International Business Advisor: EU Committees Clear Public CbC Reporting With an Exception

The Economics and Legal Affairs Committees of the European Parliament voted to make large multinational entities (MNEs) publicly report their activities, structures and tax payments on a country-by-country (CbC) basis. The draft report was approved 38-9, with 36 abstentions.

The result, if approved by the Parliament, would require MNEs to publicly disclose how much tax they pay, and where, including outside the European Union (EU). The measures would cover companies with an annual worldwide net turnover of €750 million or more. Members of the Parliament (MEPs) rejected the European Commission’s proposal to exclude non-EU jurisdictions from the legislation.

A Closer Look

The draft report reads:

The report on income tax information shall be published in a common template available in an open data format and made accessible to the public on the website of the undertaking on the date of its publication in at least one of the official languages of the Union. On the date of publication of the report on income tax information, the undertaking shall also file the report in a public registry managed by the Commission.

The tax report is to include:

  • A brief description of the nature of the corporation’s activities
  • Number of employees
  • Total net turnover, which includes the turnover made with related parties
  • Profit or loss before income tax
  • Current-year income tax accrued (the current tax expense recognized on taxable profits or losses of the financial year by undertakings and branches residing for tax purposes in the relevant tax jurisdiction)
  • Income tax paid (the amount of income tax paid during the relevant financial year by undertakings and branches residing for tax purposes in the relevant tax jurisdiction), and
  • Accumulated earnings

Commercially Sensitive Exception

An amendment was passed that would let EU members grant exclusions for multinationals that would allow them to avoid disclosing certain items of information.

In part, the amendment says:

In order to protect commercially sensitive information and to ensure fair competition, Member states may allow, that one or more specific information listed in […] this directive, be temporarily omitted as regards activities in one or more specific tax jurisdictions when its nature is such that it would be seriously prejudicial to the commercial position of the undertakings […] to which it relates. The omission shall not prevent a fair and balanced understanding of the tax position of the undertaking.

Next Steps

It’s understood that MEPs didn’t get the two-thirds majority required to be able to begin negotiations with EU members and the European Commission to implement the draft report. The draft report will now be sent to the European Parliament plenary for final consideration.