Europe Will Force Big Companies to Disclose How They Use Tax Havens

Big companies such as Google and Facebook will have to state if their profits pass through tax havens — but the problem is EU states have no common view of what a tax haven is.
April 12, 2016, 10:05am
Attivisti di Oxfam e Transparency International fuori dalla Commissione Europea. [Foto di Oliver Hoslet/EPA]

The European Commission will propose rules on Tuesday to force major companies to publish details of where they make profits and where they pay tax, as it moves to clamp down on tax avoidance following the Panama Papers revelations.

Companies will have to disclose activities in tax havens, an amendment which has been added to earlier proposals, but campaigners say the measure may be toothless as European Union (EU) states have no common view of what constitutes a tax haven.

The commission wants to apply the measure to all firms with global annual turnover above 750 million euros ($856 million), meaning US companies such as Google and Facebook — which have faced criticism for their complicated tax avoidance mechanisms — will be subject to them.

The original plan had been for big companies to show only how much they paid in each EU state, with the rest of the world treated as a single item. Now, EU officials say, the draft will propose that they also list how much of their money outside the EU flows through each state classed by EU governments as a tax haven.

The problem, transparency campaigners say, is that there is no agreement among EU member states on the definition of a tax haven.

Related: Facebook Paid Less Tax in the UK Last Year Than the Average British Worker

While many of the 28 states do have lists of jurisdictions whose tax policies they frown upon, and there is an EU project to agree a common list, there is no consensus across the bloc.

"EU experience shows that member states will very probably delay or oppose the process of compiling a list of tax havens," said Florian Oel of Oxfam. He noted that the Organization for Economic Cooperation and Development, the rich nations club of which 21 EU states are members, has so far failed to agree to put any country on a tax haven "black list."

"It seems the commission has not changed its proposal in substance," Oel said. "And it still does not offer a solution for real tax transparency."

EU tax commissioner Pierre Moscovici last week urged states to agree on a common tax haven blacklist in six months. In a letter to the Dutch presidency of the EU, seen by Reuters, Commission President Jean-Claude Juncker called for "unequivocal support" from the 28 EU states on the common list.

Anti-corruption organizations called for the commission to extend the obligations to make companies disclose all of the jurisdictions their money flows through, to avoid the complication of defining what a tax haven is.

The commission has rejected this approach, saying that its research had shown that such a rule would unduly burden companies.

"The commission has squandered an opportunity to change the rules of the game after the Panama Papers," Elena Gaita of Transparency International said.

"This list of tax havens could be based purely on political convenience, excluding many countries. It will still allow the business of secrecy to continue as usual."

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Related: Panama Papers Highlight Britain's Role in Global Financial Corruption