Today, the EU Parliament approved a proposal for a directive of the European Parliament and of the Council amending Directive 2013/34/EU as regards the disclosure of income tax information by certain undertakings and branches.
After approving the draft report by 534 votes to 98 votes, with 62 abstentions, the EU Parliament voted to send the report back to the committees to begin negotiations in 1st reading on the basis of a plenary mandate.
According to the proposal, multinationals with worldwide turnover of €750 million or more must publicly disclose how much tax they pay, and where they pay, including also taxes paid outside the EU.
The measure aims to increase tax transparency by providing the public with a picture of the taxes paid by multinationals, and where those taxes are paid. In fact, this data would be available for free and made publicly accessible on the website of the firm. MNEs would also be responsible for filing a report in a public registry managed by the European Commission
The information would include the name of the firm and, where applicable, the list of all its subsidiaries, a brief description of the nature of their activities and their respective location; the number of employees on a full-time equivalent basis; the amount of the net turnover; stated capital; the amount of profit or loss before income tax; the amount of income tax paid during the relevant financial year by the firm and its branches resident for tax purposes in the relevant tax jurisdiction; the amount of accumulated earnings; and whether undertakings, subsidiaries or branches benefit from any preferential tax treatment.
The Parliament’s draft is much broader than the Commission proposal, requiring that the information be listed separately for each tax jurisdiction and for all the countries outside the EU.
In case of commercially sensitive information, Member States can grant a exemption from publishing of one or more items of information. This should be renewed every year and communicated to the EU Commission confidentially, together with a detailed explanation for the exemption.
The text adopted by the Parliament provides that once MNEs lose their eligibility for an exemption they must immediately make the omitted data publicly available “in the form of an arithmetic average” to cover the period during when they enjoyed immunity from providing details.
Since the Panama-Papers and Lux-Leaks tax scandals, political parties on the left have criticised the 750 million threshold, which excludes 85 percent of MNEs from the disclosure of information. These groups pointed out that the proposal is not sufficient to combat tax avoidance, as all MNEs, not just the largest ones, have tax advantages. They stressed the concept that tax transparency should not be a compromise.
On the other hand, supporters of the proposal pointed out that their intention was to have MNEs paying more taxes and noted that in the last year MNEs tax bills have increased.
Supporters said the proposal moves tax transparency forward but at the same time does not give unexpected advantages to non-EU jurisdictions. Transparency should be used with moderation to preserve and maintain jobs in in the EU market, they said
At the end of the debate, co-rapporteur Evelyn Regner said that country-by-country reporting is needed to reveal the system of letterbox-companies that MNEs abuse to shift profits and avoid taxes worldwide. The other co-rapporteur, Hugues Bayet, affirmed, stating that “each euro of tax which is not paid by the multinationals is a euro too much paid by the individual.”
Even the Vice-President of the EU Commission, Valdis Dombrovskis, pointed out that the proposal is a good compromise, which grants tax transparency and does not jeopardize EU competitiveness.