1 June. Negotiators from the Council and the European Parliament have just agreed on a compromise text for public country-by-country reporting by multinational companies. Companies operating in Europe with a total consolidated turnover of more than €750 million in the last two consecutive financial years will have to disclose relevant tax information by country. This information includes, among other things, the company’s net sales and profits, number of employees, income taxes paid and the amount of accumulated earnings. This information must be disclosed on a yearly basis for each EU Member State. This way, companies have to disclose whether the taxes they pay correspond to the extent of their economic activities in a country. The obligation to report this information also applies to tax havens that are on the corresponding “black list” of the EU, as well as to states that have been on the so-called “grey list of tax havens” for at least two consecutive years. Turkey, for example, would currently be affected by this regulation.
We Greens in the European Parliament have been campaigning for public country-by-country reporting by large multinational companies for the past ten years. Immediately after the outbreak of the financial crisis, we succeeded in pushing through worldwide country-by-country reporting for banks doing business in Europe. 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. In 2020, the German Council Presidency had repeatedly blocked a vote on the matter in Council. The Portuguese Presidency made the breakthrough because Slovenia and Austria agreed this time. This success was only possible because transparency issues, unlike the area of tax policy, are decided in the EU by majority vote and in co-decision with the European Parliament.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“This agreement is a defining moment for tax justice in Europe. Country-by-country reporting is an effective tool to expose the dark side of tax competition. If large companies have to disclose their profits and taxes paid per country where they do business, tax dumping becomes visible to all every year. Aggressive tax avoidance will lead to regular reputational damage for companies. Europe thus becomes the global pioneer for tax transparency.
It has been a long struggle for the European Parliament, for civil society and for me personally. The resistance of lobby associations and several governments was very strong. Especially business associations have lobbied to uphold unfair competition – against the interests of their smaller members. Despite the progress, some weaknesses remain: companies only report on profits and taxes paid in EU countries and countries on the EU list of tax havens. We will only end tax dumping when companies have to publish their profits and taxes for all countries where they operate. Nevertheless: Europe is built on compromise and this is a very good one. Intra-European tax transparency can now trigger a global dynamic. Other countries can easily follow the EU’s example. Thereby, we can achieve worldwide disaggregation faster than we might expect. The European Parliament has won important concessions that give the compromise text more bite. The public country-by-country reporting agreed today will clearly show where big business is not paying its fair share to society. This progress for tax justice is also thanks to the Portuguese Presidency.
I was a co-founder of the international Tax Justice Network. We had to fight for almost 20 years 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.
Tax transparency contributes to market efficiency. Public tax reporting makes economic sense because it gives investors the information they need to invest in sustainable companies. Locally anchored companies already have to disclose their tax data in their home country, while large corporations can fulfil this transparency obligation worldwide. I do not buy the argument that this information may reveal trade secrets. Rather, large corporations want to continue fuelling the tax race to the bottom without being held to account for it. We simply cannot afford these tax losses anymore, both economically and socially.”
Concrete progress on the Council’s position negotiated by the European Parliament:
The decision on country-by-country tax transparency is in itself a great success thanks to the European Parliament, which pushed the EU Commission and the Council to implement it. Towards the end of the trilogue, the Parliament was also able to get some further concessions despite the narrow majority in the Council:
- Information needs to be reported for countries which have been at least 2 years (instead of 3) on the grey EU list of tax havens.
- Parliament was able to limit the safeguard clause from 6 to 5 years. The safeguard clause allows companies to keep the information under lock and key for this limited period in justified cases if they see their business secrets credibly at risk.
- The Council’s “comply-or-explain” clause was de facto deleted. The Council had added the option that subsidiaries of multinationals headquartered outside the EU could choose not to disclose the required information if the headquarters decided not to share it. This would have been a much bigger loophole than the safeguard clause. The European Parliament managed to get agreement that the European subsidiary of a multinational headquartered in a non-EU country must publish all available information. It also obliges the subsidiary to provide as much information as possible if the parent company does not want to cooperate. This includes the obligation to publish a statement indicating that the head office has not provided all the required information.
- A far-reaching review clause: After four years (down from 5 years in previous draft texts), the threshold of €750 million total annual turnover, the geographical scope, the safeguard clause and the information that companies must disclose will be reviewed for effectiveness and adequacy. This clears the way for a more far-reaching proposal by the Commission based on the results of the review. And in Europe, most regulations started small and evolved.
- Parliament has demanded that country-specific reports be available free of charge, in an EU language, according to a common template and in an open data format. The Council has accepted all of this. This will make the data as accessible as possible to journalists, researchers and the interested public. This will also facilitate the work of the newly established EU Tax Observatory.
- The transposition period has been reduced from 2 years to 18 months.
Source: “About 80% of the profits shifted out of the European Union are shifted to the E.U. tax havens, primarily Ireland, Luxembourg, and the Netherlands, while the profits shifted out of the United States are primarily shifted to the non-E.U. havens.” https://gabriel-zucman.eu/files/TWZ2020.pdf pp. 30-31
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