The European Commission is seeking greater corporate tax transparency by introducing public reporting requirements for the largest companies operating in the European Union.

The EU’s fight against corporate tax avoidance began long before the revelation of the Panama Papers, which thrust into the spotlight once-hidden connections to the shadowy world of shell companies, offshore tax shelters, and secret trusts. “The recent press investigations, known as the Panama Papers, confirm once again the importance of this agenda,” the European Commission said.

The proposal builds on the European Commission’s work to tackle corporate tax avoidance in Europe, estimated to cost EU countries as much as EUR 70 billion a year in lost tax revenues. Supplementing other proposals to introduce sharing of information between tax authorities, it would require large multinational companies to disclose publicly the income tax they pay within the European Union, country by country.

Multinationals also would be asked to disclose how much tax they pay on the business they conduct outside the European Union. For those tax jurisdictions that do not abide by tax good governance standards (so-called tax havens), this information will need to be disclosed on a disaggregated basis.

Any multinational company that is currently active in the EU’s single market with a permanent presence in the European Union and that has a turnover in excess of EUR 750 million a year would have to comply with these additional transparency requirements. The same rules would apply to non-European multinationals doing business in Europe.

“The fight against tax avoidance is a key priority of this Commission,” Valdis Dombrovskis, vice president for the Euro and Social Dialogue, said in a statement. “Close cooperation between tax authorities must go hand in hand with public transparency.”

The proposal also provides for stronger transparency requirements for companies’ activities in countries which do not observe international standards for good governance in the area of taxation. The Commission said it will build on its External Tax Strategy with the aim of establishing the first common EU list of such tax jurisdictions “as rapidly as possible.”

The proposal would amend the Accounting Directive to ensure that large companies publish annually a report disclosing the profit and the tax accrued and paid in each member state on a country-by-country basis.

According to a fact sheet on the proposal, additional information that companies would need to disclose on a country-by-country basis to put the tax information into context include the:

Nature of the activities;

Number of employees;

Total net turnover made, which includes the turnover made with third parties as well as between companies within a group;

Profit made before tax;

Amount of income tax due in the country as a reason of the profits made in the current year in that country;

Amount of tax actually paid during that year; and

Accumulated earnings.

This information would have to be disclosed for every EU country in which a company is active, as well as for the so-called tax havens. Aggregate figures would also have to be provided for operations in other tax jurisdictions in the rest of the world.

Reporting should also include explanations on discrepancies between the amounts of income tax actually paid and income tax accrued.

This information would be made available in a stand-alone report accessible to the public for at least five years on the company’s website. Companies would also have to file the report with a business register in the EU.

This proposal for a Directive is now submitted to the European Parliament and the Council of the EU and the Commission hopes that this will be swiftly adopted in the co-decision process. Once adopted, the new Directive would have to be transposed into national legislation by all EU member states within one year after the entry in force.

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