By Francesca Amaddeo, Lecturer-Researcher, Tax Law Competence Centre (SUPSI), Manno, Switzerland
On 25 February, an informal meeting of internal market and industry ministers showed agreement amoung EU nations on public country-by-country reporting.
The proposal, amending Directive n. 2013/34/EU, concerning the disclosure of income tax information by certain undertakings and branches, has been stuck for a long time.
Finally, under the Portuguese presidency, the proposal seems to be technically mature.
“Tax transparency is a fundamental principle in any democratic society. It enables policymakers to take informed decisions and to ensure that all economic actors contribute in a fair and equitable manner to the economy of the various countries where they conduct their business. Today’s debate has opened the way for the proposed directive to move forward as a matter of priority,” said Pedro Siza Vieira, Portuguese Minister of State for the Economy and Digital Transition.
It’s a long way to the top
Public country-by-country reporting made its first appearance in 2016 when the EU Commission proposed to introduce mandatory disclosure of all data collected through such documentation.
Public country-by-country reporting has been discussed by multiple institutions and bodies of the European Union. The time is now ripe. As stressed several times at the EU ministers meeting, the economic crisis stemming from COVID-19 highlighted the relevance of transparency. Tax evasion and tax avoidance mean fewer resources for facing this difficult situation.
How public country-by-country reporting will help?
The requirement for companies to publish their profit and taxes paid in each jurisdiction will necessarily lead to a behavior correction.
Actually, multinationals are used to adding up all profits and costs, publishing “global sum figures, masking the size of their profits and costs at the country level,” the Tax Justice Network states.
It follows that multinationals are able to hide their real tax liability, usually, moving their profits into tax havens.
Looking at the proposal’s wording, the aim is clear.
Such an intervention is “necessary to promote a better informed public debate regarding, in particular, the level of tax compliance of certain multinational undertakings active in the Union and the impact of this on the real economy. The setting of common rules on corporate income tax transparency will also serve the general economic interest by providing for equivalent safeguard throughout the Union for the protection of investors, creditors, and other third parties generally, thus contributing to regaining the trust of citizens of the Union in the fairness of the national tax systems.”
The Portuguese presidency now has the political support to seek a negotiating mandate to explore with the European Parliament the possibility of a deal for the swift adoption of the directive.
“Two roads diverged in a wood and I – I took the one less traveled by, and that has made all the difference.” (Robert Frost).
Francesca Amaddeo
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