The EU Parliament will open an inquiry, Taxe 3, into financial crime, tax evasion and tax avoidance as a follow-up to the unfinished work released from the Paradise Papers. A special committee of 45 MEPs will spend a year on this project, with a primary focus on VAT fraud via offshore tax havens.
This development continues the trend to identify potential abuses, albeit via legal sovereign laws and/or intentional illegal tax evasion.
Thus, the reputational risk of all multinationals is still at the forefront of today’s news. This development should be monitored for transparency and spill-over effects.
The EU Economic and Financial Affairs Council (ECOFIN) has drafted a directive, subject to European Parliament’s opinion, for EU consistency of country-by-country (CbC) reporting.
The proposed EU legal instrument provides for:
- 2016 CbC reporting to the Member State where it is resident
- Optional provision for non-EU parent companies; 2016 reporting is optional via its EU subsidiaries and such “secondary reporting” will be mandatory for the 2017 tax year.
- Automatic exchange of CbC reports between EU Member States
This surprising draft directive will alleviate some concerns by US headquartered MNE’s (as 2016 CbC reports will probably not be required), although only within the EU. To the extent non-EU Member States have CbC reporting obligations for the 2016 tax year, a Surrogate Entity or local filing may still be required for US MNE’s.
The EU is still recognized as a leader in pushing forward BEPS Action items, and this directive would provide much-needed consistency among Member States for CbC reporting. This development is important to monitor going forward, as well as observing other non-EU countries for a follow-the-leader approach.
The EU Parliament’s resolutions were passed by a vote of 508 to 108, with 85 abstentions. The proposals call for mandatory country-by-country (CbC) reporting, a common consolidated corporate tax base (CCCTB), defined tax terms and transparency / exchange of tax rulings. A summary press release and the full report are provided for reference:
- Welcomes the EU Parent-Subsidiary Directive amendments, effective at year-end 2015, for a general anti-abuse rule and hybrid mismatches.
- EU Commission has breached its obligations under Article 108 of the Lisbon Treaty by not launching state aid investigations previously.
- EU Member States should respect the principle of profits taxation where they are generated.
- Promote good practices on transfer pricing and the pricing of loans and finance fees in intra-group transactions.
- Commission to further investigate restrictions of deductions for intercompany royalty payments (i.e. counter profit shifting).
- All rulings that have an impact on other Member States to be presented in the CbC report, and shared with the Commission and tax administrations. Rulings to be publicly disclosed in accordance with confidentiality requirements.
- Mandatory CCCTB, with a deadline for the consolidation element and without any further impact assessments.
- Develop measures to tackle cross-border VAT fraud.
- Reform of the Code of Conduct on business taxation.
- New State Aid guidelines by mid-2017.
- EU to be a global leader in tax transparency.
- More extensive CbC report, with intra-group transactions.
- Accelerate European Tax Identification Number project.
- Aggressive tax planning is incompatible with Corporate Social Responsibility (CSR).
- Outgoing financial flows from EU are taxed at least once (i.e. withholding tax).
- Transition period for developing countries to align with Global Standard on Automatic Information Exchange.
This report is compelling, far-reaching and a resource that will be used worldwide, as most non-EU countries will attempt to follow the ever-increasing EU intensity and propensity for changes in the international tax arena. Thereby, it is a must read and a learning tool for non-tax executives in multinational organisations, as well as tax advisors, tax administrations and other interested parties.
The European Parliament, following its recent push for public disclosure (03 June 2015 post), passed a non-binding resolution by 550 votes to 57 to make this happen.
A copy of the press release is provided for reference:
- Country-by-country tax reporting (CbCR) should be publicly disclosed to fight tax evasion and avoidance.
- Perceived benefits of public disclosures include better tax justice and an end to tax havens.
- All countries should adopt CbCR.
- Company ownership should be in the public domain.
- EU institutions should monitor actions by the Member States to determine ongoing funding decisions.
The EU continues to be a proactive force in introducing public disclosure changes, which will be a spark for all other countries to follow. Accordingly, monitoring such activities will be a key to understanding future trends and disclosures that can be planned for currently.