Commission continues drive to strengthen corporate taxation

"La lettre B" l'essentiel de l'actualité économique et financière européenne décryptée

Commission continues drive to strengthen corporate taxation

The European Commission has adopted a proposal for a new corporate tax regime, continuing its drive for increased transparency and fairer taxation across the EU. Building on proposals to introduce information sharing between national tax authorities, the Commission wants multinationals operating in the EU with annual global revenues exceeding € 750 million to publish country-by-country  information on where they make their profits and where they pay their tax in the EU. These rules would apply to both European and non-European multinationals active in Europe; companies would also be obliged to publish aggregate figures for total taxes paid outside the EU.

Coming in the wake of the recent Panama Papers leaks, the proposal also includes measures for stronger transparency requirements for companies’ activities in countries which are not considered to

meet international standards for good governance in the area of taxation. In this context, the Commission is planning to establish the first common EU list of such tax jurisdictions in the very near future.

According to Jonathan Hill, the Commissioner for financial stability, financial services and capital markets union: “Our economies and societies depend on a tax system that’s fair, a principle that applies both to individuals and to business. Yet today, by using complicated tax arrangements, some multinationals can pay nearly a third less tax than companies that only operate in one country. Our proposal to  increase transparency will help make companies more accountable. It will promote fairer competition between companies regardless of their size.”

Corporate taxation has been the subject of much debate in recent times. The 2014 LuxLeaks publications brought the question of seemingly preferential tax rulings into the public eye and led to widespread calls for reform. Following these leaks, a special European parliamentary committee was established to look into the matter. After holding several rather heated hearings with multinational representatives over the course of 2015, the committee then prepared a report which was later adopted in plenary calling for just the type of country-by-country reporting that has now been put forward by the Commission.

Nevertheless, reactions to the Commission’s proposal have not all been positive. As previously stated, the new obligations would only apply to multinationals with global revenues in excess of € 750 million, no mean sum. The Commission believes that this threshold will encompass companies in control of around 90% of corporate revenues made by multinationals around the world while at the same time avoiding placing any unnecessary administrative burdens on smaller companies. However, MEP Molly Scott Cato (Greens/EFA, UK) believes that the proposal does not go far enough, saying :

“The weak ambition in these proposals shows [the] Commission is running scared of EU governments who want tax competition rather than cooperation. The Commission should be defending the public interest rather than seeking the lowest common denominator from the outset.” Demonstrating how difficult it can be to please everyone, MEP Burkhard Balz (EPP, Germany), on the other hand, has welcomed the proposal as a means of checking that tax is paid where it should be but has warned against going too far, highlighting in particular the dangers of “jeopardis[ing] European companies’ competitiveness by asking them to disclose information that American and Chinese companies do not have to.”

The proposal will now be submitted to the European Parliament and the Council of the EU. Once adopted, the Directive will have to be transposed into national legislation by all EU Member States within one year after its entry in force. While the mixed reactions to its publication mean that the path to adoption may not be a clear as the Commission would hope, the fact that the majority of the political groups appear to believe that some sort of reporting measure is necessary suggests that the Commission will still manage to put these timely plans into action in the coming years.

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