EU agrees deal to force multinationals to show profits and tax

Negotiators from the EU Parliament and EU countries agreed on a deal to compel multinationals and their subsidiaries to disclose the tax they pay in each country, after five years of negotiation. The so-called "public country by country reporting" rules are key to combat tax optimisation which often leads to tax avoidance. The rules would apply to firms with annual revenues of over €750 million.

"With the public Country-by-Country Reporting Directive, we have answered society's calls for more tax transparency," said Evelyn Regner, a member of the European Parliament from the left. "We have laid the foundations for tax transparency in the EU with this deal, and this is just the beginning."

The European Commission this week also named French economist Gabriel Zucman at the head of the European Tax Observatory, a think tank that will study tax avoidance and tax evasion and advise the EU on policy.

The disclosures should make it clear which companies are using aggressive tax avoidance strategies by doing business in one country but shifting profits to countries with favourable taxes, such as Luxembourg.

While tax authorities are already exchanging some information, the new rules will require the information to be available on the internet using a common template and in a machine-readable format, according to a press release published on Tuesday night.

Pressure groups hope that the pressure on potential tax avoiders is increased.

To increase transparency, the data provided will need to be broken down into specific items, such as the nature of the company’s activities, the number of full-time employees, profit or loss before income tax, the amount of accumulated and paid income tax and accumulated earnings.

Subsidiaries or branches falling below the revenue threshold will also be required to report if they are deemed to exist only to help the company avoid the reporting requirements.

Negotiations had been going on for five years and countries pushed back on some measures to make them more accommodative to companies.

“We would have liked to see a more solid position on transparency from the Council," said European parliamentarian Iban Garcia del Blanco.

"However, after five years waiting for the Council to unblock the file, we have managed to bring our positions closer on the obligation to report, the accessibility to information, the duration of the safeguard clause and the terms of the review clause, to name a few."

The provisionally agreed text now needs to be endorsed by the Parliament's committees on Economic and Monetary Affairs and Legal Affairs and the Parliament as a whole, as well as the European Council. The vote in plenary is expected after the summer recess. Countries will then have 18 months to write the national laws to implement the directive.

(Additional reporting by Diego Velazquez)