EU States, Parliament to Face Off Over Country-by-Country

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By Joe Kirwin

April 12 — A tax policy battle between European Union finance ministers and the EU Parliament looms after the European Commission proposed sweeping public country-by-country tax and profit reporting by multinationals that pleases neither institution.

The commission plan—which goes beyond recently agreed OECD recommendations to counter tax base erosion and profit shifting—sets up a potential confrontation with the U.S. in implementing the Organization for Economic Cooperation and Development's BEPS guidance on the issue of defining tax havens and in making company information public.

Introduced April 12 after more than six months of preparation that included an extensive economic impact assessment, the controversial European Commission proposal is considered too weak by tax justice advocates and too onerous by the business community. It would require any multinational company with annual consolidated group revenue of 750 million euros ($855 million) or more to publicly report its profits and taxes paid on a country-by-country basis in the EU.

For operations outside the EU, companies would have to report their taxes and profits on an aggregate basis.

In the wake of recent revelations about tax evasion from a Panama law firm, the country-by-country reporting would also require a profit and tax breakdown of any EU multinational doing business in a tax haven.

Would Cover 6,500 Companies

Overall, the proposal would cover seven categories of reporting and apply to 6,500 companies, requiring them to post the reported information on their websites for five years. The proposal also calls for hefty fines if companies don't comply.

“This proposal will go a long way to ensure that multinationals are paying their fair share of taxes where they earn their profits,” EU Financial Services Commissioner Jonathan Hill said at an April 12 news conference. “It will also help to bring clarity to unfair tax competition that takes place among some EU member states.”

Shortly after the proposal was released, members of Parliament insisted the revenue threshold is too high, as it would cover only approximately 15 percent of all multinational companies working in the EU. They also insisted the territorial scope is too limited because it would enable multinationals based outside the EU, but with subsidiaries inside the bloc, to manipulate data.

“It is unacceptable that even after the Panama Papers, the European Commission has decided to limit the scope of its proposal to companies with annual income of 750 million euro,” said Elisa Ferreira, a Portuguese member of the European Parliament who has been leading the charge in the EU law-making body to force public country-by-country reporting. “It is now up to the European Parliament as co-legislator to further improve the commission's proposal.”

Co-Legislator Role Opposed

The European Parliament's co-legislator role is one element of the plan that a number of EU member states oppose, as the mode of the legislation isn't tax law but instead is based on EU single market rules. If proposed under as tax legislation, it would not only eliminate any veto rights for the European Parliament, but also would require unanimous consent of all 28 EU member countries.

“There are significant concerns among member states about the legal base,” a Council of Ministers official told Bloomberg BNA on the condition of anonymity. “There has been a lot of discussion about this as EU member states oppose giving powers to the European Parliament when it comes to tax legislation. This is not foreseen in EU treaties.”

The new European Commission proposal on country-by-country reporting marks the fourth time in five years that the two EU lawmaking bodies have faced off on the issue. Previously, the European Parliament succeeded in forcing member states to require public reporting for the extractive industry—which includes forestry and mining—as well as for the banking sector in the wake of the 2008 financial crisis. On another occasion, the EU member states succeeded in fending off European Parliament efforts to add public country-by-country reporting to an EU anti-money-laundering directive .

The two legislative bodies are currently at a standstill over European Parliament demands that public country-by-country reporting be added to a pending reform of the EU Shareholder Rights Directive.

EU Banking Rules Tougher

Under the reporting requirements for the banking industry, which were added to a revision of the EU Capital Requirements Directive in 2014, the territorial scope of the legislation doesn't stop at EU borders, as does the new proposal. This is one reason European Parliament members reject arguments made by the European Commission that expanding the territorial scope of the new proposal would be illegal.

“Further steps are now needed with regard to disclosure of economic activities outside the EU in order to achieve a full system of country-by-country reporting for all tax jurisdictions and to apply the rules that are currently applicable to banks for all multinationals,” Robert Gualtieri, an Italian member of the European Parliament and the chairman of the Committee for Economic and Monetary Affairs, said at an April 12 news conference.

Beyond BEPS Recommendations

A number of EU states object to the legal basis of the proposal, and also oppose it because it goes beyond the recommendations for country-by-country reporting under the OECD's BEPS project. Under the OECD guidance, country-by-country data is to be submitted to tax authorities on a confidential basis.

“Belgium is very much in favor of the speedy incorporation of the OECD BEPS agreements into EU legislation,” Belgian government spokesman Peter Van De Velde told Bloomberg BNA in an e-mail. “On the other hand we should not let the pendulum swing too far. If other major OECD countries wish to move ahead we can too. Yet if not all countries including non EU member states follow suit we do not intend to be holier than the Pope by going along with European Commission proposals that would turn the EU into an outlier albeit on the high moral ground.”

An Irish diplomat, speaking on the condition of anonymity, also raised concerns that the proposal goes beyond the OECD BEPS project's recommendations under Action 13 on documentation and country-by-country reporting.

“Going beyond the OECD BEPS reforms is going to undermine them,” said the Irish diplomat. Leading business groups, including the European chapter of the U.S. Chamber of Commerce, have also been vocal in criticism of the plan because it poses competitiveness and investment threats.

“This could harm growth and investment at a time when Europe needs it most,” said AmCham EU, the European arm of the U.S. Chamber of Commerce, in an April 12 statement. “We continue to believe that the case has not been made that public CBCR would increase the amount of useful information available to tax authorities, investors or the public.”

G-20 Commitments

Tax practitioners agreed the EU shouldn't go beyond the OECD BEPS plan, as it would set up a confrontation with the U.S.

“The European Commission is a member of the G-20 and the G-20 has endorsed the BEPS 15 reforms,” Stefaan De Baets, senior counsel with PricewaterhouseCoopers LLP and based in Belgium, told Bloomberg BNA April 12. “The European Commission is not honoring its agreement with other G-20 members by making a proposal calling for public multinational CBCR. This puts EU companies in a very difficult position because the United States has made it clear it will not require public CBCR.”

De Baets also emphasized that the public data multinationals would have to post could easily be misinterpreted or manipulated.

“You cannot make judgments about tax shifting just because a multinational has a lot of employees in one member state but has low profits or low taxes in that same country,” said De Baets. “Many groups and politicians make that critical error.”

Company Cost Issues

Ray Krawczykowski, a tax partner with Deloitte LLP in Luxembourg, insisted the commission and other proponents of public country-by-country reporting fail to understand the costs involved.

“For a company to properly coordinate and present the data, especially when they have operations in 20 or 30 EU member states, will cost tens of millions of euros,” Krawczykowski told Bloomberg BNA April 12. “It is not simply a case of presenting some data that companies will also have to submit to tax authorities.”

The European Commission sponsored an economic impact assessment as part its process in drawing up the legislation and said that while the plan will involve increased costs, they “are proportionate and justified by the benefits this proposal will bring.”

Krawczykowski criticized the European Commission for not completing the economic impact study well in advance of making the proposal. “There should have been some consultation on the results of the economic impact study,” Krawczykowski said.

While setting aside costs, the European Commission bowed to pressure that has mounted since the Panama Paper revelations. Instead of expanding the territorial scope to a worldwide basis as tax justice groups advocated, the EU executive body adopted the tax haven reporting requirement. An EU tax haven blacklist is due to be finalized by the end of 2016.

Tax Haven Criteria

The criteria for determining which countries or territories will be on the tax haven blacklist, which ultimately must be approved by EU member states, include:

  • transparency and exchange of information, including information exchange on request and automatic exchange of financial account information;
  • fair tax competition;
  • standards set by the Group of 20 countries or the OECD; and
  • other relevant standards, such as those set by the Financial Action Task Force—an intergovernmental body hosted at the OECD secretariat in Paris.

    Fabio De Masi, a German member of the European Parliament and a prominent member of the EU lawmaking body's TAXE committee set up in the wake of the LuxLeaks scandal, insisted the EU lawmaking body will apply strict standards in drawing up the tax haven blacklist. He added that because of laws in U.S. states such as Delaware and Nevada, the U.S. should be on the list.

    “It is well known that some states in the United States are tax havens,” said De Masi. “This is the same for some British independent territories.”

    New Tax Inquiry Panel

    Although EU member states ultimately will decide on the EU tax haven list, European Parliament members clearly want to flex their muscles by setting up a new inquiry committee that would have investigative powers exceeding those of the current TAXE panel, formally the European Parliament's Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect. The leaders of the EU political groups are due to decide April 14 on whether to proceed with a new tax inquiry panel.

    Based on comments made April 12 before the European Parliament, there is widespread support for a new investigative committee.

    “We need a new committee with the power to demand documents and to seriously probe issues related to tax havens and the Panama Papers,” said Guy Verhofstadt, head of the Liberal Democrat political group in the European Parliament.

    To contact the reporter on this story: Joe Kirwin in Brussels at

    To contact the editor on this story: Rita McWilliams at

    For More Information

    The final proposal on country-by-country reporting adopted April 12 is at The European Commission's impact assessment study is at

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