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The European Commission are reportedly planning to announce tax reforms, aimed at multinational companies who take advantage of varied tax laws in EU countries in order to avoid large tax payments.
Later today, EU Economic Affairs and Tax Commissioner Pierre Moscovici is expected to announce the new tax measures that would call upon EU member states to follow certain common standards in their tax rules.
The commission intends to stop the practice of multinational companies diverting revenues to countries which have lower rates of tax. A topical example of this is the recent case involving Google who is accused of moving UK profits to an Ireland-based company.
Last year, the UK tried to tackle Google’s issue with Chancellor George Osborne introducing new tax on diverted profits.
Earlier this week, Google announced that it has come to an understanding with the UK’s HM Revenue and Customs (HMRC) to pay £130m in back taxes, for the revenues generated in the country over a 10-year period. The deal is being criticised as the amount is reported to be equal to a tax rate of just 3%.
Shadow chancellor John McDonnell said: "This deal with Google raises a number of important issues about the tax treatment of large companies in the UK.
"When times are tough it is more important than ever that everyone pays – and is seen to pay – their fair share."
However, Google has defended its tax structure saying that its liability in the UK is limited to the value added by the economic activity of its staff in that country, which is currently 20%.
In a letter written to the Financial Times, Google said: "Corporation tax is paid on profits, not revenue, and is collected where the economic activity that generates those profits takes place.
"After a six-year audit we are paying the full amount of tax that HM Revenue & Customs agrees we should pay, including £130m in additional back tax. Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law."
Brussels is also investigating similar tax dealings of Apple in Ireland.
The new EU proposals require companies to share their country-wide bills with tax authorities, as European companies end up paying more tax than multinationals, with the region losing up to €70bn in revenues.
The proposals will need approval from individual countries before they are implemented. The UK and Ireland are expected to oppose the measures as the rules will undermine domestic tax laws and regulation.
Moscovici’s proposal for tax reforms will come a day after 31 member countries of the Organisation for Economic Co-operation and Development (OECD) signed a Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of country-by-country reports.
The UK, Ireland, Australia, Chile, Malaysia, Luxembourg, France, Mexico and Sweden are among the countries who have signed the pact.
OECD said in a statement that the MCAA will ensure that tax administrations obtain a complete understanding of the way multinational enterprises structure their operations, while also maintaining the confidentiality of such information.
OECD secretary-general Angel Gurría said: "Country-by-country reporting will have an immediate impact in boosting international co-operation on tax issues, by enhancing the transparency of multinational enterprises’ operations.
"Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on the key indicators of multinational businesses. This is a much-needed tool towards the goal of ensuring that companies pay their fair share of tax."
The country-by-country reports will include information on global allocation of income and taxes paid, details on which entities do business in a particular jurisdiction and the business activities each entity engages in.
The information will be collected from the company’s resident country and exchanged among the member countries. The sharing of information will begin in 2017 with data related to 2016.
A common system was proposed as early as in 2011 to calculate the tax base of businesses operating in the EU.
The European Commission came up with a single set of rules called the Common Consolidated Corporate Tax Base (CCCTB). The proposal was stalled after a few countries opposed it, but is planned to be relaunched later this year.
Image: 31 member countries of OECD have signed an agreement on Wednesday. Photo: courtesy of Organisation for Economic Co-operation and Development.