Tax transparency rules for multinationals
Proposal for a Directive amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches (COM/2016/198)
A healthy Single Market needs a fair, efficient and growth-friendly corporate tax system, based on the principle that companies should pay taxes in the country where profits are generated. However, in an increasingly global integrated and digitalised economy, corporations and production value chains reflect less national and indeed regional boundaries. By contrast, tax policies and administration remain primarily a national responsibility.
Due to the cross-border nature of numerous tax planning structures and transfer pricing arrangements, multinational enterprises (MNEs) can easily relocate their tax base from one jurisdiction to another within or outside the Union. Yet, τhe majority of companies do not engage in aggressive tax planning and suffer a competitive disadvantage to those that do. Small and medium-sized companies are particularly affected by this phenomenon.
Calling for a globally fair and modern international tax system in November 2015, the G20 endorsed the OECD ‘Action Plan on Base Erosion and Profit Shifting’ (BEPS) which aimed at providing governments with clear international solutions to address the gaps and mismatches in existing rules which allow corporate profits to shift to locations of no or low taxation, where no real value creation may take place. In particular, BEPS Action 13 introduces a country-by-country reporting by certain multinational undertakings to national tax authorities on a confidential basis.
Responding to the calls from the G20 and elsewhere, greater transparency on the side of companies is needed to enable public scrutiny of whether tax is paid where profits are produced. According to the proposal of the Commission, this requires that multinational enterprises disclose publicly in a specific report the income tax they pay together with other relevant tax-related information. MNEs, whether headquartered in the EU or outside, with turnover of more than EUR 750m will need to comply with these additional transparency requirements. For the first time, not only European businesses but also non-European multinational companies doing business in Europe will have the same reporting obligations.
This proposal builds on the Commission's work to tackle corporate tax avoidance in Europe, estimated to cost EU countries EUR 50-70 billion a year in lost tax revenues. This proposal is a simple, proportionate way to increase large multinationals' accountability on tax matters without damaging their competitiveness. It will apply to thousands of large firms operating in the EU, without affecting small and medium-sized companies.
The amended Directive aims to enhance transparency and public scrutiny on corporate income tax by adapting the existing legal framework concerning the obligations imposed on companies and firms in respect of the publication of reports, for the protection of the interests of members and others, within the meaning of Article 50(2)(g) TFEU.
Supplementing other proposals to introduce sharing of information between tax authorities, it would require multinationals operating in the EU with global revenues exceeding EUR 750 million a year to publish key information on where they make their profits and where they pay their tax in the EU on a country-by-country basis. The same rules would apply to non-European multinationals doing business in Europe. In addition, companies would have to publish an aggregate figure for total taxes paid outside the EU.
The report on income tax information should provide information concerning all the activities of an undertaking or of all the affiliated undertakings of a group controlled by an ultimate parent undertaking. The information should be based on the reporting specifications of BEPS’ Action 13 and should be limited to what is necessary to enable effective public scrutiny, in order to ensure that disclosure does not give rise to disproportionate risks or disadvantages. The report should also include a brief description of the nature of the activities.
The proposal also provides for stronger transparency requirements for companies' activities in countries which do not observe international standards for good governance in the area of taxation. Indeed, third country jurisdictions which do not respect international tax good governance standards create particular opportunities for tax avoidance and tax evasion. If MNEs are active in such jurisdictions, special transparency requirements should apply. The Commission will build on its External Tax Strategy with the aim of establishing the first common EU list of such tax jurisdictions as rapidly as possible.
In order to ensure a level of detail that will enable citizens to better assess how MNEs contribute to welfare in each Member State, the information would be broken down by Member State. In addition, because some third countries refuse to respect good governance standards in taxation and pose specific tax challenges, the information on operations of MNEs would also be shown with a high level of detail.
The EU has undertaken to draw up a common list of certain tax jurisdiction on this basis in line with the Commission Communicationof 28 January 2016, which specified the proposed approach and the criteria to draw up such a list [COM (2016) 24]. As set out in that Communication, the common EU list will be based on clear and internationally justifiable criteria, based on internationally-agreed standards as set out in the Directive and a robust screening process. The list will be developed by the Commission and Member States. The Commission proposes that a final decision on the tax jurisdictions to be included in the common EU list would be made in a Delegated Act allowing a role for both Council and Parliament.
Only information that is necessary and sufficient to meet the stated objectives of this initiative will be disclosed, namely: the nature of the activities, the number of persons employed, the net turnover made (including with related parties), the profit made before tax, the amount of income tax due in the country as a reason of the profit made in the current year, the actual payments made to the country's treasury during that year, and the amount of accumulated earnings.
As part of a broader strategy for a Fair and Efficient Corporate Tax System in the EU, public scrutiny can help to ensure that profits are effectively taxed where they are generated [See European Commission, Action Plan on Corporate Taxation , June 2015]. Public scrutiny can reinforce public trust and strengthen companies' corporate social responsibility by contributing to the welfare through paying taxes in the country where they are active. In addition, it can also promote a better informed debate on potential shortcomings in tax laws. As result, tax authorities will receive a country-by-country report from multinational enterprises (MNEs) on income tax paid which should enable better compliance with tax laws.
Discuss this theme
- 30 April 2016
Je doute que cette proposition est un moyen simple et proportionné de responsabiliser davantage les grandes multinationales en matière fiscale. A mon avis, il faut beaucoup plus pour accroître la transparence et le contrôle public en matière d’impôt sur les bénéfices des sociétés.
- 5 May 2016
Οι καραχαρίες δεν πιάνονται εύκολα, όσα δίχτυα κι’αν ρίξουν οι ερασιτέχνες ψαράδες: ή τα σκίζουν ή βρίσκουν άλλα φιλόξενα νερά.
- 10 May 2016
La Commission est très optimiste de penser que sa proposition est un moyen simple de responsabiliser davantage les grandes multinationales en matière fiscale sans nuire à leur compétitivité. Il est vain d’espérer que les entreprises multinationales vont divulguer volontairement, dans une déclaration spécifique, les impôts sur les bénéfices qu’elles paient, ainsi que d’autres informations fiscales. Elles vont sans-doute trouver les moyens de cacher leurs bénéfices.