At the internal market and industry Council meeting on 25 February 2021, European Union (EU) Ministers held a policy debate in a public session on the proposed public country-by-country reporting (CbCR) directive. The directive as it was proposed by the European Commission in 2016, requires multinational companies with a total consolidated revenue of more than €750 million in each of the last two consecutive financial years to disclose publicly the income taxes paid in each Member State and other tax-related information.
Overall, the policy debate concluded with a qualified majority of Member States now supporting the proposal. Austria and Slovenia, who were against the proposal in 2019, reversed their position and expressed their support for the proposal. The proposal will move forward to the decision-making phase at EU ambassadors level, which will be followed by negotiations between the Council and Parliament.
On 12 April 2016, the European Commission proposed to amend the Accounting Directive (Directive 2013/34/EU). The proposal built on the Base Erosion and Profit Shifting (BEPS) work of the Organisation for Economic Co-operation and Development (OECD) and G20, in particular on Action 13 on CbCR. However, it went beyond the OECD/G20 BEPS standards, requiring large multinational enterprises and stand-alone undertakings operating in the EU to draw up and publicly disclose on their website income tax information, including a breakdown of profits, revenues, taxes paid and employees per country.
The Commission’s proposal was presented under Article 50(1) of the Treaty on the Functioning of the European Union (TFEU), which concerns the right of establishment and is the regular legal basis for initiatives in the area of company law, accounting and corporate financial reporting. Proposals put forward under this article are subject to qualified majority voting (QMV), not unanimity as is the case for legislation dealing with the harmonization of tax rules. Moreover, for tax legislation the European Parliament only has an advisory role, while for proposals based on Article 50(1) TFEU the Parliament has co-legislative powers together with the Council.
In 2019, during the Competitiveness Council (COMPET) meeting, no qualified majority of Member States supported public CbCR.1 Prior to the COMPET meeting, 10 Member States issued a joint statement opposing the proposal, arguing (pdf) that the introduction of this legislation would require unanimity among EU Member States as it should be considered a taxation proposal.
Portugal, who holds the Council Presidency for the first semester of 2021, issued a new compromise text (pdf) and brought up the proposal for discussion during the 25 February COMPET meeting (pdf). For the purposes of the meeting, the Portuguese Council Presidency also issued a discussion paper (pdf) to help structure the debate.
On 25 February 2021, COMPET held a policy debate on the public CbCR and the way forward on this proposal.
The policy debate was held as a videoconference and no voting took place during the public session. The aim was to give the floor to each Member State to express points of views on the latest text of the public CbCR proposal.
Overall, the debate resulted in political support for the proposal by a qualified majority of Member States. A qualified majority results if more than 14 Member States are supporting the proposal representing more than 65% of the Member States. Austria and Slovenia, who were against the proposal in 2019, have now reversed their position in favor of the proposal and expressed their support. Also, while there was disagreement on the legal basis by some Member States, most of them explicitly supported the content and objective of the proposal and the importance of transparency in the EU. During the debate, some Member States urged the Council Presidency to take note that this proposal, if adopted, should not be used as a precedent for proposals in tax matters to be adopted through QMV in the future.
The EU is currently also reviewing its Non-Financial Reporting Directive (NFRD)2 and the Commission is expected to put forward proposals for the expansion of this Directive in the coming months. Given that the widely used voluntary Non-Financial Reporting Standard by the Global Reporting Initiative (GRI) since 2019 includes tax reporting as part of the standard, including a form of CbCR, tax reporting may also be considered in this context. It is not clear yet whether the proposal on the NFRD and the public CbCR proposal will be brought together at some stage or will be developed separately.
The proposal will move forward to the decision-making phase at the EU ambassadors level which will then be followed by negotiations between the Council and Parliament for adoption. The future is still uncertain because there are several bases on which Member States or the Parliament can reject the current proposal aside from the legal basis. However, the broad support by Member States during the COMPET meeting should be seen as a relevant step forward. Furthermore, the Portuguese EU Presidency and the European Parliament will continue to push for swift adoption of the draft directive.
Despite the disagreement on the legal basis, the broad support on the content of the proposal that was expressed during the policy debate illustrates that tax and financial transparency is at the very top of the agenda of the EU. If adopted, the proposal will have a significant impact on all large businesses with a footprint in the EU. Moreover, it may come on top of other new reporting obligations that may result from the revision of the EU NFRD.
As the public CbCR proposal moves to the next legislative phase, things may move rapidly. Companies should therefore closely monitor the progress on the adoption process and developments related to this topic.
For additional information with respect to this Alert, please contact the following:
EY Société d’Avocats, Paris
- Jean-Pierre Lieb
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
- Klaus von Brocke
Ernst & Young Belastingadviseurs LLP, Amsterdam
- Konstantina Tsilimigka
Ernst & Young Belastingadviseurs LLP, Rotterdam
- Ronald van den Brekel
- Marlies de Ruiter
- Maikel Evers
Ernst & Young LLP (United States), Global Tax Desk Network, New York
- Jose A. (Jano) Bustos
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
See EY Global Tax Alert, EU: Public CbCR fails to move forward in latest European vote, dated 4 December 2019.
Directive 2014/95/EU, see legislative train schedule of the Review of the Non-Financial Reporting Directive, https://www.europarl.europa.eu/legislative-train/theme-a-european-green-deal/file-review-of-the-non-financial-reporting-directive.