This article was written by Ken Almand, Partner, Head of Transfer Pricing, RSM UK
Last month the European Parliament’s Committee on Economic and Monetary Affairs put forward plans to shine a light on tax transparency affecting a swathe of middle sized businesses. If the plan becomes law it is likely to receive cheers from those seeking greater corporate transparency and groans from companies facing new compliance obligations and reputational risk.
So what is this all about? In April 2016 the EU Commission proposed the “EU Accounting Directive”. This was aimed at imposing stricter country-by-country reporting requirements for multinational enterprises operating in the EU with consolidated annual turnover exceeding €750m. If implemented, the Directive would require multinational enterprises over this threshold to publish detailed information including a breakdown of profits, taxes, number of employees and net turnover on a yearly basis, in every EU Member State in which they operate.
The Committee has now published suggested amendments to the Directive, which would considerably lower the reporting threshold for multinational enterprises from a turnover threshold of €750m to €40m.
The plan seems to have gone largely under the radar so far, but this shift could have a significant impact on EU businesses, signalling that the EU wants to create a level playing field for the largest multinationals and middle sized businesses alike.
The proposed Directive would impact:
- EU headquartered large groups, exceeding any two of €40 million consolidated net turnover, €20 million gross balance sheet and 250 employees. These must file a country-by-country report;
- EU subsidiaries controlled by a non-EU headquartered parent, with a consolidated net turnover exceeding €40 million. These must also file a country-by-country report;
Consequently Multinational enterprises would need to provide the above information on their worldwide activities, not just for EU member states.
The EU views this Directive as a cost effective way of increasing global tax transparency, as well as a means to hold governments and multinational enterprises to account.
It appears for now that the EU’s approach to tackling international tax evasion and tax avoidance continues to get tougher. However, there is uncertainty whether these amendments will ever make it into law. The impact is likely to mean that firms will face new compliance burdens and a greater risk of challenge by tax authorities. In turn this will place a greater demand on tax authorities, many of whom lack the specialist staff needed to interpret the data. There are many unanswered questions but it is clear that businesses of all sizes need to begin integrating country by country reporting into their day to day processes.