In a move to enhance corporate tax transparency, Economic and Financial Affairs ministers in the European Union have agreed to the automatic exchange of tax-related financial information of multinational companies, also known as country-by-country reporting.
The new rules, which are part of the Anti-Tax Avoidance Package adopted by the European Commission on Jan. 28, will apply to multinational companies that operate cross-border in the EU.
Multinational companies will have to provide certain tax-related information on an annual basis for each tax jurisdiction in which they do business. This information includes the amount of revenue, the profit or loss before income tax, the income tax paid and accrued, the number of employees, the stated capital, the retained earnings and the tangible assets of the group.
The parent company will provide this information to the tax authorities of its country of establishment in Europe. In addition, member states will have to share the information with the other member states.
The proposal is still subject to U.K. parliamentary scrutiny. Final adoption by the Council is expected in May. Once adopted, member states have 12 months to transpose the new rules into national law after its entry into force, which is expected this spring.
Pierre Moscovici, commissioner for Economic and Financial Affairs, Taxation and Customs, said, “I very much welcome today’s agreement as another major step forward towards enhancing transparency on tax matters. The automatic exchange of information on country-by-country reports will provide national authorities with the necessary insight to combat aggressive tax planning structures. After the agreement reached October last year on tax rulings, this is another important signal that the EU is ready to deliver on our common goal of fair and effective taxation.”
Tax rulings are assurances a tax authority gives to a taxpayer about how certain aspects of taxation will be dealt with in a particular case. Last year the European Commission targeted tax rulings, alleging that in some cases companies had received unlawful state aid in the form of tax relief.
In December 2015 the EU member states agreed to exchange information on cross-border tax rulings automatically by submitting it to a central directory.
The European Commission said it aims to combat tax avoidance and aggressive tax planning by imposing greater transparency requirements on multinational groups and by obliging more information-sharing among member states.
The country-by-country rules reflect the current global political and economic approach to corporate taxation, the European Commission said, and will add to the implementation of OECD guidelines on Base Erosion and Profit Shifting (BEPS).