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More tax transparency mandatory for big companies

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Tax transparency has turned into a hot topic in the last decade as big multinational companies shift profits to countries that allow them to get preferential tax treatment, despite having few employees and operations there. New measures are being implemented to ensure that large corporations that dominate the markets pay taxes in the countries where their business occurs.

The European Parliament has recently adopted a new policy on tax transparency: multinational firms and their subsidiaries will have to publish the amount of tax they pay in each Member State, provided they have annual revenues over €750 million (and, of course, their business is present in more than one Member State). The new resolution was adopted to increase tax transparency for large multinationals and make it more difficult for them to avoid paying their fair share of tributes.

The effort started a long time ago: the first recommendations from the European Parliament were published back in 2015. Paraphrasing the words of MEP Iban García del Blanco (S&D), one of the two parliamentarians who took part in the new regulation negotiations, the adoption of this provision must be seen as a concrete milestone achieved during a long journey towards increasing corporate transparency. All companies affected by the legislation will have to publish the required data from 2024.

The European Parliament’s decision goes in the same direction indicated by the OECD in October with their “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy”, signed by 136 countries representing 94% of global GDP. The statement, later confirmed by a declaration issued by G20 leaders in Rome, is a first step in the struggle to adapt the currently outdated fiscal rules to changes that the digital revolution has brought about in our twenty-first-century societies and economies.

The two-pillar solution is meant to address the issue of tax competition between countries. It will ensure that multinational enterprises with global annual revenue of over 750 million euros will be subject to a minimum tax rate of 15% (pillar two). At the same time, taxing rights over 25% of the residual profit of the largest and most profitable multinational enterprises (i.e. those over 20 billion of global annual revenue) would be reallocated to the jurisdictions where the customers and users of those companies are located (pillar one). These measures are expected to generate roughly 130 billion euros in additional tax revenues and reallocate around 100 billion to market jurisdictions each year.

Most of the current tax systems were conceived for the twentieth century when national governments had the sovereignty to define and impose their perspectives. Today, they are unsuitable both for taxpayers and to meet the needs of governments. Re-Imagine Europa’s Task Force on “An Ideal Fiscal System for the 21st Century” is working precisely to build a shared vision and develop the blueprint for an ideal fiscal system and a fairer and more competitive economic model for Europe in the 21st century. You can follow all the latest updates on the Task Force’s activities and events on the Economy home page and our social media channels (TwitterLinkedIn).