Company tax disclosure rule blocked by EU member states

Out-Law News | 03 Dec 2019 | 10:51 am | 2 min. read

A proposed EU directive that would require multinational companies to make public the amount of tax they have paid on a country-by-country (CbC) basis has been blocked by 12 member states.

Ireland, Luxembourg, Malta, Cyprus, Latvia, Slovenia, Estonia, Austria, Czech Republic, Hungary, Croatia and Sweden all voted against the proposal at a meeting of the EU's Competitiveness Council last week.

The move followed significant debate on the issue since April 2016, when the amendments to an earlier EU directive were first suggested. Under the proposal, multinational companies with turnover of more than €750 million would be required to provide a report on income tax payments on a CbC basis, broken down by EU member state, which would be publicly available. Companies are already required to provide this information to tax authorities. Banks would be excluded as they are already subject to similar reporting requirements.

Despite a compromise proposal (33 page / 502KB PDF) being put to the competitive council last week agreement was not reached.

The compromise proposal suggested giving companies up to six years to disclose information on the amount of income tax they had paid, in order to protect competitive interests, provided that the deferral was outlined and explained.

After the rejection of the proposal, the EU presidency said that work would continue on the proposal and that it would reflect on the best way for taking it forward.

Tax expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law, said she expected public CbC reporting would be introduced "at some stage", and there was support for the principle within the EU.

"Some countries voted against the EU plan because they objected to the use of qualified majority voting rather than unanimous approval, which is required for tax law. Finland, the current EU presidency holder and other states in favour of the measure argued that it was a transparency rather than a tax measure and so did not have to be agreed unanimously," Robins said.

"Other countries have concerns that if it only applies in the EU it puts EU businesses at a competitive disadvantage to those in the US, Japan and China. It may be more acceptable to some countries if public CbC reporting is adopted by the Organisation for Economic Cooperation and Development (OECD) as then G20 countries and OECD member states could be required to adopt it, so that EU businesses would not suffer a competitive disadvantage," Robins said.

The UK did not vote in the council meeting due to election purdah, but Robins said the UK government had previously been in favour of public CbC reporting, provided it applies more widely than just to UK businesses.

In 2016 the UK parliament approved a provision in the Finance Bill that gives HM Treasury the power to issue regulations at some stage in the future requiring public reporting. For the time being, UK resident parent companies of multinational enterprises with consolidated turnover of over €750 million must file a CbC report with HM Revenue & Customs each year, to be shared with other tax authorities but not with the public.