EU Commission Consultation on Further Corporate Tax
Transparency
The Law Society's response
09 September 2015
© 2015 The Law Society. All rights reserved.
Introduction
1. This response has been prepared by the Tax Committee and EU Committee of
The Law Society of England and Wales (“the Society”). The Society is the
professional body for the solicitors profession in England and Wales,
representing over 160,000 registered legal practitioners. The Society represents
the profession to parliament, government and regulatory bodies and has a public
interest in the reform of the law.
2. The Law Society welcomes this opportunity to respond to EU Commission
Consultation on Further Corporate Tax Transparency, released on 17 June 2015.
3. The Law Society submitted following responses:
Law Society responses to the EU public consultation on further corporate tax
transparency
1. In terms of corporate tax transparency, which of the following assertions
would you support?
a. Current tax transparency requirements in the EU are sufficient.
b. The EU should try to achieve that further transparency initiatives are taken at
international level, but it should not act alone and should leave the implementation to
the Member States.
c. The EU should implement the international initiatives (e.g. BEPS) at the same
pace and to the same extent as its global partners in order to ensure the level playing
field.
d. The EU should be in the forefront and possibly go beyond the current initiatives at
international level, for example by extending the current requirements to disclose tax
information to public to all other sectors.
e. No opinion
f. Other
Answer: c
2. A possible new EU initiative on corporate tax transparency would aim at a
spectrum of objectives.
2A) Do you agree with the following objectives? (Choices: Yes, No, No opinion)
1. To increase pressure on enterprises to geographically align taxes paid in a country
with actual profits, by enhanced scrutiny and decisions of either citizens or tax
authorities? No opinion.
2. To increase public or peer pressure on countries to take measures that contribute
to more efficient and fairer tax competition between Member States, thus ensuring
that the country where profits are generated is also the country of taxation
("enterprises should pay tax where they actually make profit")? No
3. To assist tax authorities in orienting their tax audits in view of targeting tax evasion
or tax avoidance, i.e. business decisions whereby tax liabilities are circumvented
("Member States should stop harmful tax competition")? No opinion
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4. To align corporate tax planning practices with multinational enterprises' own
commitment / statement to corporate responsibility, such as their contribution to local
and social development ("enterprises should act as they communicate in terms of
contribution to welfare through taxation")? No opinion
5. To ensure that enterprise structures and investments are more founded on
economic motivations and not exclusively on corporate tax-related motivations
("enterprises should structure their investments based on real economic reasons, not
just to avoid taxes)? Yes
6. To remedy market distortions based on corporate intransparency and multinational
companies' comparative advantage over SMEs when engaging in aggressive tax
planning ("fairer competition between multinational enterprises and SMEs)? No
opinion
2B) Would you add other objectives, and if so, which ones? Please explain
briefly.
No.
3. The following options have been identified by the Commission services.
Transparency towards tax authorities: Option A: No EU Action, Option B:
Implementation of BEPS at EU level.
Transparency towards the public: Option C: Public disclosure of tax-related
information by either enterprises or tax authorities, Option D: Public disclosure of taxrelated information by either enterprises or tax authorities, Option E: Publicly
available corporate tax policies
3A) Are there other appropriate options in relation to extending corporate tax
transparency, such as reporting requirements for tax advisors? Please explain
briefly (1000 characters max).
The Law Society would not encourage extending the reporting or disclosure
requirements for tax advisors any further than the current DOTAS rules in the UK.
The resources required to implement anything more extensive on an EU scale are
unlikely to be proportionate to the results achieved, and it is also questionable as to
whether such a scheme would be feasible, as a number of concepts would be
problematic to translate on an EU basis (for example, the concept of an international
'tax advantage'). Also, client confidentiality and legal privilege need to be protected
and preserved.
3B) Please rate below how well each option would achieve the identified
primary objectives
Please use following possibilities:
+ to indicate that the option achieves the objective
0 to indicate that the option has no effect with respect to the objective
- to indicate that the option runs counter to the objective
Leave empty to indicate that you have no opinion
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Boxes are left empty
3C) In your opinion, which would be the most appropriate option(s)?
Option A: No EU action
Option B: Implementation of BEPS 13 at EU level
Option C: Publication of anonymised/aggregated data by the EU tax authorities
Option D: Public disclosure of tax-related information by enterprises
Option E: Publicly available corporate tax policies
Answer: b
4. What information should necessarily be disclosed by enterprises to the tax
authorities?
A. BEBS 13 information
B. Public subsidies received
C. Explanatory narrative information on tax related information
D. Other
E. No opinion
F. None
Answer: a
5. What EU entities should be covered?
A. Very large enterprises with revenue of EUR 750M or larger enterprises (as
recommended in the BEPS 13)
B. At least large enterprises or groups (to be defined more specifically)
C. Other
D. No opinion
Answer: a
Please specify what other EU entities should be covered (1000 characters
max):
6A) How would you assess the extent to which enterprises will need to change
their tax planning or structure as a result of being more transparent towards
tax authorities?
A. This will have no effects on enterprises' tax planning
B. This will ensure that enterprises comply with tax rules and do not use tax gaps,
mismatches and/or loopholes in tax rules in order to minimise the taxes they pay
C. Enterprises will voluntarily shift profits back to where they are generated so that
they have to pay more taxes than they did before
D. Other
E. No opinion
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Answer: d
Please specify in what other ways enterprises will need to change their tax
planning or structure as a result of being more transparent towards the
authorities (1000 characters max):
In the Law Society's experience, clients who are well advised seek to comply with the
law. Therefore, it is considered that additional tax transparency rules will not impact
upon the behaviour of large enterprises to the extent that there are existing rules as
to harmful tax practices, such as those preventing deliberate tax mismatches.
6B) Please explain which mechanism would incentivise enterprises to change:
7. What consequences would further tax transparency towards tax authorities
have in
terms of public finance?
8. Can you provide an estimation of any additional costs and resources that
will be incurred by enterprises in preparing a consolidated CBCR in
accordance with BEPS 13? Please explain, with details of what information is
not currently available and if possible with figures:
9. What consequence would tax transparency towards tax authorities have in
terms of fostering a growth friendly environment and the attractiveness of the
EU as a place to invest?
A. Constitute a feature of a growth friendly environment and foster the attractiveness
of the EU as a place to invest.
B. No consequence.
C. Hamper the fostering of a growth friendly environment and negatively impact the
attractiveness of the EU as a place to invest.
D. No opinion.
Answer: d
Please explain briefly your answer on the consequence tax transparency
towards tax authorities would have in terms of fostering a growth friendly
environment and the attractiveness of the EU as a place to invest:
The Law Society is not convinced that improved tax transparency towards tax
authorities and the fostering of growth and attractiveness of the EU as a place to
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invest are linked in any meaningful way. As such, the Law Society finds it difficult to
comment on this question.
However, steps that work towards improving the relations between enterprises and
tax authorities will be beneficial to the EU economy where they help to create
certainty and trust on both sides.
10. How would you describe the potential benefits / disadvantages of a public
disclosure of information by enterprises as compared to disclosure towards
tax authorities only?
Please explain briefly (1000 characters max):
The Law Society does not support public disclosure of tax information. It can be
questioned whether all interested sectors of the general public have sufficient
technical tax expertise to correctly analyse the information. It is likely that the
disclosures are misrepresented and misinterpreted by the public, and public opinion
is likely to influence tax decisions. This may undermine the rule of law. The pressure
that tax authorities are able to exercise should be sufficient to achieve the objectives
of tax disclosure.
It is also questionable that there would be a sufficient level of public interest and
engagement over a longer term. If interest and engagement levels are low, this would
undermine the effectiveness of the measures.
Finally, public disclosure carries the risk of a breach of commercial confidentiality,
which will affect the global competitiveness of those enterprises subject to the rules.
We would consider such outcomes to be undesirable and harmful to the EU
economy.
11. What information would it be absolutely necessary to include in a publicly
available CBCR (option D)?
12. In the case of tax authorities publishing aggregated/anonymised
information based on returns filed by enterprises with them (OPTION C), what
information should be provided by those authorities (on a country-by-country
basis)?
13. Would you or your organisation have an interest in receiving further
corporate tax-related information (detailed or aggregated)?
No opinion.
If so, why and what would you do with that information?
14. What entities should be covered?
-
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15. What operations should be covered?
16. Considering that the EU may have stricter rules on tax transparency
towards the public than other countries, is there a risk of placing enterprises
established/listed in the EU at a competitive disadvantage vis-à-vis non-EU
multinational companies operating in the EU?
Yes, No, No opinion
Answer: Yes
What would be the scale and consequences of such a disadvantage (1000
characters max)?
Stricter rules on tax transparency will result in higher administrative costs to those
enterprises required to comply, and will be likely to cause also commercial
confidentiality to be put at risk. As such, competitors who are not subject to the same
reporting and disclosure requirements may be unfairly advantaged.
What could be done to mitigate the risk (1000 characters max)?
Any tax transparency requirements should apply to both those enterprises that are
established in the EEA, and to those enterprises who, although not established in the
EEA, are carrying on significant business in the EEA. As such, any unfair competitive
advantage afforded, as a result of the rules, to such enterprises should be negated.
17. Is there a risk that tax transparency towards the public could have other
unintended negative consequences on companies?
Yes, No, No opinion
Answer: Yes
Please explain briefly the risks and their consequences on companies implied
by tax transparency towards the public (1000 characters max):
The Law Society would be concerned that information that cannot be presented and
explained in a simple way may be subject to misinterpretation in the context of the
enterprise's operations by the public. As a result, tax authorities and enterprise may
be required to explain and defend tax affairs, so impacting upon the rule of law as
tax authorities and enterprises are increasingly swayed by popular public opinion,
rather than the legal foundation of tax rules.
18. Would you expect measures for enhanced public transparency on tax
information in the EU to have an impact on relations with third countries
(Developing countries, OECD members, ...)?
Please explain briefly (1000 characters max):
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The Law Society would anticipate EU measures for enhanced public transparency to
have an impact on relations with third countries. In particular, there will be
commercial consequences for those enterprises that are subject to the new
measures. Reporting and disclosure obligations will impose additional administrative
time and costs in complying with the reporting burden, and as a result there will be a
competitive disadvantage to the enterprises subject to the rules.
Additionally, difficulties are likely to be encountered when dealing with those
jurisdictions that are not OECD members, in so far as they do not fully participate in
and implement the initiatives.
19A) How would you assess the extent to which enterprises will need to
change their tax planning following further tax transparency towards the
public?
A. This will have no effects on enterprises' tax planning.
B. This will ensure that enterprises comply with tax rules and do not use tax gaps,
mismatches and/or loopholes in tax rules in order to minimise the taxes they pay
C. Enterprises will voluntarily shift profits back to where they are generated so that
they have to pay more taxes than they did before
D. Other
E. No opinion
Answer: d
Please explain briefly your answer on how you would assess the extent by
which enterprises will need to change their tax planning following further tax
transparency towards the public (1000 characters max):
In the Law Society's experience, tax planning by enterprises is driven either by
commercial considerations, or by the uncertainties and asymmetries between the
laws of different jurisdictions. The Law Society would not foresee that improvements
in tax transparency towards the public would address these problems, therefore the
Law Society finds it difficult to predict the consequences of further developments in
this regard.
19B) Please explain which mechanism would incentivise enterprises to
change?
In particular, please specify to what extent a public disclosure would have a
greater effect than a submission only to tax authorities?
20. What additional effect, if any, on public finance would tax transparency
towards the public have in addition to transparency for tax authorities only?
-
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21. What consequence would tax transparency towards the public have in
terms of fostering a growth friendly environment and the attractiveness of the
EU as a place to
invest?
22. Should the information prepared by enterprises be specifically verified by
an
independent assurance service provider (e.g. an auditor)?
23. Should there be additional safeguards in terms of specific rules for the
protection of data and business secrets?
Options: Yes, No, No opinion
Answer: Yes
If so, which safeguard are necessary in relation to which types of information?
Tax transparency rules could alter the current balance struck by EU data protection
rules. Corporate tax transparency requirements should be subordinate to data
protection requirements. This must be clear to ensure taxpayers and data subjects
understand when personal data may or may not be disclosed.
In addition, although there is a delicate balance to ensure that confidentiality isn't
used as a blanket objection to tax transparency, it is crucial that businesses are not
put at competitive disadvantage by losing trade secret/confidential information
protection. Businesses have legitimate interests in maintaining confidentiality of
certain information, to ensure it can continue to be protected by laws relating to
confidential information/trade secrets. The ability to maintain confidence is also of
key importance for businesses wishing to file for patent protection as they may lose
their right to obtain a patent if information is publicly disclosed prior to filing an
application.
24. Please estimate additional costs and resources entailed by the introduction
of
further transparency measures for enterprises compared to an implementation
of OECD BEPS Action 13 at national level and identify information which is not
currently available. You may distinguish between additional cost for public
authorities and additional costs for enterprises, based on your preferred
option(s).
Please explain, if possible with figures:
25. Would you support a mandatory description of tax management policies by
enterprises?
Options:
A. Yes, instead of any public disclosure of tax-related information
B. Yes, in addition to further public disclosure of tax-related information
C. No
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D. No opinion
Answer: d
Please explain briefly your answer on your possible support a mandatory
description of tax management policies by enterprise (1000 characters max):
The Law Society would question the extent to which mandatory descriptions of tax
management policies by enterprises would provide greater transparency.
26. Is there anything else you would like to bring to the attention of the
Commission?
The Law Society supports implementing international tax initiatives at the same pace
and to the same extent as other international measures (BEPS, FATCA, CRS). We
do not think that the EU should pursue unilateral policies in this area.
We would also question whether the results that the EU expects to achieve by such
additional measures would be realised in practice. Measures to increase tax
transparency are highly likely to result in a higher compliance burden in terms of time
and costs and putting enterprises at a competitive disadvantage. This is not to the
benefit of the EU economy.
The EU should aim to be part of an internationally holistic system, rather than
advocating separate and duplicative measures, especially where such measures go
above and beyond any imposed by other jurisdictions.
The Law Society wishes finally to emphasise that any EU harmonisation instruments
on fiscal policy should fall under Articles 114(2) and 115 TFEU, requiring unanimity in
the Council.
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