Introduction
Abusive tax planning by transnational enterprises is a global problem. A major part of global cross-border trade happens between related parties in a transnational enterprise and almost 1/3 of global corporate investment stocks passes through offshore investment hubs.[1] This type of trade is susceptible to abusive exploitation of gaps and loopholes in domestic and international tax law that allow for ‘profit shifting’ from country to country, with the intention of reducing the taxes paid on profits.
A lack of transparency makes this kind of tax planning difficult to quantify. Enhancing transparency in the way transnational enterprises report and publish their accounts, would help tackle tax avoidance at very low cost.
Despite publishing their accounts as if they are unified entities, transnational enterprises are not taxed in this way. Each business entity within the transnational enterprise is taxed individually, making it difficult to establish an overview of what is happening within a group of companies for tax purposes. This would be different if reporting was done on a ‘country-by-country’ basis.
The European Parliament’s JURI committee is currently discussing a compromise proposal that would bring an existing country by country reporting (CBCR) obligation for large financial institutions to transnational enterprises in all sectors. This measure would require companies that qualify under the criteria to report yearly and on a consolidated basis on the following items, among others: 1. the name(s) and nature of their activities in each jurisdiction where they operate, 2. the turnover, 3. profit or loss before tax, 4. tax on profit or loss, 5. number of employees and 6. public subsidies received.
If adopted, this measure would strengthen efforts by tax authorities, investors, journalists and concerned citizens around the world to better assess the risks related to tax payments, world trade flows, corporate governance, and even corrupt practices of transnational enterprises. However, the political debate on this issue has made it clear that MEPs and other stakeholders have a number of outstanding questions, and we address a range of those in this briefing.
