EU reaches tax transparency for large MNCs

In a significant development, the European Union government and parliament negotiators have reached a landmark deal which defines rules to force large multinational companies to disclose the quantum of revenue they generate in the country and pay tax accordingly in the 27-nation bloc.

The new law, which was proposed by the European Commission in 2016, is part of a EU’s greater effort to fight tax avoidance by large international companies.

According to the new legislation, MNCs who have an annual turnover greater than $916 million (750 million euros) in two consecutive years will have to declare profits, tax and number of employees in EU countries and in countries on the EU list of non-cooperative jurisdictions.

However, this breakdown of data is not applicable on tax paid in other countries outside the EU as well as on tax havens blacklist; in such cases, only an aggregated amount will be provided. A few EU governments did not want to agree to a more detailed country-by-country breakup.

This exception in the new law was criticized by the Oxfam charity group which said, many of the world’s tax havens were not forming part of the EU list of non-cooperative jurisdictions and therefore would avoid scrutiny.

“Transparency for only the 27 EU member states and the 21 currently blacklisted or greylisted jurisdictions means keeping corporate secrecy for over 3 out of 4 of the world’s nearly 200 countries,” said the Oxfam charity group while adding, “EU legislators have granted multinational corporations plenty of opportunities to continue dodging taxes in secrecy by shifting their profits to tax havens outside the EU, like Bermuda, the Cayman Islands, and Switzerland”.

Oxfam’s tax expert Chiara  Putaturo said opined, the deal offered companies a reporting exemption for commercially sensitive information for five years, which provides a way to avoid disclosure; she also noted that the requirement for the large turnover would exclude up to 90% of multinationals.

 “These tax transparency measures will help to ensure that multinational companies pay their fair share and can bring some fairness to how they operate,” said Greens MEP Ernest Urtasun of the parliament’s economic and monetary affairs committee.

According to the Tax Justice Network think tank, EU countries are responsible for 36% of tax lost globally to corporate tax abuse, costing countries worldwide over $154 billion every year as profits are shifted to low tax jurisdictions like Ireland, Luxembourg and the Netherlands.

The text of the new law will now go through formal adoption in two European Parliament committees and the parliament’s plenary and in the Council of EU governments.

($1 = 0.8189 euros)

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