I’ve just come from College where there was strong support for the proposal we are making today to require all large multi-nationals operating in Europe to publish information on the tax they pay, country-by-country. As you know, it has been a big priority of the Commission to act against tax avoidance by the biggest companies and I think we have made a lot of progress. We've clamped down on state aid in the form of selective tax advantages. We've reached an agreement on the automatic exchange of tax rulings between Member States. And only last month we reached a deal to allow the automatic exchange of tax information received from large multinationals between tax administrations.
Against that background, the Panama papers have not changed our agenda, but I think that they have strengthened our determination to make sure that taxes are paid where profits are generated. So the proposal that we are unveiling today builds on the work taken that has been taking forward under the aegis of the OECD to require the sharing of information related to corporate income tax between tax authorities. This proposal goes a step further than that and will require the biggest multi-nationals to make key information public. While I think we should be a bit careful about criticising companies if they are acting within the law, greater transparency will shine a light and can help us ask whether those are indeed the right laws. It can help the public see whether companies are acting in the best long term interests of their shareholders from a reputational point of view.
In developing this proposal for greater tax transparency we have been guided by a number of principles:
- that we should aim to be consistent with international work being taken forward by the OECD and endorsed by the G20;
- that we should build on the major reforms already taken forward by my colleague Pierre Moscovici to increase transparency and fight tax avoidance;
- that we should bring forward measures that will affect ALL the biggest multi-nationals operating in Europe, not just European businesses; and
- that we should be proportionate in what we do in two main respects: first that we shouldn’t undermine the position of European businesses vis-a-vis their global competitors; and second that we shouldn’t burden small and medium-sized European businesses which are typically only operating in one country.
Indeed, for me, it is the wish to protect the competitive position of SMEs which is an important part of this proposal. It should not be the case that smaller companies, which are not able to shift their profits, or cannot afford clever tax advice to minimise their bills, it is not right that they are at a competitive disadvantage to big multi-nationals.
So I say this as someone who is unashamedly pro-business, and unashamedly pro-competition. But I would prefer businesses to be concentrating on their customers, on service, on product innovation, on true competition - rather than competition of the creativity of their tax advisers.
So what is in this proposal? Well, it would require larger multinationals - those with annual global revenues above 750 million euros; that is in line with the OECD approach - to publish information publically in seven key areas. This definition will cover about 6.500 businesses and 90% of multinational revenues. On a country-by-country basis, they would need to publish
- the nature of their activities;
- how many staff they have;
- their net turnover;
- their profit before tax;
- the amount of tax due based on yearly profits;
- the amount of tax they actually paid in that same year; and
- their accumulated earnings.
This is information which is already collated and provided to national tax administrations. Multinationals will also be required to report – as well as the country-by-country reporting within the EU –on the total tax they pay outside the EU.
And, we’ve also decided that if they pay taxes outside the EU in countries or jurisdictions that don't abide by international good governance standards on tax, multinationals would have to publish the same detailed information as for a European country. So if large multinationals active in Europe are paying tax in somewhere like Panama – to take one example- they’d need to make that public.
Taken together, this information will give a clear idea of whether a large multinational is paying tax where it makes its profits. It would be made available for five years on the company’s website. Anyone who’s interested could see where multinationals pay their tax, and whether there’s, indeed, a level playing field for smaller businesses.
To make sure European companies are not disadvantaged, these rules would apply to the subsidiaries of non-European multinationals doing business in Europe, as well as large European multinationals.
European banks already have a specific transparency regime in the Capital Requirements Directive so that they will not be affected by today’s proposal. The only change will be that large banks established outside the EU, but doing business inside it, would now be required to publish a country-by-country report.
In drawing up this proposal, we have consulted very widely, listened to views from all interested parties and fed them into our analysis. We’ve made a proposal on the back of this, building on the OECD's work. I think, as a result of this, we have a proposal which is simple and proportionate and will help us to increase accountability. The next step for us is to work closely with Member States and the European Parliament to make quick progress. We need to seize this opportunity to have a more informed debate about where companies pay tax. In order to promote fairer competition between companies regardless of their size. And I think to build trust in Europe’s businesses and build trust in Europe's tax system.
