Agreement of the EU states: transparency obligation for large corporations

It’s about more transparency: In the future, large companies should disclose how much turnover and how much profit they make in which European country – and how much taxes they pay in each case.

Large corporations in the European Union with an annual turnover of more than 750 million euros will soon have to make public how much taxes they pay in each state. The EU governments approved a long controversial law intended to disclose corporate tax-saving models. The EU wants to ensure that international corporations based in Europe can no longer simply shift their profits to tax havens and avoid state taxes.

The so-called country-by-country reporting, i.e. country-specific reporting, is a consequence of the recent scandals surrounding tax-saving models, for example in Luxembourg. The deliberations dragged on for years because the necessary majority of the EU countries did not exist for a long time. Among other things, Germany was skeptical. In today’s vote, however, the federal government said yes. Sweden and Cyprus were against it. Abstentions came from the Czech Republic, Ireland, Luxembourg and Malta.

Corporations must provide comprehensive insight

According to the regulation, multinational companies with a worldwide turnover of more than 750 million euros must not only give the tax offices but also the public an insight into their books. This applies to both European and international companies based in the EU. In a country-specific report, they should publish, among other things, the net sales, profit before taxes and the income taxes actually paid. The number of employees and subsidiaries should also be made transparent.

The data should be broken down for all EU countries, as well as for the countries on the EU list for tax havens. This should give an insight into how tax saving models work. Some companies push their profits to countries with the lowest possible tax rates, even though they were not achieved there, in order to save taxes. This happens within the EU, but also worldwide.

Criticism from the economy – EU Parliament still has to agree

The industry is critical of the regulation and fears competitive disadvantages for European companies because the competition could use the data and draw conclusions about pricing policy, for example. The Green MEP and financial expert Sven Giegold, on the other hand, speaks of a milestone for more tax justice in Europe. The information obligation is a sharp sword against tax dumping and will make it more difficult for large corporations to play EU countries off against each other. Tax tricks are then hardly possible. “Country-specific tax transparency will reveal how great the damage caused by tax dumping is for the general public,” said Giegold.

Now the European Parliament still has to agree, but this is purely a matter of form. After that, the EU states have one and a half years to implement the directive into national law. In view of the resistance from some member states, Giegold fears that they could take legal action against the law before the European Court of Justice.