15 July 2015
Global Tax Alert
News from EU Tax Services
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European Parliament calls
for expansion of country-bycountry reporting to large
groups, self-publication of data
by multinational companies
and suggests an additional
range of new tax measures
Executive summary
On 8 July 2015 the European Parliament (EP) adopted changes to the European
Commission’s legislative proposal, introducing a series of amendments in the form
of a directive (the amending directive). The amending directive, if approved by the
European Council, would amend other European Union (EU) directives already in
existence, relating to the areas of shareholder engagement, corporate governance
and tax transparency. In addition, and on the same date, the EP also adopted a
resolution containing a range of additional tax recommendations that it hopes will
be considered by the European Commission in due course.
Under the amending directive,1 a key development would be for existing country-bycountry reporting (CBCR) requirements under Directive 2013/34/EU (the Accounting
Directive) to be extended to all multinational companies, with companies required to
self-publish a range of information within their financial statements (where possible). In
addition, the amending directive proposes changes to EU Directive 2004/109/EC (the
Transparency Directive), requiring securities issuers to also provide a form of CBCR.
Previously, the Accounting Directive
included an obligation for large
extractive and logging companies to
report the payments they make to
governments, while Article 89 of EU
Directive 2013/36/EU (also known
as CRD IV) required qualifying
financial institutions to provide
country-by-country reporting of
taxes paid and other financial data.
The amended directive effectively
extends the CBCR requirements
of the Accounting Directive to all
”large undertakings” (undertakings
that on their balance sheet dates
exceed at least two of the three
following criteria: (a) balance sheet
total of €20 million; (b) net turnover
of €40 million; (c) average number
of employees during the financial
year of 250 or more).
The overall scope of the CBCR
requirements in the Accounting
Directive would also be slightly
expanded, requiring reporting
companies to value their assets
and the annual cost of maintaining
them, as well as to provide data
on sales and purchases, though
neither of these sets of variables are
defined in the amending directive.
Another key development is the
suggestion for changes to be
made to both Directive 2013/34/EU
(the Accounting Directive) and
Directive 2004/109/EC
(Transparency Directive) introducing
public disclosure of tax rulings, also
organized on a country-by-country
basis, covering both Member
States and third countries. This
obligation would be imposed on
large undertakings, public-interest
entities and security issuers.
The report would be audited in
compliance with EU auditing rules.
2
While the adoption of the amending
directive by the EP marks a nonbinding stage of the ordinary
legislative procedure of the European
Union, known as first reading in the
Parliament, the amendments will
now be discussed by the Council of
the European Union (the Council)
On the same date, the European
Parliament by a significant majority
also adopted the resolution2 titled
Tax avoidance and tax evasion as
challenges in developing countries.
The resolution, which can be
viewed as a series of requests and
recommendations from the EP to
the European Commission, sets
out a broad number of suggestions
in the tax area, including – among
other issues – calling upon the
Organisation for Economic
Co-operation and Development
(OECD) to recommend that once
completed its proposed CBCR
template will also be made public;
asking the European Commission
to establish, by the end of 2015,
an internationally agreed definition
of tax havens, as well as penalties
for operators making use of them
and of a blacklist of countries,
including those in the EU, that do
not combat tax evasion or that
accept it. The EP also calls upon
the EU to support the economic
reconversion of those developing
countries that serve as tax havens.
In addition, the resolution makes a
number of references to the work of
the United Nations (UN) in the area
of taxation, including urging the
EU and Member States to ensure
that the UN taxation committee
is transformed into a ”genuine
intergovernmental body.”
Global Tax Alert EU Tax Services
It should be noted, however, that the
EP resolution also referred to some
of the issues adopted by the EP in
the amending directive, indicating
that the debate on tax issues at the
European level is moving at such
a fast pace that coordination is
proving to be a challenge, even at
the level of documentation of the
current discussions.
Detailed discussion
Amending directive
The amending directive put forth by
the European Commission originally
suggested changes to two EU
Directives: Directive 2007/36/EC
as regards the encouragement of
long-term shareholder engagement
(the Shareholder Directive) and
Directive 2013/34/EU (the
Accounting Directive) as regards
certain elements of the corporate
governance statement. The EP
proposes additional changes
to Directive 2004/109/EC (the
Transparency Directive), requiring
issuers of securities that are
trading on a regulated market
to provide similar (yet slightly
less broad) CBCR information.
During the next stage the Council
(representatives of the EU Member
States’ governments) will review
the proposed amendments. Should
the Council accept the amending
directive (qualified majority and not
unanimity required), the three EU
directives will then be amended,
with Member States required to
transpose the changes into national
law according to a timetable set out
by the European Commission.
The amending directive suggests
the following changes:
• In the Shareholder Directive, an
obligation for the announcement of
material related party transactions
of companies, accompanied
by a report assessing whether
such transactions have been
executed on market terms, as
well as an obligation that related
party transactions are approved
by the shareholders or by the
administrative or supervisory
body of the companies.
• In the Accounting Directive, an
obligation for large undertakings
and public-interest entities3
operating in any industry to
report in the notes to the financial
statements country-by-country
reporting information on a
consolidated basis including:
turnover; number of employees;
value of assets and annual cost
of maintaining those assets;
sales and purchases; profit or
loss before tax; tax on profit or
loss; public subsidies received.
Parent companies will be obliged
to provide a list of subsidiaries
operating in each country.
• In the Accounting Directive, an
obligation for large undertakings
operating in any industry to
publically disclose information
regarding tax rulings, providing
a break-down by country (for
both Member States and third
countries) where the undertaking
has subsidiaries. The Commission
shall be empowered to set out,
by means of a delegated act
in accordance with Article 49,
the format and content of
publication. For the purposes
of the Directive, a tax ruling is
defined as advance interpretation
or application of a legal provision
for a cross-border situation or
transaction of a company which
may lead to a loss of tax in a
Member State or tax savings
for the company resulting from
artificial intra-group transfers of
profits. The information provided
on tax rulings is to be audited in
compliance with EU law auditing
rules under Directive 2006/43/EC
on statutory audits of annual
accounts and consolidated
accounts. It should be noted
that the definition of ruling
given in the amending directive
is inconsistent with the one
suggested to be incorporated
in Directive 2011/16/EU on
Administrative Cooperation in
the Field of Taxation under the
recent Commission’s proposal for
a respective amending directive
as part of the package of tax
transparency announced on
18 March, 2015. In essence,
two new definitions of ruling are
now under consideration in two
different Directives, with those
definitions different from one
another.
• In the Transparency Directive,
an obligation for security issuers
(i.e., a legal entity governed by
private or public law, including
a State, whose securities are
admitted to trading on a regulated
market, the issuer being, in
the case of depository receipts
representing securities, the issuer
of the securities represented) to
publically disclose each year on
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a country-by-country basis the
following information: turnover;
number of employees; profit or
loss before tax; tax on profit or
loss; public subsidies received.
This information shall be audited
in compliance with EU law auditing
rules under Directive 2006/43/
EC and shall be published where
possible as an annex to the
annual financial statements or
consolidated financial statements
of the issuer.
• In the Transparency Directive, an
obligation for security issuers to
publically disclose information
regarding tax rulings, providing
a break-down by country of
where the undertaking has
subsidiaries. This information
also will be required to be audited
and published in annual or
consolidated financial statements.
It is furthermore suggested that
Member States implement any
amended directive resulting from
this process within 18 months of its
entry into force.
European Parliament resolution:
Tax avoidance and tax evasion as
challenges in developing countries
The resolution adopted by the EP
on the same day reflects a growing
focus on both tax avoidance and
evasion as a topic, and its impacts
on lesser developed countries
specifically. In this regard, the
EP set out a broad number of
suggestions that it hopes the
European Commission will take
into account when developing its
tax agenda. The recommendations
include, among others, calling for:
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• The European Commission
to promptly put forward an
ambitious action plan, in the form
of a communication, to support
developing countries fighting
tax evasion and tax avoidance.
The EP believe the action plan
would help the countries set
up fair, well-balanced, efficient
and transparent tax systems,
taking into account the work
undertaken by the Development
Assistance Committee of the
OECD in advance of the Financing
for Development Conference in
Addis Ababa, Ethiopia, to be held
on 13-16 July 2015. In addition,
the impact of international tax
treaties on taking appropriate
measures at national, EU and
international level against these
practices should be a top priority
for the EU and its Member States,
taking into account the needs
and constraints that developing
countries face in gaining access
to their tax revenues. The EP
also considers that the EU
should be taking a leading role
in driving international efforts
to combat tax havens, tax fraud
and evasion, leading by example,
and that it should cooperate
with developing countries in
counteracting aggressive tax
avoidance practices by certain
transnational companies, as well
as in seeking ways to help them
withstand pressures to engage
in tax competition.
• The EU and its Member States to
enforce the principle that both
listed and unlisted multinational
companies of all countries and
sectors, and especially those
4
companies extracting natural
resources, must adopt countryby-country reporting (CBCR) as
a standard, requiring them to
publish, as part of their annual
reporting and on a country-bycountry basis for each territory
in which they operate the names
of all subsidiaries and their
respective financial performance,
relevant tax information, assets
and number of employees, and
to ensure that this information
is made publicly available. It
should be noted on this point
that the wording of the resolution
is unclear as to whether the
subsidiary information should
be published on a consolidated
(country) basis or by entity (their
respective financial performance).
• The European Commission to put
forward a legislative proposal to
amend the Accounting Directive
accordingly (as noted in the
section above).
• The OECD to recommend that its
proposed CBCR template should
be made public by all multinational
corporations (MNCs).
• The fiscal conditions and
regulations under which extractive
industries operate to be revised;
the EU to increase its assistance to
developing countries in support of
the aim of taxing adequately the
extraction of natural resources,
strengthening the bargaining
position of host governments.
• Automatic exchange of
information to not necessarily be
reciprocal, as those countries that
do not have the resources and
capacity to set up the necessary
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infrastructure to collect, manage
and share the required information
may effectively be excluded;
considers, moreover, that a single
standard on confidentiality should
be envisaged.
• The establishment, by the end
of 2015, of an internationally
agreed definition of tax havens,
of penalties for operators making
use of them and of a blacklist of
countries, including those in the
EU, that do not combat tax evasion
or that accept it. It also calls on
the EU to support the economic
reconversion of those developing
countries that serve as tax havens
and asks those Member States
with dependencies and territories
that are not part of the Union to
work with the administrations
of these areas towards the
adoption of the principles of tax
transparency and to ensure that
none serve as tax havens.
• The European Union and its
Member States to ensure
that, when negotiating tax
and investment treaties with
developing countries, income
or profits resulting from crossborder activities should be taxed
in the source country where
value is extracted or created. It
stresses, in this regard, that the
UN Model Tax Convention ensures
a fair distribution of taxing rights
between source and residence
countries.
• The EU and the Member States
to ensure that the UN taxation
committee is transformed into
a genuine intergovernmental
body, better equipped and with
sufficient additional resources,
inside the framework of the UN
Economic and Social Council,
ensuring that all countries can
participate on an equal footing
in the formulation and reform of
global tax policies.
• Companies to be required to make
precise commitments in terms
of the positive spillover effect of
their investments on the local
and/or national socio-economic
development of the host country.
• Calls on the European Investment
Bank and the European
Bank for Reconstruction and
Development, and on Member
States’ development finance
institutions, to monitor and
ensure that companies or other
legal entities that receive support
do not participate in tax evasion
and avoidance by interacting
with financial intermediaries
established in offshore centers
and tax havens.
Implications
The dual proposals to extend
existing CBCR requirements
to all multinational companies
and to securities issuers under
Directives 2013/34/EU (Accounting
Directive) and 2004/109/EC
(Transparency Directive) are a
significant development in the
tax transparency debate, and
represent a growing demand by
many countries for this information
to be made public. While it is not
clear whether any Member States
will voice their objection to the
proposals at the next meeting of
the Council of the European Union,
groups with European operations
should continue to monitor
developments closely.
In addition, the wide spectrum of
recommendations set out in the EP
resolution demonstrates that strong
political volatility continues to
play out around the topic of taxes.
The calls for further engagement
with developing countries on tax
matters, coupled with calls for
further engagement with the United
Nations demonstrate that many
underlying tax concepts related to
base erosion and profit shifting will
likely continue to play out long after
the OECD’s BEPS recommendations
are issued later this year.
Endnotes
1. http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P8-TA-2015-0257+0+DOC+PDF+V0//EN.
2. http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P8-TA-2015-0265+0+DOC+PDF+V0//EN.
3. Public-interest entities‧ means undertakings within the scope of Article 1 which are:
(a)Governed by the law of a Member State and whose transferable securities are admitted to trading on a regulated
market of any Member State as defined by EU law
(b) Credit institutions as defined by EU law
(c) Insurance undertakings as defined by EU law
(d)Designated by Member States as public-interest entities, for instance undertakings that are of significant public
relevance because of the nature of their business, their size or the number of their employees
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5
For additional information with respect to this Alert, please contact the following:
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
• Dr. Klaus von Brocke
+49 89 14331 12287
[email protected]
• Stefan Mueller
+49 89 14331 16635
[email protected]
6
Ernst & Young Belastingadviseurs LLP, Amsterdam
• Dr. Daniel Smit
+31 88 407 84 99
[email protected]
Ernst & Young, LLP (United Kingdom), London
• Mathew Mealey
+44 20 7951 0739
• Chris Sanger
+44 20 7951 0150
• David Evans
+44 20 7951 4246
[email protected]
[email protected]
[email protected]
Ernst & Young LLP, Washington, DC
• Rob Thomas
+1 202 327 6053
[email protected]
Ernst & Young LLP, New York
• Joana Dermendjieva
+1 212 773 3106
[email protected]
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