As part of its ongoing effort to fight corporate tax avoidance, the European Commission recently launched a public consultation on corporate tax transparency in the EU. The consultation, which began June 17 and runs until September 9, aims to find out if requiring companies to disclose additional information about the taxes they pay could help the EU to tackle tax avoidance and aggressive tax planning. In particular, it will examine whether companies should be required to disclose the taxes they pay in every country in which they operate. The consultation is part of the Commission’s broader Action Plan on a Fairer Corporate Tax System, which was also launched on June 17 and is intended to fundamentally reform corporate taxation in the EU.

Fairer tax system

The issue of corporate tax avoidance in Europe has come into the spotlight in recent months largely because of the aggressive tax practices of some companies, which generate large profits in the Single Market, but pay little or no tax in the EU. An environment of complex and mismatched national tax rules, harmful tax competition, legal loopholes and lack of cooperation between Member States has allowed tax avoidance to thrive in the EU. The Action Plan is part of the Commission’s response to the current situation. It aims to create a fairer tax environment through a series of initiatives to tackle tax avoidance, secure sustainable revenues and strengthen the single market for business.

A major focus of the Commission’s consultation is on transparency measures that are currently being developed at international level. Under the aegis of the G20, the OECD initiative on Base Erosion and Profit Shifting (BEPS) includes measures to ensure that large multinational companies report to their administration the taxes they pay on a country-by-country basis. This information should be freely exchanged among tax authorities. The OECD consensus is that this information should be available only to the tax authorities and not the public. This is seen as necessary in order to ensure that all countries adhere to this initiative and to create a level playing field.

The EU’s role

With this consultation, the Commission is seeking views on whether the transparency measures supported by the G20 will be sufficient. Increased transparency, when it comes to corporate taxes, could help fight tax avoidance. Requiring companies to disclose more information about their tax affairs could help shed light on harmful tax practices and prompt corporations to ensure they pay their fair share of tax in the country where their profits are made. Greater transparency may also encourage Member States to take measures that contribute to more effective and fairer tax competition.

The consultation is looking for in-depth information on, amongst other issues: benefits; costs; impacts on competitiveness for EU companies and necessary safeguards in terms of, for example, data protection; protection of business secrets.  It will feed into the impact assessment work that will be concluded in the first quarter of 2016.  

Read more on country-by-country reporting