Divisions in European Parliament Over Expanded Public Tax Reporting

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By Joe Kirwin

Divisions erupted within the European Parliament over a plan to dramatically expand the number of companies that would be required to make public reports outlining profits earned and taxes paid on a country-by-country basis.

During a special hearing in Brussels May 3, held to debate amendments different European Parliament political groups have submitted for consideration on a bill due to be voted in July, battle lines were also drawn on a Socialist and Democrats plan to not only expand the scope of companies covered but also require them to include a breakdown of taxes and profit earned in foreign countries.

The divisive debate took place after a draft report published in February called for the reporting requirements to apply to all companies with a minimum of 40 million euros ($43.6 million) in turnover. The European Commission proposal, put forward in April of 2016, called for companies with a minimum annual turnover of 750 million euros ($817 million) to be covered.

EU Company Law-Making

Evelyn Regner, the Socialist and Democrat parliamentarian from Austria who is leading the negotiations and who co-wrote, along with another member of her party, the report calling for dramatically increased scope, defended the plan as necessary to stay within EU company law.

“The legal basis for this proposal is EU company law,” Regner said. “Specifically it falls under the Accounting Directive.” The 40 million euro threshold, she said, “is defined in that law and we should remain consistent with the law.”

Reneger also noted that current EU law—specifically, the Capital Requirements law—requires banks and other financial institutions to publicly report country-by-country data on a worldwide basis. She added that forcing multinational companies to also detail their profits and taxes paid on a country-by-country basis outside the EU is crucial to helping developing countries collect needed tax revenue from foreign companies.

OECD Guidelines

However, other political groups, including the European Peoples Party (EPP), which is the largest in the European Parliament, insisted the 750 million euro threshold, which is in line with terms established by the Organization for Economic Cooperation and Development, should be adopted.

“Committing to a threshold of 40,000 euros will mean the proposal will cover approximately 90 percent of companies in the EU compared to only 10 percent with a 750 million euro threshold,” said Dariusz Rosati, a Polish parliamentarian and the EPP group’s spokesman on the proposal, during the May 3 debate. “This will have a serious economic impact and would put our firms at a competitive disadvantage.”

The EPP position echoes concerns raised by the EU’s largest business lobby group, BusinessEurope, which represents the interests of more than 10,000 companies, including German industrial giant Siemens AG, Dutch electronics manufacturer Phillips NV, Italian oil producer Eni SpA and French car maker Peugeot, which is part of the Groupe PSA. Previously BusinessEurope had complained that the commission proposal—even with the 750 million threshold—was damaging because it went beyond the OECD’s recommendation in Action 13 of its project to combat tax base erosion and profit shifting, which called for the country-by-country data from multinational companies to be delivered only to national tax authorities. The EU adopted such a plan in 2016.

Unconstitutional?

BusinessEurope also insisted in a March 30 letter to the European Parliament Committee for Economic and Monetary Affairs that the current terms of the pending EU proposal would undermine the ability of tax authorities and could be “unconstitutional” in some EU member states.

“We are disappointed that the European Parliament has not taken the opportunity to address these concerns,” BusinessEurope said in its letter, a copy of which was obtained by Bloomberg BNA. “Instead the parliament’s proposal, if adopted by the Council (of Ministers) risks further damaging the competitiveness of EU companies.”

In the letter, BusinessEurope also insisted that if the EU goes beyond the OECD recommendation and requires public country-by-country reporting, the EU “jeopardizes the willingness of other countries who have signed up to the OECD proposal to share” taxpayers’ country-by-country information.

Council of Ministers Standstill

Meanwhile, within the Council of Ministers, work on the pending public country-by-country reporting proposal is all but at a standstill. Malta, which holds the rotating EU presidency and therefore dictates the legislative agenda in the Council of Ministers, has held one meeting on the issue since it took up its role at the beginning of 2017. The reluctance to pursue the legislation by Malta is partly due to opposition from a host of EU member countries to the legal base of the proposal. They insist it should have EU tax legislation as a base and not EU single market law, which gives co-decision powers to the European Parliament. EU tax legislation requires unanimous consent among the 28 EU countries and only gives consultative rights to the European Parliament.

The Council of Ministers legal service issued a legal opinion at the end of 2016 supporting the legal argument that the proposal should have EU tax legislation has a legal base..

The final terms of the proposal for public country-by-country reporting will require an agreement between the European Parliament and the Council of Ministers.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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