In a rapid succession since 2014, the EU has adopted several instruments enhancing tax transparency. Before Directive 2014/107/EU entered into force in January 2015, the European Union had already adopted a new Directive 2015/2376/EU. This Directive was adopted within seven months of the first proposal. This has now been followed by another proposal from 28 January 2016, COM(2016)025, on which member states were already able to agree a common position in less than two months, on 8 March 2016. This kind of progress is unheard of, especially in the field of taxation where unanimity is still applied and the national sensitivities are high.

Naturally, the Lux Leaks scandal is prompting member states to increase tax transparency, but the speed in which these instruments have been adopted begs the question: what is going on here?

The EU instruments to date have benefited from the work done in the context of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project. Increasing transparency over income and tax burden is one of the key actions in the fight against tax avoidance and the hiding of profits. Furthermore, the commission has adopted a step-by-step approach, whereby it is enticing member states to make inroads in this topic.

There are two aspects to the transparency, both of which are designed to increase the accountability of companies:

  1. exchange of information between tax authorities and;
  2. transparency towards the public at large.

The EU instruments adopted to date have concentrated on the first aspect, increasing the scope of the mandatory exchange of information between tax authorities. Directive 2014/107/EU provides for a mandatory automatic exchange of financial information as foreseen in the OECD global standard. Directive 2015/2376/EU will extend the mandatory automatic exchange of information between tax authorities to advance cross-border tax rulings and advance pricing arrangements.

The January 2016 proposal implements BEPS action number 13 and takes transparency further by requiring companies with a total consolidated group revenue above 750 million Euros to forward tax authorities Country-by-Country reports on their income and tax burden. This information will include: revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees. The aim is to provide useful information for tax administrations to enable better risk assessment and to ensure that national tax authorities are able to assess whether companies give them accurate information as to their taxable income and tax burden.

Despite the above proposals, the European Parliament is not impressed. It would like to see more ambitious proposals, including the exchange of all tax rulings, not just cross-border ones, and extending tax transparency into a larger sphere of companies including operations out of Europe. The current proposal is only set to apply to 10 – 15% of the companies operating in Europe, even if these groups hold 90% of the group revenues. There have been strong voices in Parliament which would like to make it obligatory for companies to make the information available to the public at large and not just the tax administrations, and that the reporting should also include activities outside Europe.

The commission has now tabled the first instrument on making the country-by-country reports public. According to the proposal published on 12 April 2016, the new instrument will apply only to those group entities which fall under the reporting obligation to the national authorities, i.e. those having above 750 million euro turn-over. Originally the commission had planned that companies be required to publish reports of their European activities only. However, following the Panama Papers, the commission has said that it will revise this and has now proposed an obligation to publish reports on all activities, Country-by-Country on European activities and aggregate figures for other jurisdictions.

Furthermore, the commission floated another surprise. The country-by-country reporting is not proposed under tax competences, but the commission is using Article 50 TFEU, free movement of establishment, as a legal basis for the new Directive. This introduces normal legislative procedure, including qualified majority voting and the Parliament as co-decision maker. If successful, this could help the Parliament to strong arm the member states to accept wider reporting obligations, including a larger number of companies and activities both within and outside the EU.

Without the Panama Papers revelations it would have been doubtful whether member states had more appetite for another proposal. The BEPS transparency measures had been implemented by previous instruments and requiring companies to publicly report their activities is a politically controversial move. However, the revelations give more wind to the political sails in Brussels and give strong support to the parliament, NGOs and those member states in favour of public reporting requirements. Therefore, in the current atmosphere it is not unlikely at all that we see these and maybe a few more transparency initiatives in Brussels.