Commission considers country-by-country corporate reporting

The European Commission is considering the introduction of country-by-country reporting for companies operating in the European Union, as part of its latest attempt to tackle corporate tax avoidance.

A commission spokeswoman confirmed on Monday that an impact assessment exercise on the proposal was underway and would be completed by the end of the first quarter. The idea for a mandatory requirement for country-by-country reporting has long been mulled by the European Commission and is believed to have the support of EU economics commissioner Pierre Moscovici.

Such rules already exist for the banking and extractive industries, but the commission is keen to expand the practice to multinationals. The commission’s legal experts are currently examining the proposal, which is likely to require unanimous agreement from all EU member states. Commissioner Moscovici said last month that the commission would come forward with a “pragmatic response” to the issue this spring, and would consider whether the EU “needs to go further in terms of disclosure or not,” and whether “further transparency undermine competitiveness.”

The requirement on companies to break down their results by geographic location- which is widely believed to be targeting large multinationals with cross-border activity such as Google and Facebook – is likely to be resisted by some companies on the grounds of confidentiality.

Speaking in Brussels yesterday, a European Commission spokeswoman said a public consultation on the matter had been undertaken to look into the matter.

“Our aim with both the public consultation and the impact assessment is to find out whether requiring companies to disclose information about the taxes they pay could help tackle tax evasion and aggressive tax practices in the EU,” she said, adding that an analysis of different policy options was currently underway.

Similar rules on country-by-country reporting proved controversial at OECD level during discussions on the Base Erosion and Profit Shifting (BEPS) rules, with many countries opposed to public disclosure.

EU finance ministers meeting later this week in Brussels are due to give their first verdict on the European Commission’s anti-tax avoidance package launched ten days ago.

Among the main proposals in the package is a Controlled Foreign Companies rule which aims to stop companies shifting profits to lower-tax jurisdictions in order to reduce their tax bill.

The proposed directives – which would be legally-binding on member states if endorsed – also include measures to limit the amount of interest repayments on loans companies can claim – an attempt to stop the practice whereby companies set up a subsidiary which provides a loan back to the parent company, so that the company can take advantage of tax-deductible interest payments.

The proposal will also oblige countries to tax dividends coming into the EU which have not already been properly taxed.

In addition, a new general anti-abuse rule will give EU states the power to tackle artificial tax arrangements if other specific rules don’t cover it.

The issue of multinational tax avoidance has returned to the spotlight in recent weeks following Google’s £130 million tax settlement with the British tax authorities, a settlement which many denounced as derisory.