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01/10/2016

Country-by-country reporting to affect only 10% of multinationals

Euro & Finance

Country-by-country reporting to affect only 10% of multinationals

Emmanuel Maurel

[European Parliament]

The European Parliament has adopted a draft directive that would see 90% of multinational companies escape compulsory country-by-country reporting requirements. EurActiv France reports.

The vote that took place in Strasbourg on Thursday (12 May) suggests that the EU’s efforts to improve tax transparency by enforcing country-by-country reporting for businesses’ activities are merely a facade.

MEPs rejected a crucial amendment to the draft directive from the European Commission, which would have ensured the transparency rules applied to a large proportion of multinational companies operating in the EU. The draft directive aims to facilitating the exchange of information on business activities between Europe’s tax authorities.

But as things stand, it will leave the vast majority of multinational companies unaffected. At €750 million turnover per year, the reporting system’s high threshold would exclude some 85-90°% of multinationals, as this OECD document shows.

The figure of €750 million is borrowed from the OECD’s Base Erosion and Profit Shifting (BEPS) project to combat tax optimisation, currently under negotiation by 34 countries.

“But this threshold makes no sense. It should be much lower,” said Emmanuel Maurel, a French Socialist MEP (S&D).

The Socialists had submitted an amendment proposing to lower this threshold from €750 million to €40 million (amendment 40 of this document). It was rejected in Thursday’s plenary session in Strasbourg.

Precedent in the European Parliament

The seemingly arbitrary threshold in in fact based on previous decisions made in the European Parliament. The debate over “what level of transparency for what kind of business” took place in the European Parliament last year, and the subject had already been addressed in the Cofferati report on the rights of shareholders to have a say in company management.

New calls for transparency in the report, and notably for country-by-country reporting, concerned businesses with a turnover of at least €100 million. The €40 million demanded by the French Socialists was borrowed from the accounting directives, which set the thresholds for transparency in company accounts. On top of a turnover threshold of €40 million, these directives also set an employee threshold of 250.

“The Parliament voted last July for […] country-by-country reporting for all multinationals with a turnover of more than €40 million. The conservatives and the liberals approved this measure. And now, less than a year later […] they prefer to limit the measure to a handful of large groups with a turnover of more than €750 million,” Morel said after the vote.

Failure of ambition

“What I find infuriating is that this vote risks setting a precedent on how the European Parliament implements the recommendations of the OECD. It is unacceptable that we could not do better, while many MEPs in principle support a stricter set of rules,” a Parliament source told EurActiv France.

The Commission’s tax evasion package is far from complete, as it will include six pieces of legislation by the end of 2016.

The final text is further weakened by additions from the Council, which inserted a clause on “secondary reporting”. This would allow the subsidiaries of large multinationals to escape the reporting requirements if the parent company refuses to cooperate.

Other subtleties allowing states to refuse to transmit, and even refuse to accept, certain kinds of information may also undermine the effectiveness of the legislation.

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