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EU plans will put pressure on multinationals to pay tax where they make profits

Published 12/04/2016

EU proposals are in the pipeline on tax transparency
EU proposals are in the pipeline on tax transparency

Planned EU laws will put pressure on multinational companies to pay their taxes where they make their profits, in a bid to cut corporate tax avoidance thought to cost European countries up to £56 billion a year.

Under the scheme, large companies operating in the EU will have to publish the amount of tax they pay in each of the 28 member-states on a country-by-country basis, alongside details of their activities, number of employees, turnover and profits.

And crucially, they will also by required to produce a country-by-country breakdown of levies paid in states on a list of tax havens being drawn up by the EU. Figures for the rest of the world will be produced on an aggregate basis, allowing politicians and members of the public to judge whether the taxes paid in EU countries fairly reflect the proportion of companies' profits made in Europe.

The initiative - which could come into effect as early as 2018 - comes amid international furore over the Panama Papers leak of details of the use of tax havens by wealthy companies and individuals.

It will affect large companies with annual turnover of more than 750 million euro (£600 million), including companies which are not headquartered in the EU but have subsidiaries there. This would cover large US firms like Apple, Starbucks and Google, which have attracted criticism over their tax arrangements.

The European Commission said the change will not impact on small and medium sized businesses, but will cover an estimated 6,000 multinationals representing 90% of corporate revenues.

Launching the proposals in Strasbourg, European financial stability commissioner Lord Hill said: "Our economies and societies depend on a tax system that's fair, a principle that applies both to individuals and to business.

"Yet today, by using complicated tax arrangements, some multinationals can pay nearly a third less tax than companies that only operate in one country. Our proposal to increase transparency will help make companies more accountable. It will promote fairer competition between companies regardless of their size."

The move was welcomed by Prime Minister David Cameron, who put tax transparency at the top of the agenda for the UK's chairmanship of the G8 in 2013.

The PM's official spokeswoman said: "We have led the way on the international tax and transparency agenda, and we welcome the proposals coming out from the European Commission today, which will further enhance our ability to make sure that companies are paying taxes owed."

Speaking ahead of its launch, Lord Hill said the plan was not focused "principally" on the revelations contained in the Panama Papers, but added: "There is an important connection between our continuing work on tax transparency and tax havens that we are building into the proposal."

Officials in Brussels are understood to be counting on public outrage over the leaks to smooth the introduction of the new measures, as well as agreement on the EU list of tax havens.

The new proposals are subject to approval by the European Parliament and representatives of national governments in the European Council. A new directive could be agreed later this year, but member states then have a year to transpose it into national law, meaning the first reports are likely to be based on information from the 2018 financial year.

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