|
|
Earlier this month, member states’ ambassadors tasked the Portuguese EU presidency with negotiating the swift adoption of the country-by-country reporting (CBCR) directive.
Businesses are, of course, in favour of transparency and the European Commission’s objective to combat tax fraud and evasion but a decision to make tax information publicly available would provide competitors from third countries with financial information, in particular margin and profitability levels, which could damage the competitive position of EU businesses.
It also creates the risk of reputational damage due to misguided interpretation and double taxation if third countries impose adjustments on EU companies on the basis of reactions in the media.
Even though revenue losses from aggressive corporate profit shifting amounted to only 0.4% of world GDP according to the OECD, countries have enacted very comprehensive anti-abuse measures. These include country-by-country reporting between tax authorities while protecting sensitive business information.
Tax authorities must have the necessary information and they must have access to not only country-by-country reports, but also the Master file and Local file of each multinational corporation so that they are in a position to assess tax liabilities correctly.
Country-by-country reports by themselves do not give such information; rather, they provide competitors with vital market information.
Under the OECD Base Erosion and Profit Shifting (BEPS) agreement, European governments have committed their tax authorities to exchanging information so that multinationals pay taxes in the country in which they create value and profits. To now make part of that information publicly available is an outright breach of the agreement.
The Commission’s proposal is a sign of mistrust and it undermines the role of tax authorities, who have the expertise and, supported by the OECD agreement, the information to properly enforce tax rules.
It is important not to give the impression that tax authorities cannot be trusted and that therefore information should be made public despite the commitment within the OECD not to do so.
An EU unilateral decision to publicise these data will in fact undermine the incentives for third countries like the United States, China, Japan, India and Brazil to exchange information within the global OECD system since they would have access to EU companies’ data without having to reciprocate, compromising the level playing field.
Tax decisions are a national competence in the EU and a directive requires unanimity. However, this tax proposal was presented by the Commission as an Accounting Directive, only requiring qualified majority. The Legal Services of the Council believes that the issue should not be decided by qualified majority voting, but by unanimity since it is a taxation matter.
In these challenging times for businesses preoccupied by the COVID-19 disruptions, and given global trade tensions, it is inappropriate and damaging to further erode the competitiveness of European companies.
Even more worryingly, should the Council agree to take forward the directive, with the co-legislator, the European Parliament pushing the view that the threshold for public reporting should be lowered from the OECD level of €750 million to a mere €40 million, even more EU companies would face a competitive disadvantage.
Governments should not discredit their own tax authorities and should adhere to signed agreements. Public country-by-country reporting would not solve the problem of misallocation of corporate tax revenues, whereas proper work by tax authorities and exchanges of information between them will.
A unilateral measure risks the competitiveness of European businesses and could trigger a negative response from trading partners.