.
“We need a competitive tax environment if business is to flourish but that should be a question for governments, not a consequence of clever lawyers and tax advisers coming up with ever more complicated ways of lightening tax liabilities for some,” they said.
The proposals are likely to face opposition from various quarters, including the US, which has claimed Brussels is targeting successful American companies. Jack Lew, the US Treasury secretary, wrote to the commission earlier this year, arguing that it was “targeting US companies disproportionately” through its investigations into tax sweetheart deals – a charge the commission rebuffed.
Business groups are also unhappy with plans to compel companies to disclose their profits to the public and not just the tax authorities.