EU Tax avoidance legislation rejected

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The new reporting rules were proposed three years ago to crack down on tax dodging after the Panama Papers scandal broke

EU Tax avoidance draft bill fails in Council vote

12 EU countries reject move to expose companies’ tax avoidance.

The proposal would have forced firms to reveal profits made and taxes paid in each EU country.

Effort to force global companies to publish tax details torpedoed in Brussels as Luxembourg lead the charge against the EU tax transparency legislation, Luxembourg on Thursday successfully spearheaded an effort to block a draft bill that would force multinational companies to publish where they pay taxes and make profits.

The new reporting rules were proposed three years ago to crack down on tax dodging after the Panama Papers scandal broke.

Tax-dodging companies deprive national coffers of between €50 billion and €70 billion a year, the European Commission said when laying out the so-called public country-by-country reporting directive (CBCR), which would target companies with global revenues exceeding €750 million a year.

But Luxembourg, Cyprus, Ireland and Malta were among 12 governments to torpedo the draft plans at a meeting of EU industry ministers in Brussels.

That opposition was large enough to deny the bill the qualified majority it needed to pass Thursday’s vote. A successful outcome would have kickstarted talks with the European Parliament to find a final compromise legal text.

The Twelve EU countries, including Ireland, blocked the proposed new rule that would have forced multinational companies to reveal how much profit they make and how little tax they pay in each of the 28 member states.

The proposed directive was designed to shine a light on how some of the world’s biggest companies – such as Apple, Facebook and Google – avoid paying an estimated $500bn a year in taxes by shifting their profits from higher-tax countries such as the UK, France and Germany to zero-tax or low-tax jurisdictions including Ireland, Luxembourg and Malta.

Finnish Employment Minister Timo Harakka, who chaired the negotiations under Helsinki’s six-month Council presidency, didn’t buy the argument for rejection.

He said he was also far from shocked that the four countries, which anti-poverty NGO Oxfam earlier this year accused of being tax havens, were a part of Thursday’s opposition.

“No one is surprised that Luxembourg, Malta, Cyprus and Ireland are among those that oppose this motion,” Harakka said in an interview following the meeting. “Ironic is hardly the word.”

Thursday’s outcome also drew criticism from anti-corruption NGO Transparency International.

“It’s an outrage that Member States have once again put the interests of big business above those of citizens,” Elena Gaita, Transparency International’s senior policy officer, said in a statement.

“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,” she added. “National governments have effectively just denied people access to this information.”

The vote came more than three years after the European commission promised to expose multinational corporations’ tax avoidance measures following the Panama Papers revelations. The proposal would have made country-by-country reporting mandatory for companies with an annual turnover of more than €750m.

Elena Gaita, a senior policy officer at anti-corruption charity 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.”

The IFAC said corporation tax receipts had risen to account for one in every five euros of tax collected by the Irish government. It warned that between €2bn-€6bn (£1.7bn-£5bn) of the €10bn total corporate tax take is what it calls “excess”. “In other words, beyond what would be expected based on the economy’s underlying performance and historical and international norms.”

The budgetary watchdog said the Irish government had become increasing reliant on corporate tax receipts, which rose to a record €10.4bn last year, more than double the amount collected in 2014. “The reliance on these volatile receipts leaves the government vulnerable to changes to the global tax environment, including the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting initiative,” IFAC said.

The OECD is trying to force big-tech companies, such as Facebook, Amazon and Google, to pay more tax in countries where they actually sell their products and services.

Ireland’s corporate tax rate is 12.5% but it charges only 6.25% for profits linked to a company’s patent or intellectual property.

The IFAC, which plays a similar role to the UK’s Office for Budget Responsibility, said that corporation tax as a share of total Irish tax revenue in 2018 reached a record 18.7%. In the UK corporation tax makes up just 7% of the total tax take.

The European commission has ruled that a sweetheart deal agreed by Apple and Ireland was illegal state aid and helped the US tech firm avoid €13bn in tax. The deal slashed Apple’s tax rate to as little as 0.005%. The commission has ordered Apple to repay Ireland the entire sum but the two parties are appealing against the decision at Europe’s general court.

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