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EU Goes After Multinational Tax Avoiders with New Laws

Jan Lee headshotWords by Jan Lee
Leadership & Transparency
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Apple, Google, Amazon, Starbucks and other multinationals will soon be required to disclose how much they make and the taxes they pay in each European state where they do business.

That's the aim of a new proposal put forth by the European Commission. If approved, companies will also be expected to disclose the total figure of taxes they pay outside the European Union.

The proposed laws are the latest fallout from the Panama Papers revelation, which detailed a complex network of tax havens and shady business practices that multinationals, celebrities and a number of global leaders use to hide profits and skirt tax laws. According to financial commissioner Jonathan Hill, however, the new proposals are only part of an ongoing effort by the European Commission to ensure that "taxes are paid where profits are generated."

Corporate tax avoidance costs EU countries $57 billion to $80 billion each year, according to data published by the commission. The European Commission is looking to resolve that problem by requiring corporations to be more transparent in their global business ventures and enhancing information-sharing between EU member states.

"While our proposal on country-by-country reporting is not, of course, focused principally on the response to the Panama Papers, there is an important connection between our continuing work on tax transparency and tax havens that we are building into the proposal," Hill said.

The Panama Papers fallout also prompted the Organization for Economic Cooperation and Development, of which the EU is a member, to intensify its scrutiny of base erosion and profit sharing. Sometimes shortened to BEPS, this basically refers to companies intentionally moving their businesses to countries with lower taxes.

The European Commission is also considering stricter laws regarding BEPS reporting for multinationals, even though countries like Ireland now benefit from BEPS, said EU economic and financial affairs commissioner, Pierre Moscovici. Google, Facebook and Apple are among the multinationals to benefit from tax loopholes that allow companies to pay less in EU taxes by claiming Ireland as a tax-base location.

The new EU legislation may also change how countries are required to treat the public disclosure of such information. The commission considers financial data reporting public, but only for those activities within the EU. Tax data and profits relating to a corporation's activities outside the EU would not be made public.

Some analysts are questioning whether tighter laws on BEPS are actually advisable. British economist and former joint head of the U.K. Government Economic Service, Vicky Pryce, pointed out that some companies chose to locate their businesses abroad for reasons that have nothing to do with taxes.

"Tax havens and offshore finance centers [can also] offer security against volatile regimes," Pryce noted. By being able to set up a company and maintain its financial assets abroad, business owners may be able to protect at least some of their investments from unforeseen changes, like a political coup or civil war. "They also enable companies and individuals to have access to British or other laws operating in offshore finance centers," Pryce continued.

The United States already requires U.S. taxpayers to report certain assets overseas, including "foreign entities in which U.S. taxpayers hold a substantial ownership interest." The Foreign Account Tax Compliance Act (FATCA) became law in 2010.

Image: Flickr/Thomas Quine

Jan Lee headshotJan Lee

Jan Lee is a former news editor and award-winning editorial writer whose non-fiction and fiction have been published in the U.S., Canada, Mexico, the U.K. and Australia. Her articles and posts can be found on TriplePundit, JustMeans, and her blog, The Multicultural Jew, as well as other publications. She currently splits her residence between the city of Vancouver, British Columbia and the rural farmlands of Idaho.

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