Tougher stance on EU country-by-country reporting

15 February 2017

Ken Almand

In April 2016 the EU Commission proposed the so-called 'EU Accounting Directive'. This directive was aimed at imposing stricter country-by-country reporting requirements for multinational enterprises ('MNEs') operating in the EU with consolidated annual turnover exceeding €750m. If implemented, the Directive would force MNEs over this threshold to publish detailed information including a breakdown of profits, taxes, number of employees and net turnover on a yearly basis, in each EU Member State in which they operate.

Last week, however, the European Parliament’s Committee on Economic and Monetary Affairs published suggested amendments to the Directive, which would considerably lower the reporting threshold for MNEs.

The key amendments to the proposed directive are:

  • EU-headquartered large groups, exceeding any two of €40 million consolidated net turnover, €20m gross balance sheet and 250 employees, must file a country-by-country report;
  • EU subsidiaries controlled by a non-EU headquartered parent, with a consolidated net turnover exceeding €40m, must file a country-by-country report; and
  • MNEs to provide the above information on their worldwide activities, not just for EU member states.

The EU’s Accounting Directive was originally expected to target some 6,000 MNEs in EU Member States, accounting for 90 per cent of EU corporate revenues. By lowering the threshold, the number of global businesses potentially brought into the scope of EU country-by-country reporting will increase significantly and thus impact on their compliance burden.

This seems to have gone under the radar so far, but this shift could have a significant impact on a much larger proportion of EU businesses, highlighting a much tougher stance on tax evasion and avoidance.

The EU views this Directive as a cost effective way of increasing global tax transparency, as well as a means to hold governments and MNEs to account. Whilst the EU is achieving its objective of targeting only the most sophisticated MNEs, such developments could punish less sophisticated enterprises that were not the original target.

The EU’s approach to tackling international tax evasion and tax avoidance continues to get tougher. However there is uncertainty whether these amendments will ever make law. Will EU Member States be prepared to risk alienating foreign enterprises investing in the EU, to increase transparency in the single market? Will more tax be collected by EU Member States as a result of reducing the thresholds? Only time will tell, but it’s definitely one to watch as the impact could be significant.

For more information please get in touch with Ken Almand or your usual RSM contact.

Related services