The European Commission is currently launching a public consultation on corporate tax transparency in the EU.
The exercise shall help Brussels to find out whether asking companies to disclose more information about the taxes they pay in the EU could help tackle tax voidance and aggressive tax practices in some Member States.
The battle against corporate tax avoidance seems to be a top priority for the Junker Commission and this consultation is part of a broader “Action Plan for Fair and Efficient Corporate Taxation”, inspired by G20 leaders who have promised to enhance the exchange of information about large multinationals among tax authorities, including their countryby-country reporting (CBCR).
Recent cases demontrate how some multinationals can earn large profits in the Single Market by paying little or no tax in the EU. A clever mix of aggressive tax planning, national mismatches and legal loopholes due to their presence in multiple jurisdictions allows them to slip out of the nets distorting competition, putting smaller rivals at a disadvantage and pitting EU and non-EU companies within the Single Market against each other.
Transparency requirements are already enforced vis-à-vis banks and large extractive and logging industries; the ongoing consultation aims to assess whether to extend the existing public disclosure obligations to multinationals in other sectors.
Requiring a multinational to disclose more information about its tax declarations – both to tax authorities and the public – shall lower the risk of “far-west” tax practices and help SMEs to compete in a better and healthier environment. Moreover, bringing transparency to what is currently a rather dark side of business activities, is likely to push big companies to contribute to the economy of the country where profits are made instead of choosing more friendly national systems in an “à la carte” approach.
Greater transparency should also stimulate Member States to take measures that contribute to more efficient and fairer tax competition. Obviously, this “open ccounts” approach shall protect sensitive business information and should not weaken EU companies already facing harsh competition from rivals outside the EU.
The Commission’s Action Plan on a Fairer Corporate Tax System is designed to lead to a reform of corporate taxation in the EU, setting out a series of initiatives to tackle tax avoidance, secure sustainable revenues and foster a better business environment in the Single Market.
Altogether, these measures are supposed to improve the existing EU corporate tax environment, making it fairer, more efficient and more growth-friendly.
In September 2013, the G20 already endorsed an action plan to ensure that profits are taxed where generated. The OECD (Organisation for Economic Co-operation
and Development) is currently coordinating actions to tackle Base Erosion and Profit Shifting.
In his July 2014 Political Guidelines, President Juncker stated:
We need more fairness in our internal market. While recognising the competence of Member States for their taxation systems, we should step up our efforts to combat tax evasion and tax fraud, so that all contribute their fair share.
As a first step, the Commission proposed a “Tax Transparency Package”, to foster cooperation between Member States on corporate tax issues. A key element in the Package was the suggestion for an automatic exchange of information on tax rulings, which received unanimous political support at the Informal ECOFIN last April. Member States are now discussing it at technical level with the aim of reaching an agreement by the end of the year.
The ongoing consultation, open until 9th September 2015, represents another step towards the reform of corporate taxation in the EU, and surely a way to suggest to “bad pupils” that the recess is almost over.