European Union finance ministers today reached political agreement on requiring EU-wide country-by-country reporting by multinational corporations and on sharing that data between tax administrations.
It was also revealed today that any future Commission proposal for public release of country-by-country reporting data will likely not recommend release of the entire country-by-country report; rather, the Commission will suggest that only limited categories of data be publicly released.
The country-by-country reporting measure, adopted at an Economic and Financial Affairs Council (ECOFIN) meeting Brussels, is generally consistent with OECD/G20 base erosion profit shifting (BEPS) agreements.
The measure requires large multinationals to annually submit reports to tax administrations containing information — such as revenues, profits, income tax paid, stated capital, retained earnings, group tangible assets, and number of employees — relating to every jurisdiction in which the MNE operates.
These reports would then be exchanged between the tax authorities concerned. The goal is to give tax administrations information needed to assess the reasonableness of a multinational’s transfer pricing and tax positions.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, hailed the agreement as a major step forward towards enhancing transparency on tax matters.
“The automatic exchange of information on country-by-country reports will provide national authorities with the necessary insight to combat aggressive tax planning structures. After the agreement reached October last year on tax rulings, this is another important signal that the EU is ready to deliver on our common goal of fair and effective taxation,” Moscovici said.
Public release?
The EU Commission has previously announced that it will wait for the results of an impact assessment before considering whether to advance a proposal to make the country-by-country reports public, a objective long-sought by tax justice campaigners. According to a report by the Guardian last month, unnamed sources have said that the impact assessment has initially found in favor of public release of the data, making such a proposal more likely.
Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup, made it clear during a press conference following the ECOFIN meeting, though, that any Commission proposal for public release will not likely recommend disclosure of the full country-by-country report.
The agreement on country-by-country reporting for tax administrations “goes much further than what the Commission will probably put forward in a proposal to make public,” Dijsselbloem said. The minister explained that the approach is needed because some countries oppose public release of the data.
“If the Commission comes forward, and I am sure that they will, with a well-designed distinguishment between what is shared between tax services and what is actually made public, then hopefully we can also convince those colleagues that are slightly reluctant at this point,” he said.
In fact, finance ministers from both Germany and Malta reiterated at the ECOFIN meeting that they remain opposed public release of country-by-country reporting data. Such information should “only be used for taxation purposes, not for public campaigns,” asserted German Finance Minister Wolfgang Schaeuble.
Echoing comments made by the Netherlands State Secretary of Finance Eric Weibes last June, Dijsselbloem said that the Netherlands “welcomes” public release of country-by-country reporting data. This time, though, Dijsselbloem added the caveat that the Dutch support only limited disclosure, not full release of the reports that multinationals will supply to tax administrators.
Secondary reporting mechanism
The ministers also agreed to one change from the Commission’s country-by-country reporting proposal.
As noted by Schaeuble, the Commission’s proposal differed from the OECD/BEPS proposal by mandating that countries adopt secondary reporting mechanisms. These rules kick-in if the country of the corporate parent fails to obtain or exchange the country-by-country reports on a group. In such cases, a country can require a company located lower down in the corporate chain to prepare the country-by-country report.
“The difference is that in the BEPS plan, the secondary mechanism is only an option,” Schaeuble said. He argued that making this a requirement could harm Europe’s competitiveness as compared to third countries and would have “negative bureaucratic effects.”
Under a compromise reached by the ministers, the secondary mechanism will remain mandatory, but will take effect in 2017 rather than 2016. Schaeuble said that extending the effective date of the requirement could result in acceptable compliance burdens because, by then, other countries, such as the United States, would likely have country-by-country reporting rules in place, so resort to a secondary mechanism would not be as frequent.
The ministers also agreed to require greater transparency for the operations of the EU Code of Conduct on Business Taxation group. Among the provisions agreed to is a requirement for more substantial group reports to ECOFIN reflecting the tax items discussed in meetings and for more public disclosure of documents.
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