OECD Warns EU About Public Tax Reporting Plan for Multinationals

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By Joe Kirwin

The European Union risks undermining the success of a global tax reporting regime if it begins requiring multinational companies to publicly release annual statements, an OECD official warned.

Between 40 and 45 Organization for Economic Cooperation and Development members are set to begin country-by-country reporting in June, Achim Pross, head of the OECD International Cooperation and Tax Administration Division, said April 9. Country-by-country reporting is the most widely adopted element of the OECD’s efforts to stop multinational tax avoidance.

The EU has adopted the OECD scheme but the European Commission proposed in 2016 legislation to make all multinational companies doing business in the EU with a 750 million euro ($932 million) annual turnover or more to provide annual statements that include public country-by-country reporting.

There has been some concern about making public the information included in the reports, which are meant to give a clear look at companies’ finances for each country in which they operate.

“Countries outside of the EU are very much opposed to the EU plan for public country-by-country reporting,” Pross said at a tax conference in Brussels. “There are number of concerns. These involve double taxation, especially in countries like China and India where western countries are required to undertake joint ventures. There are also concerns among countries that public data could be used to undercut competitors.”

The EU should wait for a 2020 review of the regime before mandating public disclosure of the report, he said.

At Loggerheads

The European Commission legislation is currently blocked in the Council of Economic and Financial Affairs, as a host of countries are opposed.

Meanwhile the European Parliament, which has co-decision powers on the legislation, approved in 2017 a version of the legislation that goes beyond what was proposed by the European Commission. It would require large multinational companies to give a country-by-country breakdown of tax and profit reporting even on their subsidiaries in countries outside the EU.

Many EU member states, led by Ireland, Sweden, Cyprus, and Malta are opposed to the pending EU public country-by-country reporting for large multinational companies because its legal base is EU company law, rather than tax law.

For EU company law legislation, the European Parliament has co-decision powers and legislation can be approved by qualified majority voting in the Council of Economic and Financial Affairs. EU legislation based in tax law has to be approved by unanimous consent.

Shareholder Rights

The EU public country-by-country reporting proposal would boost tax transparency, tax fairness, and is in the best interests of companies and their shareholders, said Jeppe Kofod, a Danish European Parliament member.

“It would help companies streamline their operations and it would provide more transparency to investors,” said Kofod, who spoke along with Pross at a seminar on country-by-country reporting.

The pending EU proposal imposes rules for large multinational companies that EU banks and other financial institutions, as well as companies in the extractive industries such as in mining and forestry, already have to implement, said Manon Aubry, a senior advocacy officer at Oxfam. Manon also spoke at the seminar.

“It is clear that EU banks and others who have been providing country-by-country reporting since 2014 are not having problems,” Aubry said.

In the wake of the 2008 financial crisis, the EU adopted new capital markets legislation that requires banks to report publicly their profits and taxes on a country-by-country basis.

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

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

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