EUROPE’S LARGEST companies will now have to provide country-by-country reports to each member state they operate in, after the European Council ramped up its efforts to clampdown on tax avoidance.
Yesterday, the council adopted rules on the reporting by multinational companies of tax-related information and exchange of that information between member states.
The directive forms the first element of a European Commission package to strengthen rules against corporate tax avoidance, as well as building on the OECD’s base erosion and profit shifting (BEPS) rules.
Multinationals that have a total consolidated group revenue of at least €750m (£570m) will be forced to report information on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees.
The information must be reported from the 2016 fiscal year onwards, but for firms whose parent company is not based in the EU, they will have the option to disclose information through “secondary reporting” via its EU subsidiaries from 2016, with the rule becoming mandatory from 2017.
The directive will implement OECD anti-BEPS action 13, on country-by-country reporting by multinationals, into a legally binding EU instrument.
Tax authorities will then be required to exchange these reports automatically, so that tax avoidance risks related to transfer pricing can be assessed.
It’s main aim is to “prevent multinationals from exploiting the technicalities of a tax system… in order to reduce or avoid their tax liabilities.”
In January, the OECD announced that 31 countries agreed to sign an agreement on tax co-operation, enabling the sharing of country-by-country reports.
The Multilateral Competent Authority Agreement (MCAA) included signatures from the UK, France, Germany, Luxembourg and Ireland.
The agreement was signed just days after HMRC agreed a £130m settlement with Google over unpaid back taxes, a move which tax experts felt undermined the OECD’s BEPS initiative.
Addressing the directive when it was being considered by European powers, Xaver Ditz, partner at multinational tax firm Taxand, fears that a number of multinationals may be confused by the reporting proposal and publish their tax affairs without being obliged to.
“Whilst the €750m (£603m) turnover threshold for disclosure is in line with the requirements of the BEPS project, the number of companies caught in its net is unverified, with no statistical or empirical evidence to support the reports that 85-90% of multinationals will not be required to report,” explained Ditz.
“The assessment of whether a company exceeds this threshold is also equally hard if the ultimate parent company resides outside the EU as the subsidiary may be unable to obtain, the required information to make this assessment.”