On 25 May 2016, the EU Economic and Financial Affairs Council (ECOFIN) approved the implementation of the Country-by-Country Reporting (CbCR) rules for multinational companies. However, the vote on the Anti-Tax Avoidance Directive (ATAD) proposal of the European Commission was postponed to the next council’s meeting, taking place on 17 June 2016.
The directive implementing the CbCR rules will execute Action 13 of the OECD’s BEPS project and is aimed at multinational groups having a total consolidated revenue of at least 750 million EUR. These multinationals will have to report certain detailed information on revenue, profits, taxes paid, capital, earnings, tangible assets, as well as the number of employees, beginning with tax year 2016. The council reemphasized that the main purpose of this directive is to put an end to multinationals exploiting the technicalities or mismatches between certain tax systems, thereby avoiding tax liability.
Another directive that was on the ECOFIN agenda was the Commission’s Anti-Tax Avoidance Directive, which had to be passed unanimously to take effect. According to the Dutch Minister of Finance, Jeroen Dijsselbloem, the so-called switchover clause and the wording implementing the Controlled Foreign Companies (CFC) rules of Action 3 of the BEPS project were the two stumbling stones for the directive to be passed.
With regard to the CFC rules, some member states are of the opinion that they should only apply to companies located outside the EU, whereas other member states would like the rules to be also applied to CFCs in other EU member states.
Also the switchover clause has faced some opposition, as it would entail that each member state would have to adopt a rule whereby dividends and capital gains from companies in low-tax jurisdictions should not be exempt but should be taxed with a credit given for any overseas tax paid. Most Member States however provide exemptions for dividend income and capitals gains derived from the sale of qualifying shareholdings. The directive as it was proposed would define a low-tax jurisdiction as a jurisdiction imposing a tax that is lower than 40% of the rate in the relevant Member State.
The Dutch Minister Dijsselbloem further stated that he is nonetheless confident that an agreement will be reached during the June ECOFIN council. After such an agreement, Member States will still have to transpose the directive into their own national legislations.
Pierre Moscovici, the EU Tax Commissioner who introduced the package of measures including the ATAD and the CbCR Directives in January, tried to reassure the opposing ministers, stating that there will be no minimum taxation rate, as corporate income tax is and will remain a national competency.
For our previous coverage on (EU) CbCR, we refer to the following link.
It is imperative that organisations can comply with the detailed data requests and act now to assess the risks linked to the data to be disclosed. For more insights on CbCR and to understand the implications for your organisation please contact Jonas Van de Gucht.