EU forced to back down on plan for tech giant tax transparency

Twelve members of the EU’s European Council have voted against plans to introduce tough tax laws to force multinationals to disclose their profits and tax liability in each EU member state

The proposal was first suggested over three years ago in the wake of the Panama Papers leak and would have seen mandatory country by country reporting for multinational companies about their tax payment data by member states.

In the latest discussion at Council level during Finland's presidency, 12 EU member states rejected the proposals so they will not go forward to the European parliament.

Ireland, Luxembourg and Cyprus were among member states who vetoed the proposals, while the UK and Germany abstained, and now the Council said they will consider the next steps.

France, Netherlands and Spain were in favour of the changes which would have seen multinationals or standalone undertakings with a total consolidated revenue of more than €750m (£640m) in each of the past two consecutive financial years having to disclose the income tax they paid in each member state along with other relevant tax-related information.

 In a joint statement rejecting the measure, Cyprus, Czech Republic, Estonia, Hungary, Ireland, Latvia, Luxembourg, Malta, Slovenia and Sweden rejected the ‘appropriateness of the legal basis of the initial proposals’ and stressed that  the proposal must be approved in the [EU] ECOFIN Council, taking due account of the relevant procedural rules’.

The Council confirmed that member countries had examined the latest presidency compromise proposal on the directive, stating that ‘in the absence of sufficient support for the presidency's proposal, the presidency announced that it would continue work on this file and that it would reflect on the best way for taking this forward’.

The resolution was designed to make it mandatory for multinationals to disclose what taxes they pay in each country through obligatory country-by-country reporting. This would allow talks between member states and the European Parliament to begin, in view of agreeing on a final text of the rules.

The amendment to directive 2013/34/EU relating to disclosure of income tax information was designed to increase tax transparency around giant IT companies like Apple, Facebook and Google, which the EU say underpay tax by as much as $500bn a year by moving their tax footprint through profit shifting from high base tax environments to low tax jurisdictions, including Ireland, Luxembourg, Cyprus and Malta.

Elena Gaita, senior policy officer at Transparency International said: ‘It’s an outrage that member states have once again put the interests of big business above those of citizens. Everywhere across the EU we see that the public is unhappy about multinationals, like Starbucks and Amazon, hiding the tax that they pay in countries they operate in. National governments have effectively just denied people access to this information.’

MEPs in favour of the transparency directive stressed that citizens have a right to know where multinationals pay their taxes and that this is essential to limit the recurrent scandals which have come to light in recent years. They also said that if the EU was unable to tackle tax havens within its own walls, it would be difficult for Europe to be credible on the international stage when it came to tax matters.

Andrew Parkes, national technical director at Andersen Tax UK said: ‘It comes as no surprise that Ireland was among the 12 countries that voted against the proposal given their reliance on US technology firms. However, possibly of more interest is Germany abstaining.’

Finnish Minister of Labour Timmo Harakka said: ‘There seems to be broad support for the idea of increased transparency for company tax reporting but it is clear that there are strong opinions opposing the legal base of this proposal. Therefore more work is required on this proposal.’

 

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