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EC tax-transparency proposal will 'enable investors', says Eurosif

The European Sustainable Investment Forum (Eurosif) has welcomed a proposal by the European Commission, announced yesterday, to require multinational corporations to report on a country-by-country basis the tax they pay in each EU member state.

In a first reaction to the proposal, Eurosif said it “supports the Commission’s efforts to enable investors through public CbCR”, the latter a reference to country-by-country reporting.

Public CbCR, said Flavia Micilotta, Eurosif executive director, “will provide investors with a useful source of information to assess companies’ approaches to tax management and the associated long-term risks that this might bring”.

According to the Commission, its proposal – for a draft directive – would require multinational companies operating in the EU with global revenues of more than €750m a year to publish “key information” on where they make their profits and pay their tax in the EU on a country-by-country basis.

Specifically, they would need to report:

  • 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.

The same rules would apply to non-European multinationals doing business in Europe, and companies would also have to publish an aggregate figure for total taxes paid outside the EU.

Also, if multinationals pay taxes outside the EU in countries or jurisdictions that do not abide by international good governance standards on tax, they would have to publish the same information as for a European country.

The proposal comes at a time of heightened public interest in tax avoidance, by corporates and individuals, with commissioner Jonathan Hill having been due to make a reference to the so-called Panama Papers in a speech about the tax transparency rules yesterday.

Citing the work the Commission has already done to tackle tax avoidance by the largest companies, Hill was due to say that, “against that background, the Panama papers have not changed our agenda, but I think they have strengthened our determination to make sure taxes are paid where profits are generated”.

Eurosif said that, “although not immediately obvious, the issue of corporate taxation features high on the agenda of the investors’ community, particularly of those long-term focused investors”.

Aggressive tax avoidance by companies, said Micilotta, not only poses business risks but also “reputational risk for the investors themselves, particularly public pension funds”.

“Tax activities have important bearings on the long-term valuation and reputation of companies and contribute to final investment decisions,” she said.

“Investors expect companies to manage their tax position in a fair and responsible way as part of their business model.”

Eurosif had previously called for an “assertive move from the Commission to address the lack of transparency to prevent further aggressive tax planning by companies and increasing the quality of disclosure with public CbCR across industries”.

Investors need “relevant and useful”, i.e. “contextual” information, it said, which would allow for better peer comparisons and investment decisions and could also help reduce market distortions, with corporate lack of transparency benefiting large multinationals over small and medium-sized enterprises.

Eurosif’s Micilotta yesterday described the draft directive proposed by the European Commission as aiming to “enhance shareholders’ engagement and trust allowing to better identify share prices risk, safer investment and efficient pricing of companies”.

Eurosif is a pan-European network of sustainable investment forums, which are its members and in turn include institutional investors, asset managers, index providers and other organisations in the sustainable investment industry “value chain”.

Eurosif’s members include social investment forums in France, Italy, the Netherlands, and Spain.

FIR, the French association, was recently joined by ERAFP, the €23.5bn fund for French civil servants’ additional pension.

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