European commission’s original proposals are to be enhanced in the wake of the Panama Papers, according to sources

Multinational companies in Europe could be compelled to publicly disclose profits and tax bills from offshore havens under draft proposals being considered by EU regulators in the wake of the Panama Papers.

Before the unprecedented leak of 11.5m files threw light on the tax secrets of the global elite, the European commission was drafting proposals to force multinational companies to publish their earnings and tax bills in the 28 countries of the European Union.

But following the scandal, officials are looking to toughen up the plans. The commission now wants to extend the public disclosure rules to subsidiaries in tax havens, according to two sources with knowledge of the draft legislation, which will be published on Tuesday. “People are working around the clock to see you how you can capture tax havens,” an EU source said.

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According to current thinking, the disclosure rules would be applied to all multinational companies operating in Europe, hitting big US companies, such as Google, Apple and Amazon.

In a letter to the commission, the Dutch finance minister, Jeroen Dijsselbloem, promised to put the Panama Papers on the agenda of a meeting with his EU counterparts later this month.



In response, the commission’s president, Jean-Claude Juncker, said more needed to be done “to increase tax transparency on companies, individuals and third [non-EU] countries”, according to a copy of the letter obtained by the Guardian. He indicated that the commission had tax havens in its sights. “In our proposal, we will pay particular attention to tax information relating to countries that do not respect good governance standards,” he said.



The issue of tax is especially sensitive for Juncker, who governed Luxembourg when the small country became a magnet for companies looking for discreet and legal ways to slash their tax bills. The Luxleaks revelations of tax avoidance on an industrial scale emerged weeks after Juncker arrived at the commission, leaving him scrambling to reassert his credibility.



The Panama Papers have so far shone more light on individuals than on companies. But officials think the latest public outcry has given fresh impetus to attempts to crack down on tax avoidance of all kinds.



Pierre Moscovici, the European commissioner in charge of tax policy, told journalists earlier this week the Panama Papers meant that the EU had “the political capacity to go further”. No EU member state can now block moves for the public disclosure of profits and financial information, he said, insisting that next week’s proposal would respond to the scale of the tax-avoidance problem.

Facebook Twitter Pinterest Jean-Claude Juncker has called for more work to be done to increase tax transparency. Photograph: Julien Warnand/EPA

“We will work up to next Tuesday to ensure that our proposal is up to the challenges that we meet,” he said. “Nobody is indifferent to what has happened in the outside world. We all feel concerned by the Panama Papers.”



But the idea of extending country-by-country reporting to tax havens raises knotty political and legal questions. Important details have not been finalised. One problem is that the EU does not have a common definition of a tax haven, although the commission did publish a list of 30 “non-cooperative tax jurisdictions” last year. Several EU member states, including the UK, complained that the list was misleading and unhelpful.



Sven Giegold, a German Green MEP who sits on the European parliament’s special committee on tax, argued that the latest thinking from Brussels was still not adequate, because EU member states had limited ideas of what a tax haven is. Some countries, including Germany and the UK, do not have a blacklist of tax havens. “A narrow conception of tax havens will spoil transparency rules for multinational companies,” he said. “So this is clearly not enough.”

He argues that the US should be counted as a tax haven, following a report from campaigners that it is third most secretive financial jurisdiction in the world, ahead of the Cayman Islands and Panama.

Even though the EU is exceptionally unlikely to meet his wish, the latest thinking on tax could cause friction with Washington, which has already complained that Brussels is singling out successful American companies. Jack Lew, the US Treasury secretary, wrote to the commission earlier this year, arguing that it was “targeting US companies disproportionately” through its investigations into tax sweetheart deals – a charge that the commission firmly rebuffed.

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Business groups are also unhappy with plans to compel companies to disclose their profits to the public and not just the taxman. The pan-European employers’ association BusinessEurope is “heavily opposed to public country-by-country reporting” its director general, Markus Beyrer, said. “No other major player in the world will do this, and it will not boost our competitiveness. The idea to introduce public pressure on this issue is simply the wrong one. There is a high danger of misguided interpretation.”

Transparency campaigners have dismissed these claims, and pointed out that the public disclosure of profits does not appear to have hurt banks, which have been required to publish a country-by-country breakdown of financial data since December. “Banks are already disclosing this information and haven’t had any problems with it,” said Elena Gaita at Transparency International. She said it was “very arrogant” to assume that civil society and the public would not be able to interpret the data.

The first glimpse of banks’ country-by-country profits revealed that seven of the world’s largest global institutions had paid a combined total of £21m in corporation tax in the UK in 2014. Five of the banks – JPMorgan, Bank of America Merrill Lynch, Deutsche Bank, Nomura and Morgan Stanley – reported that their main UK arms paid no corporation tax, according to a Reuters investigation.

Gaita said the banking example highlighted the value of transparency. “This data has not been misinterpreted, in my opinion,” she said. “Anyone with a little financial and reporting knowledge can really see what is going on.”