MEPs hail breakthrough for tax fairness as negotiations with European Council start

Four years after Parliament adopted its position on draft legislation on public country-by-country reporting, EU governments will now come to the table to negotiate a deal.

After the LuxLeaks scandal, the Openlux investigation revealed there are 55,000 offshore companies managing €6,500 billion in Luxembourg.

In July 2017, the European Parliament adopted its amendments to the Commission’s proposal. It then reconfirmed its positioning in October 2019, MEPs passed a strong resolution urgently calling on the member states to break the deadlock and enter inter-institutional negotiations.

The law to be negotiated upon will mean that multinationals will have to disclose amount of tax they pay in each EU country. Tax authorities will be able to see what taxes are being paid where.

Parliament’s lead negotiators, Evelyn Regner, Austrian MEP from the Group of the Progressive Alliance of Socialists and Democrats and a member of the Committee on Economic and Monetary Affairs, and Ibán García Del Blanco, Spanish (S&D) were officially given the green light to enter into negotiations with the EU governments’ representatives, based on the position the EP adopted in 2017.

“This is a breakthrough for tax fairness in the EU. Public country-by-country reporting will oblige multinational companies to be financially transparent about where they make profits and where they pay taxes. Especially in the context of the COVID-19 pandemic, where companies are receiving considerable support from public spending, citizens have an even greater right to know which multinationals are playing fair and which are free-riding,” Regner said.

García Del Blanco said MEPs had been waiting for the Council for too long. “We are ready to start negotiations immediately in order to reach an agreement under the Portuguese Presidency, thereby making progress on tax and corporate transparency. We urgently need meaningful financial transparency to fight tax evasion and profit shifting. Citizens’ trust in our democracies depends on everyone contributing their fair share to the recovery.”

The Parliament’s position adds to the Commission’s original proposal, notably in the following ways:

• the information requested from multinationals should be presented separately, including for each tax jurisdiction outside the EU;
• multinationals must make their annual report on income tax information publicly available and free of charge, and file the report in a public registry managed by the Commission;
• a safeguard clause for sensitive corporate data has been added, allowing multinationals to temporarily omit information when disclosing it would be seriously prejudicial to their commercial positions;
• additional items of information will be provided in the tax reports to help achieve a more complete picture, such as information on the number of all full-time employees, fixed assets, stated capital, preferential tax treatment, or government subsidies;
• subsidiaries with a turnover of €750 million or more would also be subject to country-by-country reporting requirements.

This legislation is part of the EU’s regulatory measures to implement the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan 13. In essence, multinationals with annual turnovers of more than EUR 750 million will be required to provide an annual tax statement that breaks down key elements of the statements by tax jurisdiction. This will provide the public and tax authorities with more visibility on what taxes are being paid where.