EU’s new tax haven blacklist is doomed to failure, warn campaigners
New European Union rules to force multinational companies to publish their tax bills were criticised on Tuesday by campaigners for being too weak to stop taxdodging corporations hiding their profits.
While the European Commission said the new laws proved the EU was leading the world in the fight against tax avoidance, critics warned that a new tax haven blacklist was doomed to fail.
Instead, companies would simply move cash to countries that were too influential to go on the list, they said, such as the US and Switzerland.
The recent Panama Papers and LuxLeaks scandals have exposed how big multinationals move cash around shell companies in different countries to pay as little tax as possible.
The European Commission unveiled in Strasbourg today new laws to force companies operating in the EU that earn over EUR 750 mln euros worldwide to publish what they earn and how much tax they pay in each of the bloc’s 28 countries.
UK Commissioner Jonathan Hill said, “Today, by using complicated tax arrangements, some multinationals can pay nearly a third less tax than companies that only operate in one country.”
The EU loses EUR 50 bln to 70 bln in tax revenue every year, due to corporate income tax avoidance, the European Commission said. 88% of people in the EU support stronger rules on tax.
The Commission added that the country by country reporting would apply to about 6,000 companies, or 90 corporations above that size, and that the data would be posted on company websites.
Data will include nature of activities, number of employees, total turnover, and profit before tax, tax owed in a country, tax paid and earnings.
But, unless the earnings are declared in a blacklisted tax haven, the data reported outside the EU will not be published. It will instead be anonymous.
Tove Maria Ryding, tax campaigner at the European Network on Debt and Development, said, “As long as the proposal doesn’t cover all countries, multinational corporations will still have plenty of opportunities to hide their profits.”
The Commission is drafting the tax haven which should be ready in the next six months.
But that black list was doomed to fail, Ryding, who works with NGOs such as Oxfam and Christian Aid, said.
“In the past the EU’s list of tax havens has been extremely political with countries like the US and Switzerland, which are documented as having been used as tax havens,
list, mysteriously left off the list,” she said.
“The last list caused such a scandal that the EU had to remove it from its website less than six months after it was published.”
Multinational companies would simply move their profits to bigger tax havens such as the US, that were too powerful to be put on the list, she said.
The rules build on the Base Erosion and Profit Shifting (BEPS) guidelines drafted the Organisation for Economic Cooperation and Development.
The BEPS guidelines, which OECD countries are aiming to adopt to create a global level playing field, do not insist on data being public. Instead they must be shared with tax authorities.
Valdis Dombrobskis, Vice-President for the Euro and Social Dialogue, said the fight against tax avoidance was a key priority of the Commission.
He said, “Today, we are making information on income taxes paid by multinational groups readily available to the public, without imposing new burdens for SMEs and with due respect for business secrets.
“By adopting this proposal, Europe is demonstrating its leadership in the fight against tax avoidance”.
The move could lead to conflict with the US, which was reported to be concerned that tax investigations after Luxleaks were unfairly targeting successful American multinationals.
The rules will take effect in 2018, but must first be agreed by the European Parliament and EU national leaders.
The EU already has rules that mean banks and mining companies must publish their profits and taxes in every country they work in, even if they are outside the EU.
“We want companies to pay taxes where the value is created. The new law will help to make visible whether this principle is enforced or not”, Burkard Balz MEP, spokesman on tax matters for the European People’s Party (EPP), the largest political group in the European Parliament.
But Balz warned against expecting too much from the so-called country-by-country reporting: “This alone does not fix the problem. Also, we must not jeopardise European companies’ competitiveness by asking them to disclose information that American and Chinese companies do not have to disclose.”
In Parliament, the French socialist delegation welcomed the Commission’s proposal, saying it was “a step in the right direction”. However, they called on the Commission to make the rules “even more universal, simple and in the end, more effective,” with the following suggestions:
- Lowering from EUR 750 million to EUR 40 million the turnover threshold above which public reporting becomes mandatory for companies.
- Broadening the country-by-country reporting obligation to cover activities outside of Europe.
The Green group reacted also with mild enthusiasm. “While we welcome the fact the Commission finally taken up the baton in proposing this crucial measure for transparency of corporations’ tax affairs, what it is proposing today falls short,” said Green tax spokesperson Molly Scott Cato, a British MEP.
“The weak ambition in these proposals shows Commission is running scared of EU governments who want tax competition rather than cooperation. The Commission should be defending the public interest rather than seeking the lowest common denominator from the outset.”
“The Commission is only proposing reporting obligations for firms’ activities in a restricted list of countries, mainly within Europe, with crucial countries like the US and Switzerland excluded,” Scott Cato said, adding unscrupulous firms will simply move their tax activities to countries not covered by the obligations.
Chas Roy-Chowdhury, head of taxation at ACCA, the Association of Chartered Certified Accountants, said, “We do not think that a BEPS +, as advocated by some member states, would be desirable. We do not wish to see the EU become a destination that businesses consider too reputationally risky and administratively burdensome in which to invest.
“We agree that a certain degree of public scrutiny is needed. We think however that the information requested should ideally be with tax authorities, and also possibly accessible by a restricted list of interested parties, but not for general public display”.