BRUSSELS – European Union lawmakers backed new rules that would force large multinational companies operating within the bloc to give detailed information on where profits are made to prevent them from reducing tax bills.
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As such, companies ranging from Google Inc. to Amazon Inc. will be forced to publish profits and tax bills from each of the EU countries in which they operate -- and to provide some information for subsidiaries operating outside of the bloc. They will also be forced to publish data such as employment numbers, proving that they are not running shell companies.
However, the European Parliament backed a compromise version of the proposal. It allowed authorities to grant exemptions in cases where providing the information would place the company at a disadvantage with its competitors.
EU governments and the European Commission must still sign off on the proposals.
The so-called country-by-country reporting was put forward by the EU's executive arm, the European Commission, in April 2016. It stipulates that companies with annual revenue of more than EUR750 million ($851 million) publish a report on income and tax information accessible to the public.
European countries have been trying to rein in corporate tax avoidance by multinational firms since the financial crisis, both by pushing to change international rules and by cracking down on companies that have struck alleged sweetheart deals in countries such as Luxembourg that allowed them to pay little tax in the EU.
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"Public country-by-country reporting will make it much harder for multinational corporations to shop around for the lowest possible tax rate, and help bring illegal activity to light," said German lawmaker Sven Giegold from the left-leaning Green party.
Lawmakers agreed, however, to a "safeguard clause"' that gives companies the option to apply for an annual exemption from reporting some of the detail on grounds of commercial sensitivity. Business groups have argued that providing too much detailed information could allow competitors to work out important business information on, for example, how a firm is structured and mirror that.
"The fight against tax avoidance will be in vain if we damage the competitiveness of our companies and the investment climate in the EU," said Dariusz Rosati, a Polish lawmaker from the center right European People's Party."
A European Commission spokeswoman said Tuesday the safeguard clause should not be a carte blanche for companies to avoid reporting.
Elena Gaita, a policy officer at anticorruption watchdog Transparency International, said the text agreed on by lawmakers in Strasbourg, France, on Tuesday would have an ambivalent impact.
"On one side, it shows widespread support for transparency around multinationals' tax arrangements worldwide, but on the other it still leaves loopholes for corporations to shroud their affairs in secrecy," Ms. Gaita said.
EU officials and lawmakers have accelerated their work on tax after the Panama Papers revealed planning techniques that helped clients exploit loopholes and arbitrage tax regimes in different countries to cut bills. A total of EUR173 billion ($192.8 billion) of tax was avoided through the Panama Papers schemes alone, according to an April study by the EU Parliament.
In February, EU finance ministers agreed to a batch of rules coming into effect between January 2020 and January 2022 that would close several legal loopholes to reduce tax bills -- such as shifting profit and moving debt to countries outside the bloc where there are more generous interest deductions.
(END) Dow Jones Newswires
July 04, 2017 11:49 ET (15:49 GMT)