11th March 2016

Council approves country-by-country reporting of profits by multinationals

On 8 March, finance ministers of the EU reached the required unanimity to adopt mandatory country-by-country reporting of tax-related data by multinationals doing business in the EU. As of fiscal year 2016, multinationals based in the EU (or their EU-based subsidiaries if the mother company is seated in a third jurisdiction) will have to report their profits or losses, amount of taxes paid, number of employees and other data to the tax authorities in every EU state they do business in (this will apply to multinationals from third countries with activities in the EU from 2017). The tax authorities will automatically share the data. Country-by-country reporting of profits and paid taxes should make it easier for the taxmen to identify possible loopholes in tax legislations. Nowadays, large multinationals with activities in different jurisdictions are able to identify weak points of the jurisdictions´ legislations and design practices, such as transfer pricing, to lower their tax bases. Seeing tax data from all jurisdictions should easily point to suspicious activities. Country-by-country reporting was proposed last year also by the OECD. The piece of legislation agreed on by the Council was formally proposed by the Commission only two months ago.

Although in the tax area only the Council´s unanimous approval is required by EU law for the legislation to pass, the European Parliament must be allowed to express its opinion. The formal adoption will therefore only be possible once MEPs will have discussed the issue. The British minister also made his approval conditional on the British Parliament´s favorable opinion. Czech finance minister Andrej Babiš welcomed the agreement. Later this year, the Commission is expected to present a regulation making the country-by-country reports public – though this proposal is more controversial among member states.

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Members of the American Chamber of Commerce in the Czech Republic