EU rules: do they really force greater tax transparency on multinational companies?

EU rules: do they really force greater tax transparency on multinational companies?

In May, the Bundestag – implementing a European Union directive – passed requiring large companies operating in Germany to publish their taxes and profits in detail in the future. This specifically applies to large companies with an annual consolidated turnover of more than 750 million euros, and they will have to submit a report detailing their profits and the taxes paid on them in EU member states. According to estimates, 500-600 large companies in Germany may be affected by the new law passed in the lower house of the federal parliament, and one of the basic goals of the federal legislator is to be able to recognize when large companies "shift" their profits to low-tax countries. In addition, the regulation also stipulates that the European Commission provides individual companies with so-called they must also disclose their profits and taxes for countries on their gray or black list.

In Germany, therefore, a law will require that large international companies with a consolidated annual turnover of more than 750 million euros worldwide must publish their tax information: among other things, profits, sales, number of employees and tax payments must be broken down and published by country. The income tax information report will not only appear in the company registers, but will also be publicly available on the company's website for at least 5 years. Violations are subject to fines of up to 250,000 euros.

According to the government's point of view, this is about the issue of fair competition. According to estimates, the profit shifting and aggressive tax avoidance of multinational companies causes a serious loss of tax revenue (tax loss) for Germany: it is difficult to estimate the amount, but it amounts to between 5.7 billion and almost 20 billion euros annually. This value actually corresponds to a third of the total income from corporate tax, which is a significant proportion. an example : Amazon, just like small ("corner") bookstores, must contribute to the fulfillment of social goals, i.e. financial and socio-political goals.

On January 28, 2016, the European Commission submitted its proposal for an EU anti-tax avoidance directive as part of the anti-tax avoidance package, and on June 20, 2016, the Council adopted Regulation (EU) 2016 on establishing rules against tax avoidance practices directly affecting the functioning of the internal market /1164 directive. Subsequently, in order to provide a comprehensive framework for anti-abuse measures, the Commission presented its proposal on October 25, 2016, which supplements the existing rule on hybrid deviations. The aim of the latter was to prevent companies from exploiting national differences to avoid taxation.

The Anti-Tax Avoidance Directive contains several legally binding anti-abuse measures that all Member States must apply against general forms of "aggressive tax planning". This is how it regulates, for example, interest deduction, capital withdrawal taxation, and prescribes the so-called application of the transition clause (in the case of income from third countries), clarifies the taxable income of controlled foreign companies (CFCs), and formulates a number of general anti-abuse rules.

The essence of the 2016 regulation is to create a minimum level of protection against corporate tax evasion throughout the European Union, while at the same time it aims to provide and maintain a stable environment for companies. It stipulated that member states must apply these measures from January 1, 2019. The development of the comprehensive framework of the regulation progressed slowly, the European Parliament adopted its position in July 2017, and the process in the Council of Ministers dragged on, and the negotiations between the co-legislators did not begin until 2021. The interim agreement was reached in June 2021 between negotiators of the European Parliament and the Council, and sets out rules that oblige multinational companies with annual sales of more than €750 million and operating in more than one country and their subsidiaries to publish the amount of taxes they pay, and this includes making this information available on the Internet using a common template in an electronically readable format (this is intended to be enforced by the recently adopted German legislation).

The new rules do not oblige multinational companies to disclose their profits and taxes for every country in the world; in such a case, companies can continue to publish the aggregated data of non-EU member countries and those of states that are not on the EU list of , as well as states that are committed to tax reform. However, the EU negotiators have declared the position that the rules can be further tightened when the Commission carries out an impact assessment of the legislation at least four years after its implementation.

It is hoped that more information and better transparency can help the social discourse about the role of multinational companies, which is about whether these companies also contribute to the public good where they operate. Large international companies cannot deliberately underestimate their own profits and thereby gain an unfair competitive advantage over smaller ones or even at the expense of the population. In addition to the fact that the new obligations can promote better efficiency in the functioning of the markets, the new regulation - and the German law adopted on the basis of it - are also about justice and the conditions of fairer competition, according to its creators. Then time and practice will decide whether all of this will be realized by the new regulation to be introduced, as a justice-equity aspect of the tax system - in addition to the principle of utilitarianism - also contributing to the practice of fairer public burden-bearing.