The EU will force multinationals to publish the profits and taxes they pay in each country

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The European Union will force large corporations to publish the profits they make and the taxes they pay country by country. Five years after the European Commission launched the proposal, the European Parliament and the Council (the institution that represents the 27) have reached an agreement to demand greater transparency from large multinationals, according to parliamentary sources. Brussels sees this directive, which will force companies to account for their activity in tax havens, as a big leap in tracking possible tax leaks. The pact also arrives at the gates of the G-7 countries preparing to give the green light to a minimum corporate tax.

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Brussels wants to take advantage of the tailwinds trying to impose a new tax order. Those airs come from Washington, but also from within the EU, where governments need to have all the resources at their disposal to face economic recovery. Parliament and the Council managed to carry out this Tuesday a directive inherited from the Executive of Jean-Claude Juncker that obliges large multinationals to make a streaptease fiscal. Actually, it is much more than that. These large corporations must detail in their accounts a report on their presence in each country, with a brief description of their activity, the number of employees, the net volume of business, the profits or losses before taxes, the taxes accrued and paid to the treasury and accumulated profits.

This detail in the accounts of the companies will make it possible to see more clearly the financial creativity of large corporations. “It is a great step towards greater transparency for large corporations in the European Union and around the world,” said the economist from the Paris School of Economics and the European Tax Observatory, Gabriel Zucman, who considered that it is an “essential” measure to control tax evasion. According to parliamentary sources, the initiative has the support of the groups of the European People’s Party, Social Democrats, Renew, The Greens and the Left.

The measure will affect multinationals whose turnover is more than 750 million euros for more than two consecutive years. In these reports, they must describe not only their activity and taxation in the EU countries, but also in the States that are on the list. black tax havens –among those that are Panama or the Virgin Islands, among others- and those that have been in the relationship for two years or more Gray of tax havens. The European Parliament, which wanted these data to be published by country for the whole world, had to push. “We deeply regret that the Council rejected our persistent demands for a global, country-by-country, disaggregated report. Even so, the agreement reached today is an important step towards greater corporate transparency ”, says the MEP and negotiator for the Social Democrats Ibán García del Blanco.

However, it is also key that multinationals expose their activity in EU partners such as Ireland, Cyprus, Luxembourg or the Netherlands. The MEP and speaker of Los Verdes, Ernest Urtasun (Catalunya en Comú), assured that these countries account for 80% of the tax losses of the rest of the partners. “This directive means that people will be able to know how much taxes big companies pay and where. This is a victory for citizens and shows that the EU can act on issues of concern to the people. In the long term, tax justice will be essential for citizens to trust in the capacity of the European project, ”says the deputy.

The measure went ahead with some concessions from the European Parliament, which had to accept a five-year safeguard clause for the company to stop reporting its activity in a territory if it believes that this information may affect its competitiveness. Instead, it managed to avoid a clause whereby subsidiaries of groups outside the EU would be exempted from providing information if that information is not provided from headquarters.

Review within four years

The negotiators of the European Parliament, however, were aware that this file had to be closed under the presidency of Portugal. The next country to lead the Council, Slovenia, had voted against in the first of the ballots. In addition, the text had a fragile support from the Council after it was approved as a folder of competitiveness and not of taxation – to avoid unanimity – that the initiative was overthrown in 2019, and that it was finally approved in 2021 with six countries against (Croatia, Cyprus, Hungary, Ireland, Malta and Sweden) and the abstention of Germany. The assignments, therefore, were acceptable given the risk that a new negotiation would lead to another long-term blockage.

Instead, Parliament managed to have a review clause on the directive within four years (instead of five). In this period, the European Parliament aspires to be able to introduce a greater ambition in the invoicing thresholds necessary for a company to present these reports, expand the geographical scope of the measure until it has to report on the activity worldwide and be able to reduce the safeguard clause.

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