Council of the
European Union
Brussels, 14 April 2016
(OR. en)
7949/16
ADD 2
DRS 6
COMPET 156
ECOFIN 289
FISC 53
CODEC 461
COVER NOTE
From:
Secretary-General of the European Commission,
signed by Mr Jordi AYET PUIGARNAU, Director
date of receipt:
12 April 2016
To:
Mr Jeppe TRANHOLM-MIKKELSEN, Secretary-General of the Council of
the European Union
No. Cion doc.:
SWD(2016) 118 final
Subject:
COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY
OF THE IMPACT ASSESSMENT assessing the potential for further
transparency on income tax information Accompanying the document
Proposal for a Directive of the European Parliament and of the Council
amending Directive 2013/34/EU as regards disclosure of income tax
information by certain undertakings and branches
Delegations will find attached document SWD(2016) 118 final.
Encl.: SWD(2016) 118 final
7949/16 ADD 2
CDP/LM/vpl
DGG 3 B
EN
EUROPEAN
COMMISSION
Strasbourg, 12.4.2016
SWD(2016) 118 final
COMMISSION STAFF WORKING DOCUMENT
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
assessing the potential for further transparency on income tax information
Accompanying the document
Proposal for a Directive of the European Parliament and of the Council
amending Directive 2013/34/EU as regards disclosure of income tax information by
certain undertakings and branches
{COM(2016) 198 final}
{SWD(2016) 117 final}
EN
EN
link to page 3
Executive Summary Sheet
Impact assessment on further corporate transparency on income taxes
A. Need for action
Why? What is the problem being addressed? An environment of complex tax rules and fiscal secrecy has allowed some Multinational Enterprises (MNEs) to
engage in aggressive tax planning strategies. Unlike small and medium sized undertakings (SMEs) or individual
taxpayers, MNEs are capable of taking advantage of loopholes in domestic and international tax laws enabling
them to shift profits from one country to the next in order to reduce their tax bil . It is estimated that countries in
the EU lose EUR 50-70 bil ion each year to tax avoidance by MNEs. Recent reports have disclosed the low
amount of taxes paid by certain MNEs putting into question the overall efficiency and fairness of the tax systems
in the EU.
At international level, the G20 has endorsed the OECD/BEPS initiative which was subsequently implemented in
the EU through the Anti-Tax Avoidance Package (ATAP).
1 This initiative requires disclosure of CBCR
information to tax authorities only with the aim to ensure further compliance of MNEs with national tax laws.
The lack of public scrutiny has been identified as the problem to be addressed. Public scrutiny through greater
transparency by MNEs would be an additional tool enabling to fight base erosion and profit shifting, building on
reputational effects and democratic debates.
What is this initiative expected to achieve? The over-arching objective of this initiative is to achieve further public transparency on corporate income taxes
by ways of a country-by-country reporting (CBCR) to be published by MNEs. By promoting greater disclosure of
tax-related information, the initiative seeks 1) to geographically align corporate income taxes with actual
economic activity; 2) to foster corporate responsibility to contribute to welfare through taxes, and 3) to promote
fairer tax competition in the EU through an informed democratic debate on how to remedy market and regulatory
shortcomings.
What is the value added of action at the EU level? Due to the cross-border nature of many of the tax practices, activities and arrangements available to MNE
groups, national legislation may not be sufficient to address the challenges associated with base erosion and
profit shifting.
B. Solutions
What legislative and non-legislative policy options have been considered? Is there a preferred
choice or not? Why?
Different policy options have been considered from a labelling system to which MNEs could voluntarily subscribe
to mandatory reporting systems. Key questions examined by the Commission were as follows: should a public
CBCR cover EU-controlled operations or all operations worldwide? Should the information reported be broken
down only for EU Member States or also for third-countries? What should be the scope of coverage: large
companies (at least 20,000 EU groups) or only very large companies (at least 1,900 EU groups / 6,500 groups
worldwide)? Finally, should the information disclosed be limited to basic information (income tax paid, income tax
accrued) or also cover contextual information (turnover, profit before tax, and number of employees)?
The preferred option, which is the result of this impact assessment, is that mandatory public CBCR should be
prepared by all EU and non-EU MNEs with activities in the EU and a consolidated turnover above EUR 750
mil ion. The information should be broken down by EU Member State and aggregated for the rest of the world.
The type of information to be disclosed would include income tax paid and accrued as well as other contextual
information: the nature of the activities, turnover, number of employees, profit before tax. This option could well
coexist with international initiatives such as the OECD BEPS scheme transposed in the EU through the Anti-Tax
Avoidance Package (ATAP). The preferred option responds to stakeholders' concerns about the distortions in
1
European Commissi
on, Anti-Tax Avoidance Package, 28 January 2016. This package proposes inter
alia to revise the Directive on Administrative Cooperation to include a country-by-country reporting to
be exchanged between Member States' tax authorities on key tax-related information submitted by
MNEs
2
the single market without compromising EU competitiveness, causing undue administrative burden or generating
further tax conflicts and the risk of double taxation.
Who supports which option?
NGOs and other civil society organisations support a public CBCR as far reaching as possible in terms of
information provided and details per country. In their view, monitoring tax practices would promote corporate and
social responsibility, strengthen the democratic process and perhaps encourage MNEs to reallocate their tax
bases in a fairer way.
Businesses are concerned about the risks of unilaterally disclosing sensitive information to competitors,
administrative burden and double taxation risks. Most of them call for CBCR to remain available only to tax
authorities under the G20/OECD BEPS scheme.
C. Impacts of the preferred option
What are the benefits of the preferred option? Significant societal benefits and some positive economic impacts are expected from the preferred option. It wil
indeed respond to increased demand for transparency in the tax affairs of MNE groups. It could also contribute
to increasing public trust in the fairness of the tax systems.
Furthermore, public transparency would enhance companies' corporate responsibility by making public their tax
contribution to local welfare. In this way this may incentivize companies to pay tax where they actually make
profits. Finally, through a more informed democratic debate, the initiative would contribute to promoting fairer tax
competition in the EU.
Further corporate tax transparency is not expected to have a significant impact on growth and jobs in the EU.
What are the costs of the preferred option? In terms of economic impact, the preferred option infers no significant costs nor any administrative burden as
very large MNE groups wil have to submit a CBCR to tax authorities pursuant to the recent revision of the
Administrative Cooperation Directive. MNEs would be able to prepare their public CBCR on the basis of these
submissions. With this initiative all very MNE groups would have the same disclosure requirement whether they
are established in the EU or in a third-country. The competitiveness of MNEs would therefore not be affected.
The risk of generating further tax conflicts and double taxation with a CBCR that any tax authority can freely use
would be limited as tax information would only be broken down within the EU where more efficient dispute
resolution mechanisms are in place. This initiative is not expected to have negative social or environmental
impacts.
How will businesses, SMEs and micro-enterprises be affected? The measure targets only MNEs that are the best equipped to engage into tax planning activities, that is
enterprises whose consolidated turnover exceeds EUR 750 million.
In order to cover MNEs which are established in a third country, certain of their subsidiaries or branches in the
EU wil nevertheless have new obligations. These are the medium-sized and large subsidiaries, or alternatively
branches of a comparable size. They wil have the duty of publishing in the EU the CBCR drawn up by their
ultimate parent. Alternatively, an option is foreseen to enable a non-EU MNEs to designate one EU subsidiary or
branch which wil have the duty to publish the CBCR.
Will there be significant impacts on national budgets and administrations?
An impact on the amount of income tax paid by MNEs is uncertain but this initiative wil deliver additional
incentives for MNEs to pay tax where they actually make profit. Furthermore, public scrutiny wil enable a better
informed democratic debate on the causes and consequences of aggressive tax planning which could prevent
mismatches, loopholes and harmful tax measures.
Will there be other significant impacts?
No – none expected.
D. Follow up
When will the policy be reviewed? The Commission will monitor implementation of the policy in cooperation with Member States. The first
evaluations should be carried out a few years after companies have begun to publish their country-by-country
reports. Findings could form the basis of a report communicated to Parliament and the Council in due time.
3