Delay is over: Work begins to shine spotlight on where companies pay their taxes

This article is brought to you in association with the European Parliament.

Four years after Parliament adopted its position on draft legislation on public country-by-country reporting, EU governments come to the table to negotiate a deal.

On Thursday, Parliament’s lead negotiators, Evelyn Regner (S&D, AT) and Ibán García Del Blanco (S&D, ES), were officially given the green light to enter into negotiations with the EU governments’ representatives, based on the position the EP adopted in 2017. Last week, member states were able to agree their negotiating position. These negotiations are now set to begin very shortly.

Evelyn Regner said:

“This is a breakthrough for tax fairness in the EU. Public country-by-country reporting will oblige multinational companies to be financially transparent about where they make profits and where they pay taxes. Especially in the context of the COVID-19 pandemic, where companies are receiving considerable support from public spending, citizens have an even greater right to know which multinationals are playing fair and which are free-riding.”

Ibán García Del Blanco said:

“We have been waiting for the Council for too long. We are ready to start negotiations immediately in order to reach an agreement under the Portuguese Presidency, thereby making progress on tax and corporate transparency. We urgently need meaningful financial transparency to fight tax evasion and profit shifting. Citizens’ trust in our democracies depends on everyone contributing their fair share to the recovery.”

The European Parliament’s main additions

The Parliament’s position adds to the Commission’s original proposal, notably in the following ways:

• the information requested from multinationals should be presented separately, including for each tax jurisdiction outside the EU;
• multinationals must make their annual report on income tax information publicly available and free of charge, and file the report in a public registry managed by the Commission;
• a safeguard clause for sensitive corporate data has been added, allowing multinationals to temporarily omit information when disclosing it would be seriously prejudicial to their commercial positions;
• additional items of information will be provided in the tax reports to help achieve a more complete picture, such as information on the number of all full-time employees, fixed assets, stated capital, preferential tax treatment, or government subsidies;
• subsidiaries with a turnover of EUR 750 million or more would also be subject to country-by-country reporting requirements.

Background

This legislation is part of the EU’s regulatory measures to implement the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan 13. In essence, multinationals with annual turnovers of more than EUR 750 million will be required to provide an annual tax statement that breaks down key elements of the statements by tax jurisdiction. This will provide the public and tax authorities with more visibility on what taxes are being paid where.

On 4 July 4 2017, Parliament adopted its amendments to the Commission’s proposal. It then reconfirmed its position in its first reading on March 27, 2019. On 24 October 2019, MEPs passed a strong resolution urgently calling on the member states to break the deadlock and enter inter-institutional negotiations.