Alphabet Inc (NASDAQ:GOOGL) and other multinational firms could soon be forced by the EU to disclose their tax bills and earnings. Until now, large multinational firms that operate in Europe such as Apple, Google, Amazon and Starbucks have been allowed to keep their tax rate in each country a secret from their competitors as well as other countries.
Critics of the setup say it enables some firms to unfairly obtain lower tax rates in certain countries, thereby cheating other EU nations out of millions of dollars.
The European Commission (EC) is expected to table a law in April requiring firms such as Alphabet Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and Facebook Inc (NASDAQ:FB) to disclose the amount of taxes they pay and profits they earn in each EU country that they operate in.
EC President Jean-Claude Juncker is said to support the plans.
Google, other firms under fire over European taxes
The amount of taxes paid by foreign multinationals has been a big issue in the EU and Britain in particular. A recent deal between Google and the UK in which the firm would pay $189m in back taxes was widely criticized for being too soft. The firm funnels global sales revenue through Ireland to make the most of the lower tax rate it is charged there.
Last fall, the EC ruled that the Netherlands and Luxembourg had breached EU rules by giving Fiat and Starbucks selective tax advantages. The firms were forced to pay tens of millions of euros in back taxes.
Other global firms that have made such deals with Luxembourg include Ikea, FedEx, and Pepsi. Apple is currently being investigated in Ireland for similar deals.
Last month, EU Competition Commissioner Margrethe Vestager ordered 35 multinational firms in Belgium to pay €700m in unpaid taxes.
The new rule would prevent large firms from making these secretive deals with governments regarding profit declarations.
A source told the Guardian that EC lawmakers “are currently finalising the impact assessment work. It’s likely there will be some form of legislative initiative announced for the beginning of April … for public country-by-country reporting.”
The new law could be passed if a qualified majority – 16 of the 28 governments – approve it.
New law will spur mixed reactions
The fact that US firms will fall under the rule could anger Washington, where there is already outrage over the EU’s targeting of big US digital firms. Politicians have voiced concerns that cracking down on the varying tax rates could restrict the ability of American firms to compete in Europe.
The plans were welcomed by the Executive Director of activist group Tax Justice Network, John Christensen. He said: “For a very long time big companies have been saying their tax affairs are a matter of competitive confidentiality,” he said. “We think it is incredibly important as a matter of principle that this information is made public.”