The European Commission has published a proposed amendment to the existing EU Accounting Directive that, if adopted, would introduce a form of publiccountry-by-country (CbC) reporting for qualifying companies in the EU.
This proposal, released on April 12, 2016, is yet another initiative by the EC supplementing and, in fact exceeding, other international developments relating to tax transparency and CbC reporting. Apart from the OECD/G20 BEPS initiative that introduced CbC reporting through Action Item 13, the EC has already proposed non-public CbC reporting as part of its January 2016 Anti-Tax-Avoidance package.
This latest proposal is, however, unique in that it provides for a form of public CbC reporting, whereby qualifying companies will be required to publicly disclose specific tax-related information. Unlike the EU Anti-Tax-Avoidance directive, which needs unanimous approval by the member states, the proposed amendment to the EU Accounting Directive only needs a majority vote.
Given the sensitive nature of introducing public CbC reporting, an intense political discussion is expected.
Proposed public CbC reporting requirement
The proposed public CbC reporting requirements will apply to EU-based multinational groups with net revenue in excess of €750 million. In addition the requirement will apply to non-EU-based multinationals with large- or medium-sized subsidiaries or branches in the EU. Multinationals active in the banking sector and already filing a similar CbC report under the Capital Requirements Directive are excluded from these proposed CbC reporting rules.
Qualifying companies will need to report tax related information on their website, including a brief description of the activities, the number of employees, net turnover, profit before tax, income tax accrued, income tax paid, accumulated earning and an explanation of any material discrepancies between the amount of tax paid and accrued. Compared to the EC proposal on non-public CbC reporting requirements, this proposal covers about 7 of the 12 elements taken up on the non-public CbC reporting proposal.
The above information would need to be reported for each separate EU jurisdiction in which the multinational does business. In addition, the EC is proposing to introduce a Common Union list of jurisdictions which do not comply with good governance standards (tax haven jurisdictions). Under the proposal, the same tax related information would need to be reported for each of these jurisdictions. For other non-EU jurisdictions the tax information is proposed to be reported on an aggregate basis.
This proposal has been submitted to the European Parliament and Council for consideration and final adoption by a qualified majority of the Council. Once adopted, the new Directive would have to be transposed into national legislation by all EU member states within one year after its entry into force.
This is only a proposal, and a majority is required for final adoption. The proposal is a clear sign, however, that the EC is continuing to adopt an aggressive position in its fight against tax avoidance and in doing so is going above and beyond the agreements reached at the OECD/G20 level as part of the BEPS process. Whether this proposal is successful or not, multinationals are well advised to give due consideration to how they will handle public disclosure of their CBC reporting information, should that be necessary.