Transparency – an important keystone of the Juncker Commission – aims at becoming European reality. However, in particular with respect to the taxation of companies and profits there is a huge gap between claim and reality; there is much more to be done. This week, two committees of the European Parliament voted on two significant Directive proposals. The preliminary voting results indeed seem to bring more transparency; unfortunately, however, only at a corporate level and not for everyone of us.
A fair and efficient tax system is an important keystone of a functioning single market and an issue, which calls for EU-wide solutions. It has to be ensured that companies pay taxes where they generate their profits and simultaneously that nobody has to pay their taxes on the same profit twice.
The directive proposal on country-by-country reporting by large companies provides for the creation of more transparency with regard to generated profits, as it is intended to reveal where too little tax is paid on the basis of the exploitation of complicated international structures and loopholes. On June 12, the competent Committee on Economic and Monetary Affairs and the Legal Affairs Committee voted on this report. The preliminary adopted version thereof provides for a mandatory country-by-country disclosure for multinational companies starting at a minimum net turnover of 750 million euro for all countries – both inside and outside the EU, in which they are active. A lower threshold value of 40 million euro turnover that would have covered a far greater proportion of multinational companies, and simultaneously excluded small and medium-sized companies could not be established.
Instead, at the request of Conservative and Liberal parties an exemption was included in the report – companies may not be obliged to disclose their financial details in case of economically sensitive data, perceived as such on behalf of the companies themselves, if they notify the authorities and get their approval. Hence, global companies are able - “in agreement with governments to escape transparency for an unlimited period of time”, as the Austrian MEP Evelyn Regner as the competent rapporteur states with regret. Hence the draft report does realise the claim to make disclosed data accessible to all and to create genuine transparency beyond tax authorities. Small and medium-sized companies, which pay their fair tax share are not sufficiently considered by the proposal. Instead, new loopholes for large companies such as Amazon, Starbucks and Co have been created for a legal reduction of their tax burden. However, this version is not final yet: the plenary vote of the European Parliament has been scheduled for July 5.
In contrast to external transparency, the signs for more transparency from a company's perspective are positive. In this case, a directive proposal on double taxation dispute resolution mechanisms has been adopted in the European Parliament's Committee on Economic and Monetary Affairs, which will be debated in the plenary on July 4. In concrete terms it is the objective of the proposal to make it easier for multinational companies to get their double-taxed profits refunded. Until now, this kind of disputes were settled at bilateral, hence inter-state level. The fact that companies are active in several countries should not put them at a disadvantage. The newly adopted dispute resolution mechanism is intended to give companies an insight into provided dispute resolution proceedings by the means of fixed deadlines and a uniform structure, thereby creating both transparency and security. This proposal would also be important with regard to the currently debated proposal on a common consolidated corporate tax base, as the Commission proposals points out. In a first step, this directive only provides for a common tax base, before it will finally result in a consolidated account, hence a division of the taxable amounts between all Member States, in which a company is active.
Companies should definitely not pay more taxes, than they are required to. According to the competent rapporteur Michael Theurer of the ALDE Group the current amount of pending bilateral double taxation dispute settlement proceedings is currently about 10.5 billion euro. However, at the same time, it is difficult to persuade companies to contribute their fair share to government tax revenue. According to conservative estimates, lost government tax revenue amounts to more than 100 billion euro and thus to far larger amounts, which would be urgently needed in the healthcare, employment, education and care sector. Thus, whilst an attempt is made at European level to provide companies with legal certainty in case of double taxation, genuine tax transparency is still not on the cards.
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