Rules to improve transparency on the tax affairs of multinationals have been agreed by 31 members of the Organisation for Economic Cooperation and Development (OECD), including the UK, France, and Germany.28 Jan 2016
Under the Multilateral Competent Authority Agreement (MCAA), countries will automatically exchange information on the jurisdictions where multinationals operate and the tax they pay, making it harder for companies to avoid paying tax in the country where profits are made, the OECD said.
This is an important step towards completion of the OECD's base erosion and profit shifting (BEPS) project, and will increase cross-border cooperation on tax, the OECD said.
Under 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.
The MCAA allows this information to be automatically exchanged annually with all countries where the multinational operates. The first exchanges are expected to start in 2017-2018.
The agreement gives tax administrations a full picture of the way multinational companies structure their operations while also ensuring the confidentiality of that information, the OECD said.
OECD secretary-general Angel Gurría said: "Country-by-country reporting will have an immediate impact in boosting international co-operation on tax issues, by enhancing the transparency of multinational enterprises’ operations."
"Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on the key indicators of multinational businesses. This is a much-needed tool towards the goal of ensuring that companies pay their fair share of tax, and would not have been possible without the BEPS project," he said.
The BEPS project began when the OECD was asked by the G20 to make recommendations for reform of international tax rules to prevent multinational companies from shifting profits to low tax jurisdictions and exploiting mis-matches between different tax systems so that little or no tax is paid. One of its recommendations was for the introduction of country-by-country reporting.
The European Commission also announced an anti tax avoidance package this week. This includes a revision of the Administrative Cooperation Directive in order to bring counrty-by-country reporting into force within the EU.
Separately the competition authorities of the European Commission have been investigating whether rulings given by some EU cuontries to certain multinational companies, such as Starbucks, Amazon and Apple, constitute unlawful state aid.
EU competition commissioner Margrethe Vestager told BBC Radio 4's Today programme earlier this week that deals between EU governments and companies could sometimes qualify as illegal state aid if they gave one company a selective advantage that was not available to all its competitors. She said she would look into Google's recent agreement to pay £130 million to the UK's HM Revenue and Customs in back taxes for the past decade if it was referred to her.
A letter seen by the Financial Times indicates that Scottish National Party (SNP) deputy leader Stewart Hosie has asked Vestager to look into the deal to determine whether or not it "falls within the boundaries of state aid regulations".
Bob Stack, deputy assistant secretary for international tax affairs at the US Treasury, is reportedly due to visit the EU's competition team tomorrow, according to legal news service Mlex.
Stack recently voiced fears in Senate finance committee hearings that US multinationals will have to bear the price of the EU state aid investigations.