Out-Law News 2 min. read
13 Apr 2016, 5:04 pm
She was commenting as the European Commission announced a proposed Directive, which if approved, would require large multinational groups operating in the EU to make public disclosures of key information on where they make their profits and where they pay their tax in the EU on a country-by-country basis. The requirement would apply to multinationals with a total consolidated group revenue exceeding €750 million.
The Commission said that companies will also have to disclose contextual information, including turnover, number of employees and nature of activities and that this "will enable an informed analysis". The information would have to be disclosed for every EU country in which a company is active. Aggregate figures will also have to be provided for operations in the rest of the world. However, for tax havens the information would need to be disclosed on a disaggregated basis.
"The widespread political support for transparency and anti-avoidance measures is starting to resemble an arms race, with a proliferation of different measures. There needs to be a step by step approach to country-by-country reporting, with time allowed for new requirements to be implemented and properly bedded-down.” said Heather Self.
The Organisation for Economic Cooperation and Development (OECD) proposed country-by-country reporting as part of the recommendations made following its base erosion and profit shifting project (BEPS). It was one of the minimum standards that OECD and G20 countries have agreed to introduce. The first exchanges are expected to start in 2017-2018.
However, under the OECD's system of country-by-country reporting, the tax administration in the country where a multinational group is resident will collect information about its activities, and its global income and taxes paid. That information will then be automatically exchanged annually with the tax authorities in all countries where the multinational operates, but will not be made publicly available.
“The OECD proposals represent a careful consensus, with information being disclosed to tax authorities on a comprehensive basis. Adding an EU layer to this requirement is likely to add additional burdens, without clear benefits at this stage” Heather Self said.
Under the Commission's proposals multinationals based outside the EU would have to comply with the requirements if they were active in the EU’s single market with a permanent presence in the EU.
"It makes sense that a non-EU headquartered multinational should have to provide the same level of detail about its EU operations, as an EU based group multinational. However, when it comes to information about activities outside the EU, a subsidiary of a group based outside the EU will probably not have access to all the information required and so it is not clear how this will apply in practice." Heather Self said.
In January, the Commission announced its corporate tax anti-avoidance package, which included measures to oblige EU countries to implement the OECD's country-by-country reporting measures.
Under the OECD country-by-country requirements tax authorities will receive 12 pieces of information, whereas public CBCR will consist of just seven pieces of information. Tax authorities will receive more detailed data for all third countries in which an EU company is active and will also receive a breakdown of a group's turnover between that made with external parties and that made solely between group entities, as well as figures for stated capital and a company’s tangible assets.
The Commission said that requiring disaggregated data for all third countries to be made public "could affect companies' competitiveness and divulge information on key strategic investments in a given country".
The Commission proposes that the new regime will be brought into force by amending the Accounting Directive. This means that it can be passed by qualified majority voting, which means that not every EU country needs to approve it.