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LONDON (Reuters) - European banks will have to disclose how much money they make in each country from 2015, likely inviting extra pressure from the public and cash-strapped governments to pay more tax locally.
Company taxation has become a heated issue with UK lawmakers criticizing coffee chain Starbucks after a Reuters report in October showed it paid no corporation or income tax in Britain in the past three years.
The new requirement is part of a law to curb bank bonuses and force lenders to hold more capital.
Representatives from the European Parliament and member states agreed late on Wednesday on country-by-country reporting for banks in the latest effort by governments to boost tax revenues at a time of high deficits and sluggish growth.
"I believe it's in the interests of banks to tell people how much they are paying in tax," Vicky Ford, a British centre-right member of the European Parliament, told a news conference by lawmakers on Thursday to announce the reform.
From January 2014 banks would report on a confidential basis to the European Commission how many people they employ in each country, along with profits, tax and subsidies.
Othmar Karas, an Austrian centre-right lawmaker, said banks will publish country-by-country data from January 2015.
EU sources said the European Commission will study the data next year to analyze if publication would harm investment by banks, their competitiveness, or how much credit they supply.
Based on the findings, the EU executive could then delay or amend what banks should publish from 2015.
The European Banking Federation said the transparency rules were "understandable" but it "remains to be seen what effects that will have on the competitiveness of Europe's banks."
Banking officials fear campaigners will "pluck crude numbers out of the sky" without acknowledging the complexity of taxation. This could lead to reputational damage and would likely change business practices, the officials say.
"Country-by-country reporting is not of use to investors and should not be included in annual reports. It's a political debate for finance ministers over how much tax take each is getting relative to the others," said Iain Coke, head of the financial services faculty at the ICAEW accounting body.
Accounting rules used in the EU do not require country-by-country breakdowns for profit and other key financial figures.
The EU, under a reform of a separate accounting law reform, will require country-by-country reporting in the mining, minerals, oil and energy sectors, as is the United States.
"Banks are not the worst sinners but it's very symbolic. It's absolutely essential that country-by-country reporting is extended to all sectors," Sharon Bowles, a UK Liberal member of the European Parliament said.
Tax campaigners tried and failed to persuade the G20 to back country-by-country reporting when the financial crisis began, but since then sluggish growth has prompted countries to look at increasing their tax take to plug holes in budgets.
Britain, France and Germany launched a joint initiative on February 16 at a G20 meeting in Moscow to crack down on tax avoidance by multinational companies. A report by the OECD showed cross-border firms shifting profits to lower tax countries.
The G20 will be asked in July to take specific action.
Chas Roy-Chowdhury, head of tax at the ACCA, an accounting body, said the new rules might not satisfy the appetite of fiscal authorities for greater tax revenues.
"The danger is that we could end up with double taxation," he said.
Editing by David Cowell