Large multinationals
The directive will transpose the OECD recommendation on country-by-country reporting (BEPS action 13) into a legally binding EU instrument. It covers multinationals with a total consolidated group revenue of at least €750 million.
Whilst this would cover only 10-15% of multinational enterprise groups, these groups hold 90% of corporate revenues.
Tax planning by multinationals has become more elaborate in recent years, shifting taxable profits towards states with beneficial tax regimes. Aggressive tax planning can take advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing or avoiding tax liabilities.
Information to be reported
In boosting transparency, the draft directive sets out to incite multinationals to pay their taxes in the country where profits are made. Information to be reported, on a country-by-country basis, includes revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees.
Under the directive, a multinational company will be obliged to file its country-by-country report to the tax authorities of the member state where it is tax resident, already for the 2016 fiscal year.
If the group's parent company is not EU tax resident and does not file a report, it will do so through its EU subsidiaries. Such "secondary reporting" will be mandatory as from the 2017 fiscal year; it will be optional in 2016.
Information exchange
The tax authorities will have to exchange the reports automatically, so that any tax avoidance risks related to transfer pricing(1) can be assessed. For this, the directive will build on the EU's existing framework for automatic exchange between tax authorities, established by directive 2011/16/EU. An existing common communications network will be used, thereby saving implementation costs.
The directive will set deadlines of 12 months after the fiscal year for filing, and a further three months for automatic exchange.
A common EU approach
The directive will ensure harmonised implementation of the OECD recommendation on country-by-country reporting, including by 7 member states that are not members of the OECD.
The Council will adopt the directive once the European Parliament has given its opinion and national parliamentary reservations have been lifted, and once the text is finalised in all languages.
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