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Yesterday (1 June) the EU’s co-legislators reached a provisional political agreement on the public country-by-country reporting (CBCR) directive, which will allow the public and tax authorities to see what taxes are being paid and where, but there’s a but. The new system will be limited to the EU countries and certain countries that are considered to be non-compliant with tax norms.
“Corporate tax avoidance and aggressive tax-planning by big multinational companies are believed to deprive EU countries of more than €50 billion of revenue per year. Such practices are facilitated by the absence of any obligation for big multinational companies to report on where they make their profits. It is our duty to ensure that all economic actors contribute their fair share to the economic recovery,” said Pedro Siza Vieira, Portuguese minister of state for the economy and digital transition.
Speaking at the launch of a new EU Tax Observatory, MEPs Paul Tang and Sven Giegold welcomed the development. While some have criticized the limited reach of the reporting, Giegold defended it, saying 80% of profit shifting in Europe was between EU member states.
Transparent reporting of where multinational companies book their profits will highlight and help to address the use of accounting tricks that are used to “profit shift” to lower tax jurisdictions, with the sole objective of avoiding tax. Increasingly, those countries which have been losing tax revenue have insisted that the tax burden should be a fair reflection of real economic activity.
Lead negotiator Evelyn Regner MEP (S&D, AT) said: “The 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.”
What will it mean for multinationals?
Countries with a revenue of more than €750 million, whether headquartered in the EU or outside, will have to disclose taxes paid in each member state, as well as in any third country which the EU includes in its list of ‘non-co-operative jurisdictions for tax purposes’.
A common EU template will be used to report in a machine-readable electronic format and will be available online. The data provided will need to be 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.
The reporting will take place within 12 months of each financial year. The directive should be transposed into national law by the end of 2023.
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