Victory for transparency campaigners as MEPs clinch public tax reporting deal on multinationals

MEPs have brokered a deal that will oblige Europe’s largest companies and multinationals to publicly declare what taxes they pay in each EU country.

The breakthrough comes after five years of foot-dragging by some governments.

The deal struck on Tuesday night between European Parliament and Council negotiators sets in place rules that require multinationals and their subsidiaries with annual revenues of over €750 million – and which are active in more than one country – to publish the amount of taxes they pay in each member state.

The information will be made available on the internet, using a common template, and in a machine-readable format. The data will also broken down into specific items, including the nature of the company’s activities, the number of full-time employees, the amount of profit or loss before income tax, the amount of accumulated and paid income tax and accumulated earnings.

Lead negotiator Evelyn Regner (S&D) said: “Today’s deal marks a significant step towards tax transparency. With the public Country-by-Country Reporting Directive — which obliges big corporations operating in the EU to disclose their tax information — we have answered society’s calls for more tax transparency. Parliament has been fighting for this directive to be implemented for more than five years and today we were finally able to reach a deal with the Council. We have laid the foundations for tax transparency in the EU with this deal, and this is just the beginning.”

Subsidiaries or branches falling below the revenue threshold will also be required to report if they are deemed to exist only to help the company avoid the reporting requirements.

The agreed text also says that these transparency reports “should also extend” to the EU list of non-cooperative jurisdictions for tax purposes outside the EU.

But although MEPs wanted stronger provisions to tackle profit shifting to non-EU tax havens, the new rules could still shed some light on taxes being lost to tax havens.

The list of 20 largest tax havens outside the EU includes two member states. A study by the Director of the EU Tax Observatory concludes that about 80% of the profits shifted in the EU are shifted to EU tax havens.

Lead negotiator Iban García del Blanco (S&D) said: “We have come a long way. We would have liked to see a more solid position on transparency from the Council, which would have allowed a more ambitious agreement.

“However, after five years waiting for the Council to unblock the file, we have managed to bring our positions closer on the obligation to report, the accessibility to information, the duration of the safeguard clause and the terms of the review clause, to name a few. We had a responsibility to seize the political window of opportunity opened by the Portuguese presidency to make major progress towards approving and developing a directive that makes public country-by-country reporting mandatory for multinationals and increases the transparency on where they pay their taxes.”

The text now needs to be endorsed by the Committees on Economic and Monetary Affairs and Legal Affairs and the Parliament as a whole, as well as the European Council. The vote in plenary is expected after the summer recess.

The Commission’s proposal in April 2016 came in the wake of the Panama Papers’ revelations. By July 2017, the European Parliament had defined its negotiating position on public country-by-country reporting.

In February 2021, the Council finally decided on its negotiating position for the so-called “trilogue” procedure with the Parliament and the Commission. At the end of 2019, the Finnish Presidency had already tried but failed to get an almost identical text through the Council.

Green MEP Sven Giegold, a co-founder of the international Tax Justice Network, said the campaign crowns 20 years of fighting for public country-by-country reporting.

“I too would have liked to see the worldwide disaggregation of tax information, which we have already successfully achieved in the banking sector. Nevertheless, this compromise is a big step forward, because about 80 percent of the lost tax revenues of large companies in the EU are due to European tax havens.

“Today’s agreement thus covers most of the lost tax revenues in the EU. By contrast, today’s agreement is of little use to emerging and developing countries. The European Parliament wanted global disaggregation, but most Member States were strictly against it. With such a narrow majority in the Council for the proposal, there was a great danger that it would suffer the same fate as the financial transaction tax if an agreement wasn’t found very soon. In Europe, it is wiser to make a start with a good compromise rather than to wait forever for a supposedly ideal solution.”