Corporate Tax

EU lawmakers conclude milestone deal for corporate tax transparency

The agreement reached on Tuesday evening between the negotiators of the European Parliament and the Council lays down rules that oblige multinational corporations and their subsidiaries with an annual turnover of over 750 million euros, which operate in more than one country, to publish the amount of taxes and make them available to pay in every Member State. The information must also be made available on the Internet using a common template and in a machine-readable format.

Report specifics

In order to facilitate the use of the information provided and to increase transparency, the data provided must be broken down into specific items, including the type of business activity, the number of full-time employees, the amount of profit or loss before income tax, the amount of accumulated and paid Income tax and accumulated income.

Approach clever tricks

Subsidiaries or branches that fall below the turnover threshold are also required to report if they exist only to avoid the reporting requirement.

Some provisions leave scope for multinational companies to be temporarily exempted from some reporting requirements, but these are still severely limited.

Extraterritorial reach

The tax transparency reports should also cover the EU list of non-cooperative jurisdictions for tax purposes outside the EU (countries on the so-called “black” and “gray” lists of the EU), says the agreed text. Although MPs wanted stricter rules to combat profit shifting to non-EU tax havens, the new rules will still shed light on tax havens that are being lost to tax havens. In January 2021, Parliament agreed that six of the 20 largest tax havens are EU countries, with two of the top five being occupied by the Member States. A study by the Director of the EU Tax Observatory also comes to the conclusion that around 80% of the profits shifted in the EU are shifted to EU tax havens.

Strong review clause

One of the most difficult points for the negotiators was the full breakdown of the country-by-country coverage. Parliament negotiators stressed that these rules were a first step towards achieving tax transparency and provided a strong and robust review clause that allows the rules to be reviewed within four years and renewed after an evaluation.

Quotes

Negotiator Evelyn Regner (S&D, AT) said: ‘Today’s deal is a significant step towards tax transparency. With the directive on public country-by-country reporting – which obliges large companies operating in the EU to disclose their tax information – we have responded to society’s call for more tax transparency. Parliament has been fighting for the implementation of this directive for more than five years and today we were finally able to reach an agreement with the Council. With this agreement, we have laid the foundation for tax transparency in the EU, and that is just the beginning. ”

Chief Negotiator Iban García del Blanco (S&D, ES) said: “We have come a long way. We would have liked a more solid position from the Council on transparency, which would have enabled a more ambitious agreement. However, after waiting five years for the Council to unblock the file, we succeeded in bringing our positions on reporting, access to information, the duration of the safeguard clause and the conditions of the review clause closer to, among other things few. We had a responsibility to use the political window of opportunity opened up by the Portuguese Presidency to make great strides in adopting and developing a directive that would make public country-by-country reporting compulsory for multinational companies and increase transparency about where they pay their taxes . ”

Next Steps

The text now has to be approved by the Economic, Monetary and Legal Committees and Parliament as a whole, as well as by the Council. The vote in plenary is expected after the summer break.

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