Five years after the European Commission first proposed its framework on public country-by-country reporting (pCBCR) to oblige large multinational companies to publicly disclose where they make their profits and where they pay their taxes, the EU’s co-legislators reached a final agreement on Tuesday evening (1 June). The transparency requirement is set to enter into force in early 2023.
After having been blocked by several countries in the Council since 2016, the current Portuguese Presidency of the Council of the EU, in a surprise move, announced that it would move the file forward after it had managed to reach a compromise agreement among the 27 Member States. It is estimated that pCBCR would cover some 80% of corporate profits shifted between EU Member States, primarily to low-tax countries, annually.
Under the now agreed pCBCR deal, large multinational firms with an annual global revenue of at least €750 million per year in two consecutive years, as well as their subsidiaries, will have to publish all relevant tax-related details in a harmonised and easily readable format on their websites. The measure is to ensure full transparency for tax authorities, investors, and civil society.
According to the Socialist and Democrats in the European Parliament, under the agreement, companies are obliged to publish how many full-time employees they have, their turnover and respective taxes paid, as well as all profits and losses they have in each country they operate in. Crucially, the latter applies to all countries, whether inside the European Union and in so-called tax havens in a bid to clamp down on companies funnelling profits through shell companies.
Meanwhile, while companies don’t have to publicly provide detailed figures for their operations outside the EU, they must do so for any operations within a country or territory currently on the EU’s grey- and blacklists for non-cooperative jurisdictions for tax purposes – commonly known as the EU’s list of tax havens.
In a compromise with Member States, Parliamentary negotiators agreed that companies may, however, be able to postpone the publication of sensitive tax information for up to five years if their publication could harm their competitiveness. This so-called “safeguard clause” had been a red line for many governments concerned that too much public financial information could undermine European companies’ positions when compared to their Chinese or US counterparts.
Under the economic strain induced on national budgets as a result of the COVID-19 pandemic over the last year, EU capitals were increasingly faced with public pressure to ensure that large multinational companies would contribute their fair tax share to help lead the post-pandemic recovery. According to the Tax Justice Network, EU Member States are responsible for 36% of global tax losses, at a cost to countries worldwide of over $154 billion in lost tax revenue annually.