One of the most prominent debates in the EU’s tax landscape in the past five years has been about tax transparency. The European Commission put forward a legislative proposal in 2016 that has since been in political limbo.
Public country by country reporting (CBCR) is a measure that would require companies to disclose, publicly and per country of operation, how much profits they make in each jurisdiction, how much taxes they pay, their turnover and more – depending on the version of the disclosure.
According to its proponents, public CBCR would introduce more public scrutiny into multinationals’ tax planning activities, and disincentivise ‘aggressive tax planning’.
Its opponents maintain that such publicly disclosed information would be misinterpreted by the public, leading to reputational issues. Moreover, some companies fear that having to disclose sensitive information on a per-country basis would reveal their business secrets or strategies to competitors.
In April 2016, soon after Panama papers scandal, the European Commission responded to calls from the European Parliament and civil society. It proposed a directive that would oblige all multinationals that operate in the EU and with an annual turnover of at least €750m to disclose publicly and per country some key information on their business and tax activities.
This proposal caused something of a minor institutional crisis within the EU. Some member states in the Council, led by Germany and supported by the Council’s own legal service, argued that, since the proposal concerns taxation, it should be subject to EU’s tax decision making rules. This would require unanimity, whilst the European Parliament would only provide its non-binding opinion.
The Parliament and the Commission, for their part, insist that the proposal falls under company law and corporate reporting umbrellas, and thus the proposed legal basis is appropriate. Under the Commission’s proposed legal basis, the Parliament would hold equal power to the Council in the decision making, and EU member states could simply adopt the proposal via qualified majority.
In other words, depending on the angle, one could argue the success or failure of the proposal is at stake.
The opposing EU member states command a so-called blocking minority, and have been successful at freezing progress on the file in the Council. As a result of this impasse, the proposal has been in a limbo for over three years now.
However, in the course of this autumn, it was hoped (or feared, depending on your view) that the public CBCR file would actually move forward in the Council. This optimism was based on several reasons.
First of all, Finland, which holds the current rotating presidency of the Council and traditionally was opposed to public CBCR, promised to MEPs that it would do whatever it can to try to resolve the impasse.
Second, on 12 September, Germany’s Social-Democratic finance minister Olaf Scholz made a U-turn, announcing on Twitter that he is now in favour of public CBCR. Even though a few analysts speculated that this move was merely part of Scholz’s bid to become the new leader of his political party, it was a significant shift in his public position.
And third, on 24 October, the European Parliament voted on a non-binding resolution calling for progress on public CBCR in Council. This was an effort to amass political pressure on the Council.
On the following day (25 October), the Finnish presidency organised a meeting between member states’ company law attachés to see whether countries’ positions have budged.
The answer, it seems, is no.
Finland’s own government remains undecided, and Scholz’s stated shift in stance does not appear to have been translated into a change of position by the German government.
At the 25 October meeting, Germany, Austria, Malta, Cyprus, Portugal, Hungary, Estonia, Luxembourg, Latvia, Ireland, Poland, Sweden and Czech Republic were still insisting that public CBCR is a tax file. On the other side, France, Spain, Belgium, Denmark, the Netherlands, Italy, Romania, Bulgaria, Greece and Slovakia continue to defend the current legal basis.
The Finnish presidency will now have to reflect whether and what it is going to do to resolve the situation.
Meanwhile, markets are moving ahead with tax transparency. Institutional investors increasingly demand that issuers publicly disclose additional tax information. And standard setters, such as the Global Reporting Initiative, propose voluntary tax disclosure standards.
Who, between the policy makers and the markets, will get there first? Will tax transparency ever become a ‘thing’? All options remain on the table.
One of the most prominent debates in the EU’s tax landscape in the past five years has been about tax transparency. The European Commission put forward a legislative proposal in 2016 that has since been in political limbo.
Public country by country reporting (CBCR) is a measure that would require companies to disclose, publicly and per country of operation, how much profits they make in each jurisdiction, how much taxes they pay, their turnover and more – depending on the version of the disclosure.
According to its proponents, public CBCR would introduce more public scrutiny into multinationals’ tax planning activities, and disincentivise ‘aggressive tax planning’.
Its opponents maintain that such publicly disclosed information would be misinterpreted by the public, leading to reputational issues. Moreover, some companies fear that having to disclose sensitive information on a per-country basis would reveal their business secrets or strategies to competitors.
In April 2016, soon after Panama papers scandal, the European Commission responded to calls from the European Parliament and civil society. It proposed a directive that would oblige all multinationals that operate in the EU and with an annual turnover of at least €750m to disclose publicly and per country some key information on their business and tax activities.
This proposal caused something of a minor institutional crisis within the EU. Some member states in the Council, led by Germany and supported by the Council’s own legal service, argued that, since the proposal concerns taxation, it should be subject to EU’s tax decision making rules. This would require unanimity, whilst the European Parliament would only provide its non-binding opinion.
The Parliament and the Commission, for their part, insist that the proposal falls under company law and corporate reporting umbrellas, and thus the proposed legal basis is appropriate. Under the Commission’s proposed legal basis, the Parliament would hold equal power to the Council in the decision making, and EU member states could simply adopt the proposal via qualified majority.
In other words, depending on the angle, one could argue the success or failure of the proposal is at stake.
The opposing EU member states command a so-called blocking minority, and have been successful at freezing progress on the file in the Council. As a result of this impasse, the proposal has been in a limbo for over three years now.
However, in the course of this autumn, it was hoped (or feared, depending on your view) that the public CBCR file would actually move forward in the Council. This optimism was based on several reasons.
First of all, Finland, which holds the current rotating presidency of the Council and traditionally was opposed to public CBCR, promised to MEPs that it would do whatever it can to try to resolve the impasse.
Second, on 12 September, Germany’s Social-Democratic finance minister Olaf Scholz made a U-turn, announcing on Twitter that he is now in favour of public CBCR. Even though a few analysts speculated that this move was merely part of Scholz’s bid to become the new leader of his political party, it was a significant shift in his public position.
And third, on 24 October, the European Parliament voted on a non-binding resolution calling for progress on public CBCR in Council. This was an effort to amass political pressure on the Council.
On the following day (25 October), the Finnish presidency organised a meeting between member states’ company law attachés to see whether countries’ positions have budged.
The answer, it seems, is no.
Finland’s own government remains undecided, and Scholz’s stated shift in stance does not appear to have been translated into a change of position by the German government.
At the 25 October meeting, Germany, Austria, Malta, Cyprus, Portugal, Hungary, Estonia, Luxembourg, Latvia, Ireland, Poland, Sweden and Czech Republic were still insisting that public CBCR is a tax file. On the other side, France, Spain, Belgium, Denmark, the Netherlands, Italy, Romania, Bulgaria, Greece and Slovakia continue to defend the current legal basis.
The Finnish presidency will now have to reflect whether and what it is going to do to resolve the situation.
Meanwhile, markets are moving ahead with tax transparency. Institutional investors increasingly demand that issuers publicly disclose additional tax information. And standard setters, such as the Global Reporting Initiative, propose voluntary tax disclosure standards.
Who, between the policy makers and the markets, will get there first? Will tax transparency ever become a ‘thing’? All options remain on the table.
