EU reaches agreement on public country-by-country tax reporting

By Doug Connolly, MNE Tax

Negotiating teams from the European Council and European Parliament reached an agreement on June 1 on a proposed directive that would require public disclosure of country-by-country tax information by certain large multinational enterprises operating in more than one country in the EU.

Under the agreed text, the requirement would apply to companies, EU-based or foreign, with a total consolidated revenue of more than EUR 750 million (USD 915 million) in each of the last two consecutive financial years. Such companies would have to publicly disclose income tax information for each EU member state, as well as non-EU states included in the EU’s “black list” and “gray list.”

“Corporate tax avoidance and aggressive tax-planning by big multinational companies are believed to deprive EU countries of more than 50 billion euros of revenue per year,” said Pedro Siza Vieira, Portuguese Minister of State for the Economy and Digital Transition. “Such practices are facilitated by the absence of any obligation for big multinational companies to report on where they make their profits and where they pay their tax in the EU on a country-by-country basis.”

#CbCR: 🇵🇹 #EU2021PT @EUCouncil reached today a provisional agreement with the @Europarl_EN on a Proposal for public Country-by-Country Directive. The agreed text requires Multinational enterprises to disclose publicly income tax information in each member state. pic.twitter.com/wFACcb4Plx

— 2021Portugal.eu (@2021PortugalEU) June 1, 2021

The required reporting would take place using a common EU template, and the information would be made publicly available in a machine-readable electronic format. The directive would include a “complete and final list” of information required to be disclosed. It would also specify who bears the burden for ensuring compliance.

Specific information to be reported would include the nature of the company’s activities, the number of full-time employees, the amount of profit or loss before income tax, and the amount of income tax accumulated and paid.

The country-by-country report would be due within 12 months of the date of the balance sheet for the fiscal year involved. Deferrals would be available for disclosure of certain information for a maximum of five years.

“Parliament has been fighting for this directive to be implemented for more than five years and today we were finally able to reach a deal with the Council,” said Evelyn Regner, a member of the European Parliament from Austria. “We have laid the foundations for tax transparency in the EU with this deal, and this is just the beginning.”

For the directive to be adopted, the provisionally agreed text must be endorsed by the relevant bodies of the European Commission and European Parliament. Such votes are expected to occur after the summer recess. Once endorsed, the Council must adopt its position on the agreed text, which the European Parliament must then approve to complete the adoption of the directive.

EU member states would then have 18 months to transpose the directive into national law.

The agreement is not without critics. According to Richard Murphy of Tax Research UK, “If a multinational corporation has an operation outside the EU that is not in a tax haven it gets dumped into the ‘rest of the world’ bucket that will include the US, Japan, Australia, and many of the world’s largest tax havens (Singapore, Hong Kong, and so on) and we will be no better off in knowing whether or not true profit shifting has taken place, or not.”

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