Tax justice campaigners have warned that draft legislation from the European Union aimed at making large multinational companies publicly disclose their earnings and profits will fail to prevent firms conducting businesses as usual.
According to The Guardian, the new measures, which would apply to names like Google, Ikea and Amazon, would only require the public disclosure of turnover, profits and numbers of workers for tax jurisdictions within the EU.
It means that data for companies operating in the EU and elsewhere, will not have to disclose any information.
As a result, critics have suggested that if a multinational company has a subsidiary in a low-tax jurisdiction like Switzerland or the Bahamas, they could still theoretically shift profits abroad to avoid paying taxes in the country where they do business.
Although the measures are currently in the draft stage, an increasing number of tax justice campaigners have begun to cast doubt on the effectiveness in cracking down on tax irregularities.
In a blog post, tax expert Richard Murphy said: "The scope of the disclosure rules will be limited to activities within Europe, leaving a lack of transparency on profit shifting to non-EU tax havens such as the Cayman Islands and Bermuda….This is not, of course, country-by-country reporting. It is EU zone reporting at best.”
Meanwhile, Elena Gaita, EU policy officer for Transparency International, told The Guardian: “Not having to report on their operations for the rest of the world means that citizens will be in the dark about multinationals’ activities – unable to monitor where they are located, what they are doing and what they pay to governments in the form of taxes or other payments."
Controversy surrounding the report has also been exacerbated by a proposal within the draft suggesting public disclosure should only apply to companies with a minimum turnover of €750 million a year.
However, experts have claimed that these conditions would currently leave between 85 and 90 per cent of the world's multinational companies exempt from paying anything.
Nevertheless the Euro Commission has moved to defend the proposals, with The Guardian reporting that a draft memo attached to the draft of the legislation suggesting the risk of generating further tax disputes would actually be reduced, adding that double taxation - where taxes are are levied by two or more jurisdictions on the same declared income – would also be limited.
While the commission has refused to comment on the draft, The Guardian reported that Lord Hill, the EU’s commissioner for finance services, said in a statement: “Our goal is to encourage responsible behaviour through more transparency. Under our proposal, anyone interested would then be able to see how much tax the largest multinationals operating in Europe pay.”
Tax justice campaigners remain unconvinced, suggesting that banks already disclose their profits in jurisdictions outside the EU and have already confirmed that there is little risk of problems such as double taxation.
Experts have also suggested that commercial interests are not harmed by reporting on a country-by-country basis.