Today, the European Parliament gave its formal consent to public country-by-country tax reporting (“trilogue result”). After a long political struggle, the last hurdle for this important progress in tax policy has thus been cleared. In practice, this means the following for the tax reporting of large companies: 18 months after the directive comes into force, 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 is expected to be the case by mid-2023.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“The introduction of public country-by-country reporting is a breakthrough for more tax justice. A new era of tax transparency is beginning in Europe. We now get European, but not yet global transparency on relevant tax data of large companies. This will shed light on the European tax data of large companies, but dubious tax dodging practices in other regions will remain in the dark. The goal must be to shed light on all tax-relevant information of large companies worldwide. European progress must now become global progress. Europe should promote the adoption of public country-by-country reporting by as many countries as possible. To put an end to tax dumping, we need the largest possible zone of tax transparency in the world.
Public country-by-country tax reporting is a sharp sword against tax dumping. It will reveal how great the damage caused by tax dumping is for the general public. The fatal situation in which intra-European tax havens are able to steal tax money from their EU partners has finally come to an end. I have personally campaigned for a long time for country-by-country tax reporting by large companies. Civil society and the Tax Justice Network have long fought for this. If large companies have to disclose their profits and taxes paid per country where they do business, tax dumping will become visible for everyone, every year. Thus, aggressive tax avoidance leads to regular reputational damage for individual companies. In addition, the unsolidary tax policy of individual EU member states becomes transparent.
The decision is a compromise that leaves room for improvement. The Council has refused to agree to the worldwide disaggregation of relevant tax data. The goal must be that all tax-relevant information of large companies is public worldwide. Those who fear competitive disadvantages for their companies should work to ensure that country-by-country reporting in the OECD’s international framework becomes public for all. Investors, who collectively manage 2.9 trillion dollars, are also demanding public country-by-country reporting. To be efficient, markets need information. Given the damage caused by the Covid crisis and the necessary investments in climate protection, infrastructure and education, tax competition must be called what it is: tax dumping that is a danger to the common good. Tax cooperation is more important than ever in these times to jointly solve the challenges ahead in Europe and the world.”
1. Which tax relevant information needs to be disclosed?
Most importantly, companies need to disclose 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.
About 80 percent of the tax revenues lost from large corporations in the EU are due to European tax havens, thus most of the tax revenues currently lost in the EU are covered by the directive: “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
Investors urge Financial Accounting Standards Board to prioritize public country-specific tax reporting: https://thefactcoalition.org/investors-call-on-financial-accounting-standards-board-to-prioritize-public-country-by-country-tax-reporting/
2. The long road to tax transparency:
The implementation of public Country-by-Country Reporting in the EU is particularly a success for all those civil society organizations which have been fighting for more tax transparency for decades. When we founded the Tax Justice Network almost 20 years ago, tax transparency was the core demand of our program.
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 European Parliament had already defined its negotiating position on country-by-country tax reporting in July 2017, and after more than four years of tough wrangling in the Council, the legislative text was finally adopted today.
Breakthrough on public country-by-country reporting in the Council on February 25: https://sven-giegold.de/en/breakthrough-for-tax-transparency/
EU agreement on public country-by-country reporting after trilogue on June 1: https://sven-giegold.de/en/agreement-public-country-by-country-reporting/
On September 28, the Council approved the outcome of negotiations between member states, the European Parliament and the European Commission on public country-by-country reporting (“trilogue outcome”). Sweden and Cyprus voted against, the Czech Republic, Ireland, Luxembourg and Malta abstained, which is generally seen as a rejection. https://sven-giegold.de/en/council-approves-public-country-by-country-reporting/
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