EU eyes tax residency law change

Legislation that would force every company with more than 500 workers to declare how much it earns in each country, and how much tax it pays, could have a major effect on Ireland.

The European Commission vowed to have the draft law ready next month and hopes it would take affect quickly, with the support of the European Parliament and the member states.

Internal Market Commissioner Michel Barnier said it would mean large companies such as Apple or Google could not operate as they do now, shifting profits to jurisdictions where they pay no tax.

Tax became a major issue earlier this week when a US Senate report showed Apple has two companies incorporated in Ireland but deemed non-resident for tax purposes, and so avoiding paying tax anywhere.

However senior EU sources in the council denied that the EU leaders agreed to introduce new wide reporting requirements for companies.

However, now the European Commission is taking the initiative, the proposal could find support among EU leaders at their summit next month. German chancellor Angela Merkel has already signalled support for such an idea.

She repeatedly told journalists following the summit there has to be a relationship between the country where a company makes its profits and where it pays its taxes.

Trinity College Dublin finance professor Jim Stewart said such a change could have dramatic implications for where businesses locate their companies. “Google, for example, claims most of its revenue from UK customers is due to their Irish operations, so that on a sales basis Google UK is not that important, but on a revenue-earning basis — where customers are located — it is important,” said Dr Stewart.

It would be an important change for companies where sales and profits can be identified. However, it would be more difficult for new economy business, such as internet-based firms PayPal, Facebook, LinkedIn, and Google and those selling online, he said.

The regulations would be based on the CRD4, which has just been passed by the European Parliament and applies to all financial institutions in the EU, forcing them to disclose what profits and tax they pay in each country and what subsidies they receive.

A similar rule has been agreed that will see extractive industries publishing their accounts on a country-by-country basis so what they pay governments outside the EU will be known in an effort to tackle corruption.

Mr Barnier said the legislation would cover all large listed and unlisted companies registered in the EU.

“Big US companies like Apple or Google generally operate through subsidiaries in the EU for the EU market, which would normally mean that their EU operations could be scoped in. Under CRD4, subsidiaries from third countries based in the EU have to comply with the disclosure requirements,” said Mr Barnier.

More than 70 of the US top 100 companies have subsidiaries in Ireland, and most of them have several subsidiaries registered.