Exclusive E.U. Steps Back from Tougher Tax Avoidance Rules

The European Union’s finance ministers on Tuesday agreed to implement a series of global rules designed to prevent multinational companies from avoiding taxes, but stepped back from an earlier effort to go farther than other major countries around the world. After a meeting in Brussels, E.U. ministers agreed to swap information about where companies earn their money. The goal is to prevent companies from shifting profits in such a way that they pay minimal taxes, and instead force companies to pay taxes where they earn the lion’s share of their profits. The so-called “country-by-country reporting,” which will be implemented later this year, effectively requires companies to report their revenue, profits and the taxes they have paid to the finance ministries of every E.U. member state. The E.U. deal marks the first part of a global initiative agreed last year by the G20 bloc of the world’s largest economies, which aimed at preventing multinational firms from reaching secret tax deals with individual governments, and basing their headquarters in those countries in order to avoid paying higher taxes around the world. But the E.U. agreement reached Tuesday stopped short of earlier calls from the European Commission for this tax information from companies to be made public – a step that would have gone farther than the other G20 members. Germany and a number of other E.U. countries had opposed making the company results public and had quietly begun implementing rules that ignored the European Commission’s call. German Finance Minister Wolfgang Schäuble said the E.U. deal also stops short of forcing European subsidiaries to report the results of their parent companies in foreign countries that have yet to implement the global deal. Instead, the E.U. has agreed to wait until 2017, when other countries, like the United States, are also likely to have implemented the G20 deal. “Until the parent reports, the subsidiary can stay silent,” Mr. Schäuble told reporters. The lack of public reporting has been criticized by consumer advocacy groups that argued the information is critical for investors and the public to evaluate companies and their performance. “Country by country reporting is an integral piece of the anti-tax avoidance puzzle, but keeping these reports confidential will make it nearly impossible for developing country governments, journalists, or the general public to scrutinize the operations of multinational corporations,” Koen Roovers of the Financial Transparency Coalition, an alliance of advocacy groups, said in a statement.   Picture: German Finance Minister Wolfgang Schäuble (r) and Dutch Finance Minister Jeroen Dijsselbloem speaking in Brussels Tuesday. Picture Source: DPA