A major breakthrough is reached on tax transparency.
More than five years of political deadlock came to an end in the evening of 1 June, as the European Parliament and the Council reached a political agreement on public country by country reporting (CbCR).
How we got here
This initiative dates back to 12 April 2016, when the European Commission proposed an amendment to the EU’s Accounting Directive that would oblige multinationals operating in the EU single market and with an annual turnover of €750m or above to publicly disclose a set of key information on a CbC basis. The information would consist of:
brief description of the nature of the activities;
number of employees;
net turnover, which includes the turnover made with related parties;
profit or loss before income tax;
income tax accrued (current year);
income tax paid; and
accumulated earnings.
The Commission also proposed that the CbC breakdown need only be made for EU countries and third jurisdictions that feature on the EU’s list of non-cooperative jurisdictions. For the rest of the world, an aggregate figure for each category would suffice.
The European Parliament adopted its position on the proposal in 2017. However, member states in the Council had made no progress on this issue, as a blocking minority of countries prevented the formulation of a Council position. They argued that public CbCR was fundamentally a tax measure and should therefore be legislated as a tax legislation, which required the unanimous agreement (rather than qualified majority) of EU countries.
However, things changed in February 2021, when the Portuguese Council presidency managed to push through a Council position with, notably, Austria having shifted its position to supporting the proposal.
The two institutions then initiated so-called ‘trilogue’ negotiations to find a mutually acceptable compromise. The task was going to be difficult, as European Parliament’s position was more far reaching: for example, European Parliament would have preferred CbC breakdown for all jurisdictions. What emerged from the 1 June trilogues was a political compromise, but the European Parliament did manage to secure concessions from the Council on several specific topics.
What’s been agreed
The main features of this agreed text are as follows:
CbC breakdown: information must be reported for EU member states, jurisdictions on the EU blacklist of non-cooperative jurisdictions, and third countries which have been the grey EU list of non-cooperative jurisdictions for at least two years.
Safeguard clause: a business to omit certain commercially sensitive information up to five years.
Review clause: after four years, the key requirements for CbCR will be reviewed for effectiveness and adequacy.
Disclosure type: country-specific reports will be available free of charge, in an EU language, in a common template and in an open data format.
The next step is for the provisionally agreed text to be submitted to the Council and European Parliament for their final endorsement. The text will then become a part of EU law, and member states will then have 18 months to enact it in their domestic legislation.
It is too soon to say what the ‘real world’ impact of public CbCR will be, and we perhaps won’t know this until the thorough assessment that is due as part of the review in four years’ time.
In the meantime, EU tax policymakers and stakeholders can take comfort from the fact that yet another tax file has now been concluded. Many more lie on the horizon.
Home >Articles > EU watch: public country by country reporting
EU watch: public country by country reporting
A major breakthrough is reached on tax transparency.
More than five years of political deadlock came to an end in the evening of 1 June, as the European Parliament and the Council reached a political agreement on public country by country reporting (CbCR).
How we got here
This initiative dates back to 12 April 2016, when the European Commission proposed an amendment to the EU’s Accounting Directive that would oblige multinationals operating in the EU single market and with an annual turnover of €750m or above to publicly disclose a set of key information on a CbC basis. The information would consist of:
brief description of the nature of the activities;
number of employees;
net turnover, which includes the turnover made with related parties;
profit or loss before income tax;
income tax accrued (current year);
income tax paid; and
accumulated earnings.
The Commission also proposed that the CbC breakdown need only be made for EU countries and third jurisdictions that feature on the EU’s list of non-cooperative jurisdictions. For the rest of the world, an aggregate figure for each category would suffice.
The European Parliament adopted its position on the proposal in 2017. However, member states in the Council had made no progress on this issue, as a blocking minority of countries prevented the formulation of a Council position. They argued that public CbCR was fundamentally a tax measure and should therefore be legislated as a tax legislation, which required the unanimous agreement (rather than qualified majority) of EU countries.
However, things changed in February 2021, when the Portuguese Council presidency managed to push through a Council position with, notably, Austria having shifted its position to supporting the proposal.
The two institutions then initiated so-called ‘trilogue’ negotiations to find a mutually acceptable compromise. The task was going to be difficult, as European Parliament’s position was more far reaching: for example, European Parliament would have preferred CbC breakdown for all jurisdictions. What emerged from the 1 June trilogues was a political compromise, but the European Parliament did manage to secure concessions from the Council on several specific topics.
What’s been agreed
The main features of this agreed text are as follows:
CbC breakdown: information must be reported for EU member states, jurisdictions on the EU blacklist of non-cooperative jurisdictions, and third countries which have been the grey EU list of non-cooperative jurisdictions for at least two years.
Safeguard clause: a business to omit certain commercially sensitive information up to five years.
Review clause: after four years, the key requirements for CbCR will be reviewed for effectiveness and adequacy.
Disclosure type: country-specific reports will be available free of charge, in an EU language, in a common template and in an open data format.
The next step is for the provisionally agreed text to be submitted to the Council and European Parliament for their final endorsement. The text will then become a part of EU law, and member states will then have 18 months to enact it in their domestic legislation.
It is too soon to say what the ‘real world’ impact of public CbCR will be, and we perhaps won’t know this until the thorough assessment that is due as part of the review in four years’ time.
In the meantime, EU tax policymakers and stakeholders can take comfort from the fact that yet another tax file has now been concluded. Many more lie on the horizon.
